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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

[X]		Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
		For the fiscal year ended May 31, 2002, 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 Number)
15700 Shoemaker Avenue, Santa Fe Springs, California (Address of principal executive offices)		90670 (Zip Code)

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

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act:

Common Stock, $.001 par value per share
(Title of Class)
Common Stock Purchase Rights
(Title of Class)

Indicate by check mark whether 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 reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]            No [    ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X].

The approximate aggregate market value of the Common Stock held by non-affiliates of registrant (computed based on the closing sales price of the Common Stock, as reported on the NASDAQ Stock Market on August 27, 2002), was $113,869,470.

The number of shares of registrant’s Common Stock outstanding at August 27, 2002, was 18,106,218.

Documents Incorporated By Reference:

Portions of registrant’s definitive Proxy Statement for its 2002 Annual Meeting of Stockholders are incorporated by reference into Part III of this report, and certain exhibits are incorporated by reference into Part IV of this report.

Table of Contents

VANS, INC.

FORM 10-K

For the Fiscal Year Ended May 31, 2002

TABLE OF CONTENTS

						PAGE NO.
Part I
				Item 1. Business			3
				Item 2. Properties			20
				Item 3. Legal Proceedings			21
				Item 4. Submission of Matters to a Vote of Security Holders			21
Part II
				Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters			22
				Item 6. Selected Financial Data			23
				Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
				Item 7A. Quantitative and Qualitative Disclosures About Market Risk			33
				Item 8. Financial Statements and Supplementary Data			35
				Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			54
Part III
				Item 10. Directors and Executive Officers of the Registrant			54
				Item 11. Executive Compensation			54
				Item 12. Security Ownership of Certain Beneficial Owners and Management			54
				Item 13. Certain Relationships and Related Transactions			54
Part IV
				Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K			54

     Note: “VANS,” Core Sports, the VANS Triple Crown Series, certain trademarks of events comprising the VANS Triple Crown Series, the names of our products, the VANS Warped Tour, the High Cascade Snowboard Camp, and Pro-Tec are our registered and common law trademarks in the U.S. and other jurisdictions.

     This report contains forward-looking statements about our business and financial information. Our actual results may vary significantly and could be impacted by a number of important factors, including but not limited to: (i) the ongoing consolidation of the retail segment of the footwear industry; (ii) the continuance of downward trends in the U.S. economy (including, particularly, California and the retail segment), foreign economies and the footwear industry, or the occurrence of events that adversely affect the world economy and the political stability of the world, such as the terrorist attacks against the United States which occurred on September 11, 2001; (iii) our ability to regain growth in our retail business; (iv) changes in the fashion preferences of our target customers and our ability to anticipate and respond to such changes; (v) increasing competition in all lines of our business from large, well-established companies with significant financial resources and brand recognition, niche competitors who market exclusively to our target customers, and from large public skateparks which compete with our skateparks; (vi) the cancellation of orders which could alter bookings numbers; (vii) the fluctuation of foreign currencies in relation to the U.S. dollar, including particularly, the impact of the euro and the British pound on our European business; (xviii) whether our current and future skateparks can perform profitably; and (ix) whether the Company’s expense reduction initiatives are achieved. Many of these factors, and others, are discussed more extensively in the Risk Factors section on page 14 of this report.

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ITEM 1. BUSINESS

INTRODUCTION

     Vans is a leading global sports and lifestyle company that merchandises, designs, sources and distributes VANS-branded active-casual and performance footwear, apparel and accessories for Core Sports. Core Sports, including skateboarding, snowboarding, surfing, wakeboarding, BMX riding 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 Core Sports culture. We have implemented a unique marketing plan to reach our customers through multiple points of contact which include Core Sports entertainment events and venues, such as the VANS Triple Crown Series, the VANS Warped Tour, VANS skateparks and the VANS High Cascade Snowboard Camp, sponsoring over 600 professional and amateur athletes, as well as advertising in targeted print and television media.

     We distribute our products through over 2,000 U.S. domestic wholesale accounts and 170 Vans retail stores and skateparks, internationally to approximately 50 countries, as well as on the Internet. Key accounts in the U.S. include Journeys, Pacific Sunwear, Footlocker, Famous Footwear, Kohl’s, Mervyn’s, JC Penney, Gart’s and Nordstrom. As of August 27, 2002, we had 97 Vans full-price retail stores, 54 outlet stores and 12 skateparks in the United States, and also operated seven outlet stores in Europe. Internationally we vary our marketing and distribution approach on a country-by-country basis, taking into account the particular cultural, economic and business conditions present in each international market. We have direct sales operations in key European markets, including, most recently, France, a licensing arrangement for Japan, Hong Kong, Taiwan and South Korea and distribution agreements for approximately 30 other countries.

     Vans was founded in 1966 in Southern California as a domestic manufacturer of vulcanized canvas shoes, many of which appealed to skateboard enthusiasts and the Southern California skate and surf culture. Our 36-year heritage has been the basis for our branding and marketing strategy over the past six years and helps provide us with the authenticity and credibility to be the leading brand with Core Sports enthusiasts, participants and emulators. For most of our first 30 years, we were a Southern California shoe manufacturer and based our products on one trademark gum rubber outsole. In 1995, we initiated a fundamental restructuring of the business which included assembling a new management team, focusing the business on reestablishing the heritage of the VANS brand and shifting product sourcing overseas to third party manufacturers, which allowed us to begin to be more innovative in terms of outsoles and overall design. Over the past three years, we have targeted significant resources to further build the VANS brand worldwide, promote the Core Sports lifestyle and enhance our product merchandising, design, sourcing and development.

FISCAL 2002 RESULTS

     In fiscal 2002, we experienced a decline in year-over-year revenues for the first time in eight years. Our business was adversely affected by the events of September 11, 2001, the general slowdown in business around the world and in California, which is our largest market, and the lower-than-expected performance of our back-to-school 2001 and Spring 2002 product lines, all of which resulted in decreases in U.S. wholesale sales and international sales year-over-year, of 11.1%, and 0.9%, respectively, and a comparable store sales decrease of 3.5% for our retail stores. In addition, we also were adversely impacted by decreased attendance and revenues at our skateparks in fiscal 2002. We believe this primarily resulted from increased competition from large, free public skateparks which are frequently located in close proximity to our skateparks.

     The above items had the following consequences in the fourth quarter of fiscal 2002: (i) we decided to close our Bakersfield, California skatepark in the next three to six months; (ii) we wrote down the assets of our Denver skatepark and our three poorest performing retail stores; (iii) we provided a specific provision for doubtful accounts on those amounts due from our joint ventures in Brazil, Argentina and Uruguay; and (iv) we wrote down slow-moving and obsolete inventory. We incurred pre-tax charges and expenses of $15.0 million in the fourth quarter in connection with these and other matters highlighted in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” See also the discussions under the caption “Risk Factors” regarding our skateparks, retail store sales, and U.S. wholesale sales.

     On a go-forward basis, we are focusing on several key areas of our business to improve our results of operations. These include (i) improving the selection and styling of our footwear product, with a particular emphasis on improving our women’s product, (ii)

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implementing cost-cutting measures on an organization-wide basis, (iii) improving performance at our skateparks by implementing changes designed to attract participants to the parks, broadening the product offering in the parks, selling sponsorship packages for the parks, and exploring the grant of vending rights at the parks, and (iv) improving the product selection and merchandising at our retail stores.

THE VANS STRATEGY

     Our overall strategy continues to be leveraging our 36-year heritage and our proprietary branding initiatives to become the leading Core Sports and lifestyle company for the youth market worldwide. Key elements of our strategy include:

     Building the Leading Core Sports and Lifestyle Brand Worldwide. Our primary strategy is to continue to build and reinforce the authenticity and credibility of the VANS brand with our core customer base of 10 to 24 year old Core Sports enthusiasts and the broader market of consumers that identify with the Core Sports lifestyle. To further enhance and strengthen the bond with our target market, we utilize multi-dimensional marketing tools aimed at creating an emotional connection between our customers and the VANS brand. The goal of these efforts is to establish a “Covenant with Youth” which underscores our commitment to the further promotion of the individuality and independence of the Core Sports lifestyle. We execute our brand building strategy in the following ways:

	•		We own, produce and sponsor Core Sports events and contests such as the VANS Triple Crown Series.
	•		We sponsor approximately 600 world class male and female Core Sports athletes to reinforce our brand as an authentic element of Core Sports.
	•		We create and operate entertainment venues such as our skateparks and our VANS High Cascade Snowboard Camp.
	•		We create unique brand building content such as the VANS Warped Tour and the movie Dogtown and Z-Boys to reinforce the authenticity of our brand and to further define it.
	•		We develop key relationships to further enhance our brand and our business such as our joint venture with Pacific Sunwear, sponsorship agreements for the VANS Triple Crown Series with other leading brands, including Mountain Dew, G-Shock, Microsoft/Xbox, Ford Ranger, Gillette, and TransWorld Media and media alliances with NBC Sports and Fox Sports Net for the broadcast of the VANS Triple Crown Series and other Core Sports events.
	•		We advertise and promote the VANS brand and Core Sports image through targeted advertising campaigns on television networks such as NBC, MTV, and Fox Sports Net , as well as in magazines such as TransWorld SKATEboarding, Thrasher, TransWorld SNOWboarding, Rolling Stone, Source, Maxim, Seventeen and Teen People.
	•		We market our products and brand image online at www.vans.com, which includes multimedia content along with our online store.
	•		We operate 97 full-price stores where our full footwear line is displayed.

     Designing and Developing a Strong and Appropriately Targeted Range of Products. We focus on the design and development of products that maintain the authenticity of the VANS brand while reflecting the current tastes and styles of our core customers. Our performance and casual footwear products incorporate distinctive outsoles, materials, fabrics, styles and colors and dependable construction designed to appeal to male and female Core Sports participants seeking performance footwear as well as the larger market of more mainstream consumers seeking footwear that represents youth, individuality and independence. We also seek to capitalize on the development of the VANS brand as an authentic Core Sports and active lifestyle brand to broaden our product offerings within our footwear line. In addition, through selective licensing of the VANS name and trademarks, we have strategically broadened our product offering to non-footwear categories, such as apparel and accessories, that appropriately represent the VANS brand image.

     Further Penetrating the Market Through our Multiple Channels of Distribution. We have developed a multi-faceted distribution system which provides the flexibility to adapt to particular markets and reach a broad range of customers. Our distribution system is comprised of the following:

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	•		Domestic Wholesale Sales. We distribute our products through over 2,000 domestic wholesale accounts.
	•		Retail Sales. Our full-price stores, outlets and skateparks are an integral component of our strategy for building the VANS brand and staying close to the trends and fashion interests of our customers.
	•		International Sales. We market and distribute our products on a country-by-country basis, taking into account the particular cultural, economic and business conditions present in each market. Our management is focused on realizing growth of our international sales primarily through the continued strengthening of our brand positioning and product merchandising and the growing overall awareness of our brand and Core Sports in the U.S. and abroad.
	•		Internet. We also offer our products online in the U.S. at www.vans.com. We believe the Internet is an important platform to increase the exposure of our brand and proprietary content worldwide.

     Leveraging our Management Team and Infrastructure. We have added significant experience and talent across all facets of our business including product marketing, sales, retail, international, operations, finance and information technology. In addition to furthering the leadership position of the VANS brand with our target customers, our management team has been increasingly focused on product merchandising and design as well as various operating initiatives to further enhance our performance.

     Capitalizing on the Value of our Entertainment Content. Integral to our success in building VANS as a premiere lifestyle brand has been our emphasis on the creation of unique entertainment content and properties which reinforce and further define our brand image.

     Selectively Pursuing Strategic Acquisitions and Alliances. We often evaluate potential strategic acquisitions and alliances in the ordinary course as a means to build upon or complement our current business strategy. We selectively identify acquisition candidates and strategic alliances that will enable us to capitalize on our established infrastructure and our knowledge of the youth market to enhance and expand our product, Core Sports and entertainment offerings. Past acquisitions include our acquisitions of Switch Manufacturing, the VANS High Cascade Snowboard Camp, and Vans Inc. Limited (our UK distributor). Past alliances include our joint venture with Pacific Sunwear to market and sell apparel. In fiscal 2002, we completed the acquisition of a majority interest in the VANS Warped Tour and acquired Mosa Extreme Sports, Inc., maker of “Pro-Tec” protective gear, and in June 2002 we acquired the business of Compagnie Sunspot, our sales agent for France. We also consider from time to time larger acquisitions or alliances which, if completed, could have a more significant impact on our overall business.

PROPRIETARY BRANDING

     Our current branding and marketing strategy is to develop unique content and properties and seek out diverse opportunities to reinforce our brand image as indicative of the lifestyle embraced by Core Sports participants, enthusiasts and emulators. Our efforts in this regard are focused on building and reinforcing the authenticity and credibility of the VANS brand with our core customer base of 10 to 24 year olds. We are currently exploring potential strategic alliances with third parties to assist us in recognizing the growth opportunities which may be realized by the properties discussed below.

Ownership, Production and Sponsorship of Core Sports Events

     The identification of our brand with Core Sports and its lifestyle is most clearly established through our ownership, production and sponsorship of Core Sports events. While our most well known events are those that collectively make up the VANS Triple Crown Series, we are also active in the sponsorship and promotion of other Core Sports contests, events and leagues.

     The VANS Triple Crown Series. The VANS Triple Crown Series is a series of three major events in each of six Core Sports. We own and produce a majority of these events and we are the exclusive title sponsor of the remainder. The VANS Triple Crown Series is currently comprised of the following:

	•		The VANS Triple Crown of Skateboarding
	•		The VANS Triple Crown of Surfing
	•		The VANS Triple Crown of Snowboarding

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	•		The VANS Triple Crown of Wakeboarding
	•		The VANS Triple Crown of Freestyle Motocross
	•		The VANS Triple Crown of BMX

     These events feature top worldwide athletes, many of whom we sponsor, competing in sanctioned contests at venues around the United States and Canada. The VANS Triple Crown Series includes skateboarding, surfing, snowboarding and wakeboarding events and is televised on the NBC and Fox Sports Net networks. The popularity and prestige of the VANS Triple Crown Series events also enables us to associate our brands with other top brands who sponsor these events, and are focused on our customer base, including Mountain Dew, G-Shock, Gillette, Ford Ranger and Microsoft/Xbox.

     Other Core Sports Events. In addition to the VANS Triple Crown Series, we produce and sponsor other popular Core Sports contests, events and leagues. In particular, we sponsor the VANS World Amateur Skateboarding Championships, the VANS Surfing Airshow Series, the Mt. Baker Banked Slalom snowboard race, the National Bike League and the American Bike Association. We believe our association with these events and organizations has been a critical aspect of solidifying the VANS brand as an authentic element of the Core Sports lifestyle.

Sponsorship of World Class Core Sports Athletes

     The approximately 600 professional and amateur athletes that we sponsor participate in a wide variety of Core Sports, including skateboarding, snowboarding, surfing, wakeboarding, freestyle motocross, supercross, BMX riding and mountain biking. We seek out the top male and female athletes in these categories for sponsorship because of the positive association with the VANS brand image created by their success and because of their influence on the tastes, trends and fashions prevalent in the Core Sports lifestyle. Included among our featured premier athletes are the following:

	•		Geoff Rowley: Thrasher magazine’s 2000 Skater of the Year
	•		Bastien Salabanzi: 2001 and 2002 World Cup and World Champion Street Skater
	•		Steve Caballero: According to Thrasher magazine, “likely to be looked upon as the greatest skater of the last century"
	•		Tara Dakides: 2001 VANS Triple Crown of Snowboarding and X-Games Big Air Snowboarding Champion
	•		Danny Kass: Winner of a silver medal at the 2002 Winter Olympics
	•		Carey Hart: the first athlete to ever successfully complete a back flip on a motorcycle in competition
	•		Serena Brooke: a top female surfer
	•		Cory “Nasty” Nastazio: The 2000 “King of Dirt” champion
	•		Rick Thorne: a top BMX rider

     We support our athlete endorsements with advertising and the distribution of posters , all featuring our sponsored athletes. Our sponsored athletes aid in the design of our products, make promotional appearances, wear our products exclusively and increase overall consumer awareness of the VANS brand.

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Creation and Operation of Entertainment Venues

     We have developed unique venues for the promotion of and participation in Core Sports that, in addition to providing us with alternative sources of revenue, are important tools for reinforcing the authenticity of the VANS brand and its relationship to the Core Sports lifestyle.

     Skateparks. We currently operate 12 large-scale skateparks, including four in California, one at Potomac Mills in Virginia, one in Houston, Texas, one in Moorestown, New Jersey, outside of Philadelphia, one in Westminster, Colorado, outside of Denver, one in Phoenix, Arizona, one in Orlando, Florida, one in Atlanta, Georgia, and one in Novi, Michigan, outside Detroit. As discussed previously under the caption “Fiscal 2002 Results,” due to decreased attendance and revenues at our skateparks in fiscal 2002, we plan to close our poorest performing park, located in Bakersfield, California, in the next three to six months, and we wrote-down the fixed assets of our Denver skatepark in the fourth quarter of fiscal 2002. We plan to open one skatepark in calendar year 2003 in Sacramento, California.

     Our skateparks average approximately 43,000 square feet and each features world-class skateboarding facilities, including vertical ramps, mini-ramps and street courses, as well as a retail store and a pro shop. In addition, most of our skateparks include empty swimming pools suitable for skating. Our Ontario, California skatepark also includes a 15,000 square foot BMX dirt course. In addition to creating a unique venue for our core customers to participate in these activities and furthering the goodwill of our brand name within this group, our skateparks play a valuable role in building our brand among the significant number of people who visit the facilities to watch the participants as well as to shop in the attached retail stores and pro shops. We are exploring various ways of leveraging the value created by our skateparks, such as selling sponsorships, subleasing space for food and beverage vendors, and creating summer skate camps.

     VANS High Cascade Snowboard Camp. We own and operate the VANS High Cascade Snowboard Camp, the top summer snowboard destination in North America, located at the base of Mt. Hood in Oregon. Participants in the seven and ten day camp sessions enjoy state of the art snowboarding facilities and receive instruction from top snowboard coaches. When not snowboarding, campers may use other recreational facilities and have the opportunity to go wakeboarding and skateboarding. In fiscal 2002, we began operating skate camps at High Cascade.

Creation of Unique Brand Building Content

     Our branding strategy is furthered by our efforts to create content that emphasizes the lifestyle appealing to our targeted customer base of 10 to 24 year old Core Sports participants, enthusiasts and emulators. In addition to creating a positive association between the VANS brand and this lifestyle, we believe these properties actually serve to further define the more appealing aspects of this lifestyle to our targeted customers. The uniqueness of this content also provides us with an opportunity to utilize it beyond brand building and capitalize on its intrinsic entertainment value.

     The VANS Warped Tour. In June 2001, we entered into an agreement to acquire majority ownership of the VANS Warped Tour, a traveling lifestyle, music and sports festival that visits top young adult markets throughout the world. The acquisition was completed in February 2002. Prior to the acquisition we had been the exclusive title sponsor of the Tour for six years. The 2002 VANS Warped Tour visited 47 U.S. and Canadian cities and had approximately 500,000 attendees. Included among the activities featured on the Tour are skateboarding and BMX demonstrations, vendor booths, video games, prize giveaways and performances by top alternative music bands. The 2002 VANS Warped Tour featured such popular bands as NOFX, AFI, Mighty Mighty Bosstones, Bad Religion and New Found Glory. Also featured is an amateur skateboarding competition in selected locations, with the winners being invited to participate at the VANS World Amateur Skateboarding Championships.

     “Off the Wall” Productions. In order to identify opportunities to further our brand strategy through the creation of proprietary branded content, we have established a production group known as “Off the Wall” Productions. In addition to producing the media content for the VANS Triple Crown Series and certain other Core Sports events, we financed and obtained the copyright to Dogtown and Z-Boys, a feature length documentary on the history of modern skateboarding, which won the Audience Favorite and Best Director Awards at the 2001 Sundance Film Festival and the 2002 Independent Spirit Award as Best Documentary, among other awards. Dogtown and Z-Boys was released theatrically in the United States to critical acclaim in April 2002. The DVD for the film was released by Columbia TriStar home video in August 2002, and the soundtrack was released by Universal Records in July 2002. We have also provided the financing for an animated television series entitled The Loonatic which chronicles the adventures of a free-spirited youth and his companions.

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Developing Key Relationships to Further Enhance our Brand

     We seek to enhance our own brand building activities by establishing relationships with key partners that further reinforce the VANS brand image and increase exposure for our brand and products globally. Our key strategic relationships cover a diverse range of brand building activities, including the following:

     Apparel Joint Venture. In an effort to extend our brand image and product line beyond footwear, we have entered into a joint venture with Pacific Sunwear to develop, market and sell apparel and accessories utilizing the VANS brand. In addition to providing an excellent channel of distribution for VANS-branded products, this venture allows us to associate our brand with a premier retailer of clothing and apparel that targets our core 10 to 24 year old customers.

     Sponsorship of VANS Triple Crown Series Events. Over the last four years we have signed and renewed sponsorship agreements for the VANS Triple Crown Series with a number of leading brands, including Mountain Dew, G-Shock, Ford Ranger, Gillette and Microsoft/Xbox. The sponsorship agreements with these brands not only help to finance and expand the VANS Triple Crown Series, but also provide valuable cross-promotion opportunities with brands that we believe enable us to further connect with our core customers.

     Media Distribution Alliances. We have alliances with media outlets to further the exposure of our brand and products. We have agreements with NBC Sports and Fox Sports Net to provide for the broadcast of the VANS Triple Crown Series and other VANS-sponsored Core Sports. We believe these agreements further the prestige of these events and make them more attractive for syndication outside the United States.

     Artist Relations. We build the VANS brand through product placement with key artists in the music, television and motion picture industries. For example, VANS-branded product, events and venues were prominently featured in the recent movies XXX and Blue Crush, and MTV recently aired an episode of its television series Jammed, featuring the Red Hot Chili Peppers in a performance at our Orange, California skatepark. We leverage these relationships through promotional tie-ins throughout our distribution network, such as in-store promotions and e-mail campaigns through our website.

Targeted Advertising and Promotion

     We seek to further enhance the VANS brand and Core Sports image through targeted mainstream advertising campaigns. These campaigns, which typically depict youthful, contemporary lifestyles and attitudes, are currently carried on television networks such as MTV, Comedy Central, NBC, and Fox Sports Net, and are also featured in magazines that appeal to our target demographic, including TransWorld SKATEboarding, Thrasher, TransWorld SNOWboarding, Source, Maxim, Seventeen and Teen People. We develop much of our advertising in-house, which allows us to control our creative messaging as well as our costs so that we can most efficiently utilize this means of brand promotion.

     Additionally, although we have traditionally focused on promoting the VANS brand and image without emphasizing individual products, we have begun, in selected cases, to focus promotional activities on the introduction of new styles or products.

Online Marketing

     In addition to providing an additional distribution channel for the sale of our products in the U.S., our website at www.vans.com provides an alternative forum for us to further our marketing and branding strategy. Our website includes product photos, live video feeds from our skateparks and Core Sports events, photos, profiles of and interviews with our sponsored athletes, information on our sponsored events, and our history.

PRODUCT DESIGN AND DEVELOPMENT

     From our inception in 1966 through the mid-1990’s, our production capacity was limited to our domestic manufacturing facilities and our product design was limited to vulcanized canvas shoes featuring a single form of gum rubber outsole. In 1995, we shifted our manufacturing focus from our domestic facilities to sourcing our products through an agent in South Korea, which allowed us to incorporate a new “cupsole” type of shoe and increase the breadth of our shoe products. We have established an office in Hong Kong to oversee our production, and that office implemented direct sourcing from third party manufacturers in China and the Philippines in order to further capitalize on the strength of our brand with a stronger assortment of product.

     Our team of footwear merchandisers focuses on the design and development of products that maintain the authenticity of our brand while reflecting the current tastes and styles of core customers. Our merchandising professionals monitor styles prevalent in

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worldwide youth culture, including areas such as Core Sports, alternative music, television, clothing and movies to guide our designers. Integral to the design and development of our products is the input and feedback of our sponsored athletes, who assist in developing the technical features and styles of our products, and our retailers who provide feedback to help us remain in touch with the tastes and preferences of our target market. We also, from time to time, contract with third-party designers to supplement our in-house design group.

PRODUCTS

Men’s Footwear

     We segment our men’s footwear products through three categories of retail stores: independent skate and surf shops, mall-based specialty lifestyle stores, and family shoe, department, and specialty athletic and sporting goods stores.

     Independent Skate and Surf Shops. These stores cater to Core Sports participants and primarily carry our “Pro,” “Signature” and “Classics” shoe lines. Our Pro and Signature models are designed with specific features for skateboarding and contain more variations in material and more advanced technical performance features. Pro and Signature models are endorsed by some of the world’s top skaters, including Geoff Rowley, Steve Caballero, Omar Hassan, John Cardiel, Bastien Salabanzi, Dustin Dollin, Jim Greco, and Tony Trujillo and include such shoes as the Rowley XLT, the Cardiel 2, the Swindle, the Thunders, the Bastien Pro and the TNT. The Classics shoe line features our traditional vulcanized canvas and suede shoes and includes the Classic Slip-On, Authentic, Old Skool and Sk8-Hi.

     Mall-based Specialty Lifestyle Stores. Stores such as Journeys, Pacific Sunwear, Tilly’s, Gadzooks and Zumiez carry a cross-section of our products, including Signature and athlete-endorsed models, Classics, other lifestyle footwear, such as sandals, and some of our “Performance” shoes. Performance shoes are those which are designed for mainstream skate and lifestyle consumers. Performance shoes carried by these stores include the Nova and TNT.

     Family Shoe Stores, Department Stores and Specialty Athletic and Sporting Goods Stores. Stores such as Kohl’s, Mervyn’s, Famous Footwear, Footlocker, Foot Action and Finish Line carry our Performance line, including such shoes as the Delta, Richmond, Ashland and Maverick.

Women’s Footwear

     We market and sell our women’s footwear products through the same types of stores as our men’s footwear products. Our women’s footwear products include skate-influenced performance footwear, California lifestyle footwear, Classics and sandals. Many of these products incorporate fundamental features of our traditional men’s skate shoes with fashion-conscious detailing, colors and fabrics, such as suede, leather and canvas. Some of our women’s shoes include the Cara-Beth IV (the fourth generation of the first women’s signature skate shoe), the Upland Mule, Ashland, Westend and Mannaz. Many of our women’s shoes are endorsed by top Core Sports female athletes, including Tara Dakides, Serena Brooke and Cara-Beth Burnside.

Children’s Footwear

     We offer a variety of boys’ casual footwear based upon the styles of our men’s Signature and Performance lines, as well as Classics. These shoes include the Rowley XLT, Nova and TNT. We have also expanded our children’s line to include young girls’ shoes which are based upon the styles of our women’s line, including the Mannaz, Westend and Ashland.

Snowboard Boots; Step-in Bindings

     Our snowboard boot line is comprised of conventional strap-on boots and step-in boots which are designed to be compatible with the Switch Autolock step-in binding system. Our boots are endorsed by several world-class snowboarders, including Danny Kass (winner of a Silver Medal at the 2002 Winter Olympics), Tara Dakides, Daniel Franck (winner of a Silver Medal at the 1998 Winter Olympics), Temple Cummings, Kurt Wastell and Axel Pauporte. These riders work with our design and development team to create one of the most technically advanced lines in the market.

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     We also were the first company to introduce snowboard boots featuring the Boa™ closure system. This revolutionary new system allows the rider to close and secure his or her boots by turning a dial rather than tying straps or boot laces. We license the Boa closure system from a third party pursuant to a long-term license agreement.

     We are also a leader in the step-in snowboard binding market through our Switch product line. We license the Switch step-in binding technology to leading snowboard boot brands such as DC Shoes and Heelside. During fiscal 2002, we also introduced our first conventional strap-binding for snowboard boots.

Apparel

     We design active lifestyle, skateboard and snowboarding apparel that embodies the VANS brand image. Our line includes T-shirts, hats, woven shirts, fleece, walkshorts and pants which focus on the skateboard and Core Sports culture. Our line also includes wallets and backpacks and is sold primarily through our own retail stores as well as to specialty skate and surf shops.

     Our snowboard line includes technical outerwear, jackets and pants, sweaters, polyester fleece, T-shirts, hats, gloves and accessories and is primarily sold to snowboard specialty and sporting goods stores.

     In March 1999, we entered into a joint venture, of which we own 51% interest, to develop, market and sell apparel with Pacific Sunwear. Pacific Sunwear provides product development, design, sourcing, quality control and inventory planning to the joint venture, and we contribute design services and license the VANS and Triple Crown trademarks and logos to the venture. Under the terms of the joint venture, we are precluded from entering into other licenses for apparel in the U.S. without Pacific Sunwear’s consent while maintaining the right to sell VANS branded apparel directly to other accounts.

Skateboard Hard Goods

     In connection with the opening of our skateparks, we recognized the opportunity for offering a comprehensive selection of third-party skateboard hard goods in our retail stores and pro shops as a means to further strengthen our position as a leader in the skateboard market as well as enhance the overall product offering of our retail stores. We currently offer skateboard decks, trucks and wheels in our full-price stores and skateparks, and in a select number of our outlets. Along with other brand name Core Sports equipment, we also offer a limited number of VANS branded Core Sports equipment items, such as safety helmets and pads, through our retail stores.

Pro-Tec Protective Gear

     In April 2002, we acquired Mosa Extreme Sports, Inc., the leading maker of protective gear for Core Sports. Mosa markets its products under the “Pro-Tec” brand. The Pro-Tec product line includes helmets, knee and elbow pads, and wrist guards. Many of the leading Core Sports athletes endorse Pro-Tec products including skateboarders Bob Burnquist, Steve Caballero, Andy MacDonald, Brian Patch and Bucky Lasek, snowboarders Tara Dakides and Todd Richards, BMX riders Cory Nastazio and TJ Lavin, and wakeboarder Darin Shapiro. The acquisition of Mosa enables us to vertically integrate the Pro-Tec brand into our skateparks and retail stores and further leverage the VANS brand across multiple Core Sports.

SALES AND DISTRIBUTION

     We have a multi-faceted, worldwide distribution system designed to adapt our product mix to particular markets and reach a broad range of customers. The primary distribution channels for our products are:

Domestic Wholesale Sales Channel

     We sell our products through over 2,000 domestic wholesale accounts. We also sell our products through independent retailers such as skateboard and surf shops to maintain our authenticity and to stay close to our core customers.

     We strive to maintain the integrity of the VANS image by segmenting the distribution channels for our products based on criteria which include the retailer’s image, customer base and ability to effectively promote our products. Substantially all of our larger domestic accounts are managed by our in-house sales executives. We typically engage our independent sales representatives for our

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smaller accounts, as well as work with some of our larger accounts, pursuant to one year agreements. Compensation of independent sales representatives is limited to commissions on sales.

Retail Sales Channel

     Our retail distribution strategy is comprised of three principal formats: full price retail stores, outlet stores and skateparks. All of our retail stores carry a wide variety of VANS footwear products, along with apparel and accessory items, most of which bear the VANS brand name and logo. In addition, we sell a growing array of skateboard hard goods which are popular with our core customers. Our retail channel is an integral part of our strategy for building the VANS brand, providing wide exposure to all of our products and enabling us to stay close to the needs of our core customers.

     Full Price Retail Stores. We currently operate 97 full price retail stores in the United States. Our full price retail stores typically range from 800 to 4,200 square feet and are located in a mix of mall and free-standing locations. Over the last several years, we have embarked on a remodeling program to update the store layout in targeted stores and to achieve a more consistent format throughout our full-price retail stores. We also, as a matter of course, seek to identify underperforming stores for possible closure. We recently took a pre-tax impairment charge of $884,000 to write-down the assets of our three poorest performing full-price stores which were originally designed to be Vans Triple Crown stores. We have opened eight full-price stores to date in fiscal 2003 and currently plan to open one more store during the balance of fiscal year 2003.

     Outlet Stores. We currently operate 61 outlet stores in the United States, the United Kingdom, Austria, Spain and Guam. These stores serve an important role in our overall inventory management by allowing us to effectively distribute a significant portion of our discontinued or out of season products.

     Skateparks. We currently operate 12 large-scale skateparks, including four in California, one at Potomac Mills in Virginia, one in Houston, Texas, one in Moorestown, New Jersey, outside Philadelphia, one in Westminster, Colorado, outside Denver, one in Phoenix, Arizona, one in Orlando, Florida, one in Atlanta, Georgia, and one in Novi, Michigan, outside Detroit. As discussed previously under the caption “Fiscal 2002 Results,” we plan to close our Bakersfield, California park within the next three to six months.

     We believe our skateparks offer a unique entertainment venue for those who wish to skate or ride and for those who wish to watch these activities or shop in our retail stores. In addition to skateboard facilities and the retail and pro-shops, our skateparks include video games, vending machines, and concession machines. Beyond the number of actual skaters who purchase sessions to use the skateboarding facilities, a significant number of additional people attend our skatepark facilities to watch the participants as well as to shop at the attached retail shops.

     Our strategy is to locate the skateparks in metropolitan areas with high concentrations of skateboarders, and, where possible, in large destination shopping centers where the landlords are willing to help finance the construction of the skateparks. We also are exploring various ways of leveraging the value created by our skateparks, such as selling sponsorships, subleasing space for food and beverage vendors, creating summer skate camps, and sponsoring local skate competitions.

     For each of our skateparks, we carry liability insurance to cover accidents which may occur, and require that all users or their guardians execute waivers of liability. We require all users of our skateparks to wear helmets, and all users under the age of sixteen must wear knee pads and elbow pads. To date, we have incurred no significant liability with respect to activities at our skateparks.

International Sales Channel

     Our international distribution system is based on a market by market approach, that takes into account the particular cultural, economic and business conditions present in each international market. This strategy has led us to establish direct operations in key European markets, a joint venture in Mexico, a licensing arrangement in Japan, Hong Kong, Taiwan and South Korea and distribution agreements in approximately 30 other countries. Until recently, we also operated joint venture subsidiaries for Brazil, Argentina and Uruguay. Due to the significant devaluation of the Argentinean peso, the near collapse of the economy in Argentina and the impact of those events on Brazil and Uruguay, we are taking steps to terminate our operations in those countries. We incurred total pre-tax charges of $1.6 million in the fourth quarter of fiscal 2002 in connection with the planned terminations.

     Direct Sales and Distributors. We currently sell VANS products directly through our sales agents or employees or through distributors and licensees in approximately 50 foreign countries.

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     In fiscal year 1997, we undertook a strategy to capture increased international sales and profit by commencing direct sales efforts in selected European countries. In connection with that strategy, we acquired our distributor for the United Kingdom, and in June 1998, we began utilizing sales agents, instead of distributors, in France and Germany. We recently acquired our sales agent for France and began direct sales operations in France through a subsidiary.

     The direct sales strategy enables us to capture some or all of the sales and profits previously realized by independent distributors, to better coordinate our brand marketing strategies in these key European countries and increase our product availability to local customers through our third party distribution center in Holland. Under our sales agency agreements, agents are paid a commission on sales and are responsible for all sales efforts in a particular territory. Our sales in Europe are made in local currencies.

     We currently use third party distributors for sales in approximately 30 countries worldwide. International distributors of Vans products receive a discount on the wholesale price of footwear products and are granted the right to resell such products in defined territories, usually a country or group of countries. Distribution agreements generally are exclusive, restrict the distributor’s ability to sell competing products, have a term of one to three years, provide a minimum sales threshold which increases annually, and generally require the distributor to spend a certain percentage of its revenues on marketing. We receive payment from all of our distributors in United States dollars.

     Licensing. We have established an exclusive footwear and apparel licensing arrangement with International Trading Corporation, a Japanese public company and one of the leading distributors and retailers of footwear and related accessories in Japan. Under this arrangement, ITC licenses the VANS brand name to market and sell products such as footwear, apparel, caps, sports bags, snowboards, sunglasses and stationery in Japan. ITC also licenses the VANS brand for the sale of footwear in Korea, Taiwan and Hong Kong. In addition, ITC also distributes our snowboard boots and bindings in Japan. Beyond ITC, we selectively license our trademarks to some of our other third party footwear distributors, generally for use in the production and sales of apparel and accessories, such as T-shirts and backpacks.

Internet

     We currently offer a broad range of our products, including exclusive product offerings, domestically through our website at www.vans.com. Our electronic commerce channel provides us with the opportunity to broaden our reach with minimal sales costs. Our website also allows us to effectively utilize elements of our unique marketing and entertainment content to showcase our products within the context of the VANS brand image.

BACKLOG

     As of August 24, 2002, our backlog of orders for delivery in the second and third quarter of fiscal year 2003 was approximately $30.3 million, as compared to a backlog of approximately $39.1 million as of August 25, 2001, for delivery of orders in the second and third quarter of fiscal year 2002. Our backlog amounts exclude orders from our retail stores. Our backlog depends upon a number of factors, including the timing of trade shows, during which some of our orders are received, the timing of shipments, product mix of customer orders and the amount of in-season orders. As a result of these and other factors, period-to-period comparisons of backlog may not necessarily be meaningful.

     In addition, we have historically shipped less than all orders in our backlog and we have shipped a large portion of our products towards the end of the quarter to meet seasonal peaks for the holiday and spring selling seasons. As a result, we may not learn of sales shortfalls until late in any particular fiscal quarter, which could result in an immediate and adverse effect on our business, financial condition and results of operations. Additionally, backlog orders are subject to both cancellation by customers and the ability of third party manufacturers to timely deliver product to fill such orders.

INFRASTRUCTURE

     We have developed an operational infrastructure that allows us to effectively address a variety of market opportunities. Our ability to procure and distribute a wide range of products enables us to maintain the authenticity of the VANS brand while addressing changes in Core Sports and youth trends.

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Sourcing and Manufacturing

     In 1995, we shifted our manufacturing focus from our own domestic facilities to a network of experienced third party overseas manufacturers. This strategy minimizes capital expenditures relating to manufacturing and allows us to maximize product quality and product variety.

     We currently source all of our footwear products from independent third party manufacturers in China and the Philippines. The production staff of our Hong Kong subsidiary, located in Hong Kong, oversees all aspects of manufacturing and production in China and the Philippines. Approximately 40% of our apparel is sourced off-shore throughout Asia.

Distribution Facilities

     Products for domestic accounts are shipped either to our 144,000 square foot distribution center located in Santa Fe Springs, California or directly to our retail customers. Approximately 25% to 30% of our domestic sales are shipped directly from manufacturers to our retail customers. Our products for international distribution, with the exception of Europe, are typically shipped directly from the manufacturers to our customers. Shipments of product to European countries are made through a third-party operated distribution facility located in Holland. We are currently in the process of upgrading our distribution logistics systems, supply chain monitoring systems and inventory information systems.

Management Information Systems

     Our management information systems are designed to provide, among other things, comprehensive order processing, production, accounting and management information for the marketing, manufacturing, importing and distribution functions of our business. We utilize information technology to improve customer service, reduce operating costs and provide information needed by management to make timely sales and merchandising decisions and to control inventory levels.

     In fiscal 2002, we installed sophisticated point-of-sale systems in all of our stores and skateparks that enable us to track inventory from store receipt to final sale on a real-time basis, allow for rapid stock replenishment and concise merchandise planning, and managing inventory shrink. We also are currently installing a warehouse management system and material handling equipment at our Santa Fe Springs, California distribution center to enable us to achieve greater productivity at such facility.

COMPETITION

Footwear Industry

     The athletic and casual footwear industry is highly competitive. We compete on the basis of the design, quality and technical aspects of our products, the strength of the VANS brand, the brand’s authenticity with our core customer base and the athletes who participate in the Core Sports we promote and sponsor. Many of our competitors, such as Nike, Reebok, Adidas and Puma, have significantly greater financial resources than we do, have more comprehensive product offerings, compete with us in China and the Philippines for manufacturing sources and spend substantially more on product advertising than we do. In addition, the general availability of offshore shoe manufacturing capacity allows for rapid expansion by competitors and new entrants in the footwear market. In this regard, we face competition from large, well-known companies, such as Nike, which has entered the market for skateboard shoes through an investment in a company called Savier and has also entered the skate and surf lifestyle market through its acquisition of Hurley. In addition, in the casual footwear market, we compete with a number of companies, such as Skechers, Converse, Airwalk, and Stride Rite (Keds), some of which may have significantly greater financial and other resources than we do. We also compete with companies such as Sole Technology, DC Shoes, DVS, Globe and Osiris which focus on selling products to Core Sports participants. Recently, one of these smaller competitors, Globe, announced that it was acquiring Kubic Marketing, Inc. a leading designer and distributor of Core Sports hard goods, and skateboard brands.

Skateparks

     Our skateparks are facing increased competition from recently constructed, large, free, public skateparks which are often located near our parks and are better maintained and more sophisticated than older public skateparks. This increased competition has had a material adverse impact on our skatepark business and has contributed to declines in attendance at our parks and forced us to lower ticket prices to attract more skaters, which has adversely impacted our gross margins. As a result, as discussed previously, we recently announced plans to close our Bakersfield, California skatepark in the next three to six months and we wrote-down the fixed assets at our Denver, Colorado skatepark in the fourth quarter of fiscal 2002.

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Snowboard Industry

     We face significant competition in the snowboard boot and binding industries, most notably from Burton Snowboards, Salomon and K2. In the step-in binding segment of the industry, we compete, through Switch, on the basis of the quality and technical aspects of the Autolock binding system, and the strength of the Switch and Autolock brand names. Several large, well-known companies have developed step-in systems that compete with the Autolock binding system. In addition, conventional strap-in bindings have substantially greater market share than step-in systems and we anticipate this will likely continue for at least the next few years. This past season, we introduced our first strap-in bindings, but sales were lower than expected.

Apparel Industry

     We are a relatively new entrant in the apparel business. The apparel industry is highly competitive, more fashion-oriented and more fragmented than the athletic footwear market. Many of our competitors have significantly greater financial resources than we do and spend substantially more on product advertising.

INTELLECTUAL PROPERTY

     We hold trademarks, copyrights and patents on our products, brand names and designs which we believe are material to our business. We have made federal, state and international filings with respect to our material intellectual property, and intend to keep these filings current. We believe that our rubber “Off the Wall” sole design, the VANS trademark, various logos, trademarks and designs incorporating the VANS trademark, the striped designs known as the “Old Skool,” “Knu Skool,” and “Fairlane,” the “Pro-Tec” trademark for protective gear, and certain patents we hold for the Switch Autolock binding system and related technology are significant to our business and have gained acceptance among consumers and in the footwear industry. We are aware of several potentially conflicting trademark claims in the United States and other countries, and are currently engaged in, or contemplating trademark opposition or other legal proceedings, with respect to these claims. We do not believe these claims will have a material effect on our business. There can be no assurance that we will be able to use all of our trademarks and patents in any of the jurisdictions where conflicts exist. We regard our trademarks and other proprietary rights as valuable assets and believe that they have significant value in the marketing of our products. We vigorously protect our trademarks against infringement both in the United States and internationally, including through the use of cease and desist letters, administrative proceedings and lawsuits.

EMPLOYEES

     As of August 23, 2002, we had 1,858 employees in the U.S. We consider our employee relations to be satisfactory. Our employees are not unionized and we have never suffered a material interruption of business caused by labor disputes.

RISK FACTORS

     We are engaged in the initial stages of a business turnaround at Vans. The success of a turnaround, by its very nature, involves a significant number of risks. You should carefully consider the risks described below before investing in our common stock. If any of the following risks actually occur, our business could be materially harmed and our turnaround could be negatively impacted. It also could cause the price of our stock to decline, and you may lose part or all of your investment.

IF WE ARE UNABLE TO CONTINUE TO DEVELOP AND MAINTAIN THE POPULARITY OF OUR BRAND OR FAIL TO ACCURATELY ANTICIPATE CHANGES IN FASHION TRENDS, DEMAND FOR OUR PRODUCTS MAY DECREASE.

     Our success is largely dependent on the continued strength of our brand. In addition, we must anticipate the rapidly changing fashion tastes of our customers and provide merchandise that appeals to their preferences in a timely manner. We cannot assure that consumers will continue to prefer our brand or that we will respond in a timely manner to changes in consumer preferences. In particular, fashion trends change more rapidly with respect to our women’s footwear line, which is comprised of fewer styles than our men’s footwear lines. In this regard, sales of our women’s footwear for fiscal 2002 decreased significantly when compared to fiscal 2001. We cannot predict whether the changes we have implemented to our women’s footwear line will reverse this trend during fiscal 2003.

     Achieving market acceptance for new products may also require substantial marketing and product development efforts and expenditures to create consumer demand. Decisions with respect to product designs often need to be made several months in advance of the time when consumer acceptance can be determined. As a result, we may fail to anticipate, identify or react appropriately to changes in consumer acceptance of our products’ styles and features. This could lead to problems such as excess inventories and

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higher than normal markdowns, lower gross margins due to the necessity of providing discounts to retailers, impairment of our brand name and brand image, as well as the inability to sell such products through our retail and outlet stores. In addition, our failure to anticipate consumer demand could result in inventory shortages, which can adversely affect the timing of shipments to customers, negatively impacting retailer and distributor relationships and diminishing brand loyalty.

     In addition, we use a variety of specialized fabrics in our footwear and clothing. The failure of footwear or clothing using such fabrics to perform to customer requirements could result in customer dissatisfaction with our products and could adversely affect the image of our brand name. We also in the past three years significantly increased the technical aspects of certain of our footwear and snowboard boots. If these technical features fail to operate as expected or satisfy customers, or if we fail to develop new and innovative technical features in a timely fashion, the result could adversely affect our business.

OUR ABILITY TO PROFITABLY OPERATE OUR SKATEPARKS IN THE FUTURE IS UNCERTAIN AND, IF UNSUCCESSFUL, WILL MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS AND OPERATIONS.

     In November 1998, we opened our first large-scale skatepark. As of the date of this report, we are operating 12 skateparks, all of which are located in the U.S. We currently plan to open one skatepark in calendar year 2003. The construction of new skateparks requires the expenditure of a significant amount of capital resources, and the operation of the skateparks requires the expenditure of significant fixed expenses, such as rent. Since we have only been operating our skateparks for a relatively short period of time in only nine markets, we have limited operating results and cannot be certain that the parks will be a successful component of our business, particularly in new markets where skatepark businesses have not been established. Two of our skateparks (Bakersfield, California and Denver, Colorado) have not been profitable and we plan to close the Bakersfield park within the next 3 to 6 months. We took a pre-tax charge of $1.6 million in the fourth quarter of fiscal 2002 in connection with the planned closure, and we took a pre-tax charge in the fourth quarter of fiscal 2002 of $3.4 million to write-down fixed assets at our Denver skatepark. Many of our other skateparks have not been profitable in recent months. We cannot estimate when, if ever, they will become profitable again. If our skateparks ultimately do not prove to be profitable, our overall profitability could be materially adversely affected.

DURING THE PAST THREE QUARTERS OUR RETAIL STORE SALES HAVE DECLINED WHEN COMPARED TO COMPARABLE QUARTERS DURING THE PRIOR FISCAL YEAR.

     After seven years of increases in sales in our retail stores when compared with comparable periods during the prior year on a same-store basis, we have experienced declines in our sales revenues in our retail stores since the second quarter of fiscal 2002, when compared to the comparable period(s) during fiscal 2001 on a same-store basis. This trend continued in the fourth quarter of fiscal 2002 when same-store sales were down 7.4% for such quarter when compared to the comparable quarter of fiscal 2001. We also announced that the President of our Retail Division resigned, effective June 17, 2002, and that his position will not, for now, be filled. Instead, the Retail Division will be operated by our Vice Presidents of Retail Operations and Merchandising reporting to our Chief Executive Officer.

     If we continue to experience declines in sales revenues in our retail stores when compared to prior periods, our business as a whole will be materially adversely affected since our retail sales account for approximately one-third of our total sales, and the gross margins associated with our retail sales are generally higher than the gross margins we achieve in other segments of our business. In the fourth quarter of fiscal 2002 we wrote down the assets of our three poorest performing stores.

SALES TO OUR WHOLESALE CUSTOMERS FLUCTUATE PERIODICALLY AND WE ARE DEPENDENT ON SUCCESSFUL SELL-THROUGHS OF OUR FOOTWEAR PRODUCT LINES FOR A LARGE PORTION OF OUR SALES.

     Sales to our largest wholesale customers periodically fluctuate as do the gross margins associated with those sales. In this regard, due to lower-than-expected performance of our back-to-school 2001 and Spring 2002 product lines, U.S. wholesale sales decreased 11.1%, year-over-year, in fiscal 2002. If this trend is not reversed, our business will be materially adversely affected. In the fourth quarter of fiscal 2002, we recognized pre-tax expenses of $3.8 million to write-down slow moving inventory which is not performing well with our U.S. wholesale customers.

     In addition, the retail industry, and footwear retailers in particular, have periodically experienced consolidation, contractions and financial difficulties and if they happen again in the future this may result in loss of customers or uncollectability of accounts receivables in excess of amounts we have reserved. Furthermore, we depend upon our footwear product lines for a significant portion of our total sales. If retail sell-throughs of our footwear products decline, our financial results would be adversely affected.

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OUR FINANCIAL RESULTS WILL BE AFFECTED BY MARKET CONDITIONS IN THE FOOTWEAR, SKATE AND APPAREL INDUSTRIES, WHICH ARE INTENSELY COMPETITIVE.

     The athletic and casual footwear industry is highly competitive. Competitive factors that affect our market position within the footwear and apparel industries include the style, quality and technical aspects of our products and the strength and authenticity of the VANS brand. Many of our competitors such as Nike, Reebok, Adidas and Puma have significantly greater financial resources than we do, have more comprehensive lines of product offerings, have greater brand recognition, compete with us in China and the Philippines for manufacturing sources and spend substantially more on product advertising than we do. In addition, the general availability of offshore shoe manufacturing capacity allows for rapid expansion by competitors and new entrants in the footwear market. In this regard, we face competition from large, well-known companies, such as Nike, which has entered the market for skateboard shoes through an investment in a company called Savier and has also entered the skate and surf lifestyle market through its acquisition of Hurley. In addition, in the casual footwear market, we compete with a number of companies, such as Skechers, Converse, Airwalk and Stride Rite (Keds), some of which may have significantly greater financial and other resources than we do. We also compete with smaller companies, such as DC Shoes, Sole Technology, Globe, DVS and Osiris which specialize in marketing to our core skateboarding customers. Recently, one of these smaller competitors, Globe, announced that it was acquiring Kubic Marketing, Inc., a leading designer and distributor of Core Sports hardgoods and skateboard brands. Our inability to effectively compete in the footwear market would harm our business.

     Our skateparks are facing increased competition from recently constructed, large, free, public skateparks which are often located near our parks and are better maintained and more sophisticated than older public skateparks. This increased competition has had a material adverse impact on our skatepark business and has contributed to declines in attendance at our parks and forced us to lower ticket prices to attract more skaters, which has adversely impacted our gross margins. As a result, as discussed above, we recently announced plans to close our Bakersfield, California skatepark in the next three to six months and we wrote-down the fixed assets at our Denver, Colorado skatepark in the fourth quarter of fiscal 2002.

     We also face significant competition in the snowboard boot and binding industries, most notably from Burton Snowboards, Salomon and K2. Our Autolock snowboard binding system competes with several large well-known companies which have developed step-in bindings. In addition, conventional strap-in bindings have substantially greater market share than step-in systems and we anticipate this will likely continue for at least the next few years. This past snow season we introduced our first strap-in bindings, but sales were lower than expected. Our inability to effectively compete with other snowboard boot companies or other manufacturers of binding systems could harm our business.

     We are a relatively new entrant in the apparel business. The apparel industry is highly competitive, more fashion-oriented and more fragmented than the athletic footwear industry. Many of our competitors have significantly greater financial resources than we do and spend substantially more on product advertising. Our inability to effectively compete in the apparel market would harm our ability to successfully grow this aspect of our business.

OUR RELIANCE UPON INDEPENDENT CONTRACT MANUFACTURERS EXPOSES US TO VARIOUS RISKS ASSOCIATED WITH DISRUPTION IN PRODUCT SUPPLY, ANY OF WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

     All of our shoes and snowboard boots are manufactured by independent suppliers located in the Peoples Republic of China for most of our international markets, and the Philippines for some European markets, Mexico and Argentina. We currently source our foreign-produced products through our subsidiary, Vans Far East Limited. Although we execute manufacturing agreements with our foreign manufacturers, we cannot assure that we will not experience difficulties with our manufacturers, such as reduction in the availability of production capacity, errors in complying with product specifications, inability to obtain sufficient raw materials, insufficient quality control, failure to comply with our requirements for the proper utilization of our intellectual property, failure to meet production deadlines, or increases in manufacturing costs. In addition, if our relationship with any of our manufacturers were to be interrupted or terminated, alternative manufacturing sources will have to be located. The establishment of new manufacturing relationships involves numerous uncertainties, and we cannot assure that we would be able to obtain alternative manufacturing sources on a timely basis or on satisfactory terms. Should a change in our suppliers become necessary, we would likely experience increased costs, as well as substantial disruption and resulting loss of sales. We also utilize international sourcing agents who assist us in selecting and overseeing third party manufacturers, ensuring quality, sourcing fabrics and monitoring quotas and other trade regulations. The loss or reduction in the level of services from such agents could significantly affect our ability to efficiently source products from our independent manufacturers overseas, which could have a material adverse effect on our business.

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     In addition, our relationships with independent foreign manufacturers are also subject to a number of risks, including work stoppage, transportation delays and interruptions, political instability, foreign currency fluctuations, changing economic conditions, an increased likelihood of counterfeit, knock-off or gray market goods, expropriation, nationalization, imposition of tariffs, import and export controls and other non-tariff barriers (including quotas) and restrictions on the transfer of funds, environmental regulation, and other changes in governmental policies. In particular, changes in U.S. tax law or interpretations thereof related to our operations could materially impact our effective tax rate. In addition, adverse changes in trade or political relations with China as a result of specific events such as the incident in 2001 resulting from a United States military plane landing and being detained in China or political instability in China would severely interfere with our manufacturing and would have a material adverse effect on our business. We cannot be certain that these factors will not materially adversely affect our ability to procure manufactured products in a cost-effective or timely manner in the future. Although we require our manufacturers to represent to us that their operations comply with their local laws governing labor practices and work conditions, and we periodically monitor such compliance, the failure of our manufacturers to comply with such laws could adversely impact our reputation and business.

     All of our products manufactured overseas and imported into the United States are subject to duties collected by the United States Customs Service. We may be subjected to additional duties, significant monetary penalties, the seizure and the forfeiture of the products we are attempting to import or the loss of import privileges if we or our suppliers are found to be in violation of U.S. laws and regulations applicable to the importation of our products. Also, we may suffer delays in distributing our products due to work stoppages, slowdowns, or strikes at the ports where we land our products. These kinds of actions have been periodically threatened over the past several years, and we are aware of a current threatened action at the Long Beach, California port where we land the vast majority of our products.

     In addition, although the products sold by us are not currently subject to quotas in the United States, certain countries in which our products are sold are subject to certain quotas and restrictions on foreign products which to date have not had a material adverse effect on our business. The enactment of any additional or modified duties, quotas or restrictions could result in material increases in the cost of such products and might adversely affect our sales or profitability.

OUR EXPANSION INTO INTERNATIONAL MARKETS AND OUR TRANSACTING BUSINESS IN FOREIGN CURRENCY EXPOSES US TO RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.

     We do business through wholly-owned and co-owned subsidiaries and sales agents in a number of countries throughout the world. In connection with this strategy, we have established an operational structure to support the activities of our subsidiaries and sales agents in Europe. We also currently operate a joint venture to sell our products in Mexico, Argentina, Brazil and Uruguay. We may experience risks while doing business directly in foreign countries such as managing operations effectively and efficiently from a far distance and understanding and complying with local laws, regulations and customs. We recently announced that we are terminating the operations of our joint venture subsidiaries in Brazil, Argentina, and Uruguay.

     In addition, we sell products in a number of countries throughout the world, and thus are exposed to economic fluctuations and movements in foreign currency exchange rates. In particular, our two largest international markets are Japan and France. Adverse changes in our business in those countries or in the economics of those or other countries in which we do business could have a material adverse effect on our business. The major foreign currency exposure for us involves the euro, the British pound, the Japanese yen and Latin American currencies such as the Mexican peso, the Argentinean peso and the Brazilian real. In particular, fluctuations in the past in the value of the euro and the British pound have had a significant, negative impact on our European business. Additionally, recent weaknesses in Latin American economies, particularly the Argentinean peso, have negatively affected our business in Brazil, Argentina and Uruguay, leading to our decision to terminate the operations of our joint ventures in those countries. We are also exposed to risks resulting from political instability, tariffs, counterfeit goods, restrictions on transfers of funds and other changes in governmental regulations.

IF THE CORE SPORTS WE SUPPORT DECREASE IN POPULARITY OR FAIL TO ATTRACT MEDIA COVERAGE, OR WE FAIL TO ATTRACT OR RETAIN SPONSORS FOR OUR CORE SPORTS EVENTS, OUR BUSINESS MAY BE HARMED.

     Our strategy is focused on the promotion and support of Core Sports. Many Core Sports are relatively new or have historically fluctuated in popularity, due in part to limited media coverage of these sports. Core Sports are followed by significantly fewer fans than more traditional sports, such as football, baseball and basketball. Although participation in, and viewership of, many of the Core Sports we promote are growing at a high rate, we cannot assure that the popularity of Core Sports will continue to grow. If any of the key Core Sports we promote loses popularity or fails to grow or attract media coverage, we may have to change our strategy with respect to those sports, which could have a material adverse effect on our business, financial condition and results of operations.

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Additionally, we rely on the sale of advertising spots to help finance the television programs we produce for our Core Sports events. Due to the weak market for selling such advertisements, we have been unable to sell sufficient advertisements to offset the cost of broadcasting our television programs on NBC and Fox Sports Net. Also, we rely on sponsorships to help finance and expand our Core Sports events. If our current sponsors do not renew their sponsorship agreements or if the revenues we receive from such sponsors decrease, and we are unable to attract additional sponsors, we will have to finance a greater portion of our Core Sports events ourselves, which would have a material adverse effect on our results of operations.

OUR FINANCIAL RESULTS MAY FLUCTUATE FROM QUARTER TO QUARTER AS A RESULT OF SEASONALITY IN OUR BUSINESS.

     The footwear industry generally is characterized by significant seasonality of net sales and results of operations. Our business is seasonal, with the largest percentage of our U.S. sales realized in our first fiscal quarter (June through August) or the “Back to School” months. In addition, because snowboarding is a winter sport, our sales of snowboard boots and Switch snowboard boot binding systems have historically been strongest in our first and second fiscal quarters (June through November). This seasonal fluctuation in consumer demand could have a material adverse effect on our business, financial condition and results of operations.

     In addition, we have historically shipped less than all orders in our backlog and we have shipped a large portion of our products towards the end of the quarter to meet seasonal peaks for the back-to-school, holiday and spring selling seasons. As a result, we may not learn of sales shortfalls until late in any particular fiscal quarter, which could result in an immediate and adverse effect on our business, financial condition and results of operations. Additionally, backlog orders are subject to both cancellation by customers and the ability of third party manufacturers to timely deliver product to fill such orders.

DISRUPTIONS IN THE SUPPLY OF LEATHER OR OTHER RAW MATERIALS COULD SIGNIFICANTLY INCREASE OUR PRODUCTION COSTS.

     Disruptions in the worldwide supply of leather, such as those that resulted from the outbreak of “mad cow” and “hoof and mouth” diseases in 2001, could cause prices for leather, which is a raw material component of our footwear products, to increase. If leather prices increase, the costs associated with our production of footwear would increase. In addition, increases in the cost of oil could increase the cost of rubber, which is also a raw material component of our footwear products. We may not be able to increase the price of our products to offset these increased costs. Any significant increases in our production costs could have a material adverse impact on our business.

ENERGY SHORTAGES, NATURAL DISASTERS, A DECLINE IN ECONOMIC CONDITIONS IN CALIFORNIA AND THE REACTIONS TO THE SEPTEMBER 11, 2001 TERRORIST ATTACK OR SUBSEQUENT TERRORIST ACTIVITIES OR THREATS COULD INCREASE OUR OPERATING EXPENSES OR ADVERSELY AFFECT OUR SALES REVENUE.

     A substantial portion of our operations are centered in California, including more than half of our retail stores, four skateparks, our corporate headquarters and our central distribution center. We recently experienced increased electricity and energy rates due to California’s energy and electricity shortages. Further shortages could impact or interrupt our business. Any such impact or interruption could be material and adversely affect our profitability. In addition, because a significant portion of our revenue comes from sales in California through our retail stores, the recent economic decline in California adversely affected our business. Future economic declines in California would likely have the same effect. Furthermore, a natural disaster or other catastrophic event, such as an earthquake affecting California, could significantly disrupt our business. We may be more susceptible to these issues than our competitors whose operations are not as concentrated in California.

     Our future results could be affected by changes in business, political and economic conditions, including the cost and availability of insurance, due to the September 11, 2001 or subsequent terrorist attacks in the U.S., the threat of future terrorist activity in the U.S. and other parts of the world and related U.S. military action overseas.

THE ACQUISITION OF ADDITIONAL BUSINESS ENTITIES IN THE FUTURE MAY HAVE UNANTICIPATED CONSEQUENCES THAT HARM OUR BUSINESS.

     We often evaluate various business entities as potential acquisition candidates in the ordinary course to build upon or complement our current business. Pursuant to this strategy, in April 2002 we acquired Mosa Extreme Sports, Inc., maker of “Pro-Tec” protective gear for Core Sports. Future acquisitions may be larger in scale than the Mosa Sports acquisition or other acquisitions we have completed in the past. Any acquisition we pursue, whether or not successfully completed, will involve numerous risks, including

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difficulties in the assimilation and integration of the operations, employees, technologies and products of the acquired companies, difficulties in potential conflicts with the existing culture of acquired companies, the diversion of management’s attention from other business concerns, risks associated with entering markets or conducting operations with which we have no or limited direct prior experience, and the potential loss of key employees of acquired businesses. Moreover, we cannot be certain that we will realize the anticipated benefits of any acquisition. Future acquisitions, which may be accomplished through a cash purchase transaction or the issuance of our equity securities, or a combination of both, could result in potentially dilutive issuances of our equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, any of which could harm our business and financial condition.

IF WE ARE UNABLE TO RETAIN OUR MANAGEMENT TEAM, OUR BUSINESS MAY BE HARMED.

     Our future success is highly dependent on the services of our management team. In particular, we are dependent on the continued services of Gary H. Schoenfeld, our President and Chief Executive Officer. The loss of the services of Mr. Schoenfeld or any of our other executive officers could have a material adverse effect on our business. In addition, the market for key personnel in the industries in which we compete is highly competitive, and we may not be able to attract and retain key personnel with the skills and expertise necessary to manage our business, both in the United States and internationally.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY OR BECOME SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, OUR BUSINESS MAY BE HARMED; WE ARE CURRENTLY INVOLVED IN INTELLECTUAL PROPERTY AND OTHER LITIGATION.

     We consider our “intellectual property” (trademarks, patents, etc.) to be critical to our business. We rely on trademark, copyright and trade secret protection, patents, non-disclosure agreements and licensing arrangements to establish, protect and enforce our intellectual property rights in our products. Despite our efforts to safeguard and maintain such rights, we cannot assure that we will be successful in this regard, and we cannot assure that third parties will not sue us for intellectual property infringement in the future. Furthermore, we cannot assure that our trademarks, products and promotional materials do not or will not violate the intellectual property rights of others, that they would be upheld if challenged or that we would, in such an event, not be prevented from using our trademarks and other intellectual property. Although any claims may ultimately prove to be without merit, the necessary diversion of management attention to, and legal costs associated with, litigation could materially and adversely affect our business. We have in the past sued and been sued by third parties in connection with certain matters regarding our trademarks, none of which has materially impaired our ability to utilize our trademarks. For example, in the third quarter of fiscal 2002 we settled litigation with The Burton Corporation who claimed we were infringing two patents owned by Burton. We are also currently involved in other litigation arising in the ordinary course of our business, not including intellectual property, which could adversely affect our business and financial condition.

     The laws of certain foreign countries do not protect intellectual property rights to the same extent or in the same manner as the laws of the U.S. Although we continue to implement protective measures and intend to defend our intellectual property rights vigorously, we cannot assure that these efforts will be successful or that the costs associated with protecting our rights in certain jurisdictions will not be extensive.

     From time to time, we discover products in the marketplace that are counterfeit reproductions of our products or that otherwise infringe upon our intellectual property rights. We cannot assure that the actions we take to establish and protect our intellectual property rights will be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as violating intellectual property rights. If we are unsuccessful in challenging a third party’s rights, continued sales of such product by that or any other third party could adversely impact our brand, result in the shift of consumer preferences away from our products, and generally have a material adverse effect on our business.

     In addition, we license several of our trademarks for third party products. While these licenses provide for quality control standards, such as the review and approval by us of all licensed products and proposed distribution channels, there can be no assurance that licensees will not breach their agreements and market inferior products or sell products through unapproved distribution channels, any of which would have an adverse impact on our brand.

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IF WE WERE UNABLE IN THE FUTURE TO SPONSOR SUITABLE ATHLETES TO ENDORSE OUR PRODUCTS ON REASONABLE TERMS, WE MAY HAVE TO CHANGE OUR MARKETING PLANS, WHICH MAY NEGATIVELY AFFECT OUR BRAND AND OUR BUSINESS.

     A key element of our marketing strategy has been to obtain endorsements from prominent Core Sports athletes in both the U.S. and internationally. These contracts typically have fixed terms, and we cannot assure that they will be renewed or that athletes signed by us will continue to be effective promoters of our products. If we are unable in the future to sponsor suitable athletes to endorse our products on terms we deem reasonable, we would probably have to modify our marketing plans and rely more heavily on other forms of advertising and promotion, which might not be as effective. In addition, negative publicity about our sponsored athletes could harm our reputation and brand and adversely impact our business.

CUSTOMERS THAT USE OUR PRODUCTS AND SKATEPARKS ENGAGE IN HIGH-RISK ACTIVITIES THAT COULD RESULT IN LEGAL CLAIMS THAT, IF SUCCESSFUL, COULD ADVERSELY IMPACT OUR BUSINESS.

     Participants at our skateparks and the VANS High Cascade Snowboard Camp and users of our products, including those who wear Pro-Tec protective gear produced by our recently acquired subsidiary, Mosa Sports, engage in high-risk activities such as skateboarding, snowboarding, in-line skating, freestyle motocross, supercross and BMX riding. Consequently, we are exposed to the risk of product liability or personal injury claims in the event that a user of our products or a visitor to our entertainment venues, including the concert venues of the VANS Warped Tour, is injured. Participants at our entertainment venues or users of our products may engage in imprudent or even reckless behavior, thereby increasing the risk of injury. We maintain general liability insurance (which includes product liability coverage) and excess liability insurance coverage in an amount which we believe is sufficient. However, we cannot be certain that such coverage will be sufficient, will continue to be available on acceptable terms, will be available in amounts sufficient to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our financial condition and business reputation.

OUR STOCK PRICE MAY BE VOLATILE DUE TO FACTORS BEYOND OUR CONTROL.

     The market price of our common stock has fluctuated substantially since our initial public offering in August 1991. We cannot assure that the market price of our common stock will not continue to fluctuate significantly. Events such as future announcements concerning us or our competitors, quarterly variations in operating results, the introduction of new products or changes in product pricing policies by us or our competitors, changes in earnings estimates by analysts, our failure to achieve analysts’ earning estimates, or changes in accounting policies, could cause the market price of our common stock to fluctuate substantially. In addition, stock markets have experienced extreme price and volume volatility in recent years, including decreases in the overall market indexes during 2000, 2001 and 2002 to date. This volatility has had a substantial effect on the market prices of securities of many smaller public companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations could adversely affect the market price of our common stock and consequently, our ability to raise capital in the future.

WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS WHICH COULD DISCOURAGE OR PREVENT OR DELAY A TAKEOVER, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

     Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock (of which 1,500,000 shares have been designated Series A Junior Preferred Stock) and to fix the rights, preferences, privileges and restrictions of such shares without any further vote or action by our stockholders. The potential issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control, may discourage bids for the common stock at a premium over the market price of the common stock and may adversely affect the market price of, and the voting and other rights of the holders of, our common stock. We have no current plans to issue shares of preferred stock. Additionally, the board of directors has adopted a Stockholder Rights Plan pursuant to which the holders of our common stock have a Series A Junior Preferred Stock purchase right for every share of common stock owned by them. The rights are exercisable upon the occurrence of certain transactions and entitle the holder to acquire additional shares of our common stock or of a potential acquirer at a price equal to 50% of the then current market price of such stock. The rights could have the effect of deterring tender offers or takeover attempts. Other provisions of our charter and bylaws may also have the effect of delaying or deterring a change in control.