##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended: May 5, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 Commission file number 0-21296
 PACIFIC SUNWEAR OF CALIFORNIA, INC.
  California
(State of incorporation)
    
    95-3759463
(I.R.S. Employer Identification No.)
 
 
 
    
    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
    
    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
 þ o o
 
    
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ




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##### 



PACIFIC SUNWEAR OF CALIFORNIA, INC.
FORM 10-Q
For the Quarter Ended April 29, 2006
 Index
 Page #PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements (unaudited):Condensed Consolidated Balance Sheets
May 5, 2007 and February 3, 2007
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Income
First quarter (13 weeks) ended May 5, 2007 and April 29, 2006
    
    
    4Condensed Consolidated Statements of Cash Flows
First quarter (13 weeks) ended May 5, 2007 and April 29, 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6-12Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    13-20Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    21PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    21Item 1A.
    
    Risk Factors
    
    
    21-25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3.
    
    Defaults upon Senior Securities
    
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 5.
    
    Other Information
    
    
    25Item 6.
    
    Exhibits
    
    
    26SIGNATURE PAGE
    
    
    27EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 31EXHIBIT 32
  2




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PACIFIC SUNWEAR OF CALIFORNIA, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited, all amounts in thousands except share amounts)
 May 5, 2007
    
    
    February 3, 2007ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    23,089
    
    
    $
    52,267Marketable securities
    
    
    19,600
    
    
    
    31,500Merchandise inventories
    
    
    210,229
    
    
    
    205,213Other current assets
    
    
    48,782
    
    
    
    46,255Total current assets
    
    
    301,700
    
    
    
    335,235PROPERTY AND EQUIPMENT, NET:Gross property and equipment
    
    
    741,375
    
    
    
    708,774Less accumulated depreciation and amortization
    
    
    (302,614
    )
    
    
    (287,888
    )Total property and equipment, net
    
    
    438,761
    
    
    
    420,886Other Assets
    
    
    18,158
    
    
    
    17,122TOTAL ASSETS
    
    $
    758,619
    
    
    $
    773,243LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    68,515
    
    
    $
    66,581Other current liabilities
    
    
    62,521
    
    
    
    73,952Total current liabilities
    
    
    131,036
    
    
    
    140,533LONG-TERM LIABILITIES:Deferred lease incentives
    
    
    86,402
    
    
    
    89,371Deferred rent
    
    
    30,107
    
    
    
    30,619Other long-term liabilities
    
    
    11,189
    
    
    
    9,367Total long-term liabilities
    
    
    127,698
    
    
    
    129,357Commitments and contingencies (Note 5)SHAREHOLDERS EQUITY:Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock, $.01 par value; 170,859,375 shares authorized; 69,608,546
and 69,560,077 shares issued and outstanding, respectively
    
    
    696
    
    
    
    696Additional paid-in capital
    
    
    7,996
    
    
    
    5,783Retained earnings
    
    
    491,193
    
    
    
    496,874Total shareholders equity
    
    
    499,885
    
    
    
    503,353TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    758,619
    
    
    $
    773,243
  3




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PACIFIC SUNWEAR OF CALIFORNIA, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(unaudited)
(in thousands, except share and per share amounts)
 First Quarter EndedMay 5, 2007
    
    
    April 29, 2006Net sales
    
    $
    320,585
    
    
    $
    299,888Cost of goods sold, including buying, distribution and occupancy costs
    
    
    237,717
    
    
    
    202,606Gross margin
    
    
    82,868
    
    
    
    97,282Selling, general and administrative expenses
    
    
    92,035
    
    
    
    79,939Operating (loss)/income
    
    
    (9,167
    )
    
    
    17,343Interest income
    
    
    969
    
    
    
    1,795(Loss)/Income before income tax (benefit)/expense
    
    
    (8,198
    )
    
    
    19,138Income tax (benefit)/expense
    
    
    (3,140
    )
    
    
    7,273Net (loss)/ income
    
    $
    (5,058
    )
    
    $
    11,865Comprehensive (loss)/income
    
    $
    (5,058
    )
    
    $
    11,865Net (loss)/income per share, basic
    
    $
    (0.07
    )
    
    $
    0.16Net (loss)/income per share, diluted
    
    $
    (0.07
    )
    
    $
    0.16Weighted average shares outstanding, basic
    
    
    69,578,259
    
    
    
    73,144,277Weighted average shares outstanding, diluted
    
    
    69,578,259
    
    
    
    73,711,710
  4




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PACIFIC SUNWEAR OF CALIFORNIA, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 First Quarter EndedMay 5, 2007
    
    
    April 29, 2006CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss)/income
    
    $
    (5,058
    )
    
    $
    11,865Adjustments to reconcile net (loss)/income to net cash provided by operating activities:Depreciation and amortization
    
    
    18,736
    
    
    
    16,905Stock-based compensation
    
    
    1,536
    
    
    
    1,944Tax benefits related to stock-based compensation
    
    
    98
    
    
    
    1,149Excess tax benefits related to stock-based compensation
    
    
    (81
    )
    
    
    Loss on disposal of property and equipment
    
    
    464
    
    
    
    6Change in operating assets and liabilities:Merchandise inventories
    
    
    (5,016
    )
    
    
    (7,064
    )Other current assets
    
    
    (2,527
    )
    
    
    413Other assets
    
    
    (1,036
    )
    
    
    (192
    )Accounts payable
    
    
    1,934
    
    
    
    (2,142
    )Other current liabilities
    
    
    (16,123
    )
    
    
    (17,244
    )Deferred lease incentives
    
    
    (2,969
    )
    
    
    690Deferred rent
    
    
    (512
    )
    
    
    487Other long-term liabilities
    
    
    1,198
    
    
    
    (5,388
    )Net cash (used in)/provided by operating activities
    
    
    (9,356
    )
    
    
    1,429CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (32,358
    )
    
    
    (29,096
    )Purchases of available-for-sale marketable securities
    
    
    (78,400
    )
    
    
    (163,150
    )Sales of available-for-sale marketable securities
    
    
    90,300
    
    
    
    177,750Maturities of held-to-maturity marketable securities
    
    
    
    
    
    
    10,516Net cash used in investing activities
    
    
    (20,458
    )
    
    
    (3,980
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repurchase and retirement of common stock
    
    
    
    
    
    
    (38,162
    )Proceeds from exercise of stock options
    
    
    579
    
    
    
    3,637Excess tax benefits related to stock-based compensation
    
    
    81
    
    
    
    Principal payments under capital lease obligations
    
    
    (24
    )
    
    
    (242
    )Net cash provided by/(used in) financing activities
    
    
    636
    
    
    
    (34,767
    )NET (DECREASE) IN CASH AND CASH EQUIVALENTS:
    
    
    (29,178
    )
    
    
    (37,318
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    52,267
    
    
    
    95,185CASH AND CASH EQUIVALENTS, end of period
    
    $
    23,089
    
    
    $
    57,867SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    1
    
    
    $
    2Cash paid for income taxes
    
    $
    10,882
    
    
    $
    18,032SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:Increase in non-cash property and equipment accruals
    
    $
    4,717
    
    
    $
    8,635
  5




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PACIFIC SUNWEAR OF CALIFORNIA, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the quarterly period ended May 5, 2007
(unaudited, all amounts in thousands except share and per share amounts unless otherwise indicated)
 1. NATURE OF BUSINESS
 www.pacsun.com www.demostores.com www.onethousandsteps.com
 2. BASIS OF PRESENTATION
   3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  New Accounting Pronouncements
 6




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Marketable Securities
 4. CLOSURE OF UNDERPERFORMING DEMO STORES
   Net sales
    
    $
    11,269Gross margin, including occupancy
    
    
    (339
    )Selling, general & administrative expenses
    
    
    2,903Pre-tax operating loss
    
    
    (3,242
    )
  7




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5. SEGMENT REPORTING
  OneFirst Quarter Ended
    
    
    
    
    
    
    
    
    
    ThousandMay 5, 2007:
    
    PacSun
    
    demo
    
    Steps
    
    Corporate
    
    TotalNet Sales
    
    $
    268,080
    
    
    $
    51,244
    
    
    $
    1,261
    
    
    
    n/a
    
    
    $
    320,585% of Total Sales
    
    
    84
    %
    
    
    16
    %
    
    
    0
    %
    
    
    n/a
    
    
    
    100
    %Comparable Store Sales %
    
    
    0.5
    %
    
    
    (12.1
    )%
    
    
    1.8
    %
    
    
    n/a
    
    
    
    (1.2
    )%Income/(Loss) before
Income Taxes
    
    $
    31,492
    
    
    $
    (3,040
    )
    
    $
    (847
    )
    
    $
    (35,803
    )
    
    $
    (8,198
    )Total Assets
    
    $
    428,133
    
    
    $
    89,508
    
    
    $
    13,325
    
    
    $
    227,653
    
    
    $
    758,619Number of Stores
    
    
    962
    
    
    
    212
    
    
    
    9
    
    
    
    n/a
    
    
    
    1,183Square Footage (in 000s)
    
    
    3,650
    
    
    
    600
    
    
    
    24
    
    
    
    n/a
    
    
    
    4,274
 OneFirst Quarter Ended
    
    
    
    
    
    
    
    
    
    ThousandApril 29, 2006:
    
    PacSun
    
    demo
    
    Steps
    
    Corporate
    
    TotalNet Sales
    
    $
    251,614
    
    
    $
    48,099
    
    
    $
    175
    
    
    
    n/a
    
    
    $
    299,888% of Total Sales
    
    
    84
    %
    
    
    16
    %
    
    
    0
    %
    
    
    n/a
    
    
    
    100
    %Comparable Store Sales %
    
    
    (2.2
    )%
    
    
    1.0
    %
    
    
    n/a
    
    
    
    n/a
    
    
    
    (1.8
    )%Income/(Loss) before
Income Taxes
    
    $
    44,899
    
    
    $
    4,221
    
    
    $
    (347
    )
    
    $
    (29,635
    )
    
    $
    19,138Total Assets
    
    $
    418,361
    
    
    $
    98,354
    
    
    $
    6,089
    
    
    $
    249,986
    
    
    $
    772,790Number of Stores
    
    
    917
    
    
    
    200
    
    
    
    5
    
    
    
    n/a
    
    
    
    1,122Square Footage (in 000s)
    
    
    3,437
    
    
    
    554
    
    
    
    13
    
    
    
    n/a
    
    
    
    4,004
  8




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6. STOCK-BASED COMPENSATION
  First Quarter2007
    
    2006Stock Awards
    
    ESPP
    
    Stock Awards
    
    ESPPExpected Life
    
    4 years
    
    0.5 years
    
    5 years
    
    0.5 yearsStock Volatility
    
    
    35.6
    %
    
    
    31.9
    %
    
    
    46.6%  48.7
    %
    
    
    35.4
    %Risk-free Interest Rates
    
    
    4.5
    %
    
    
    5.0
    %
    
    
    4.6%  4.9
    %
    
    
    4.5
    %Expected Dividends
    
    None
    
    None
    
    None
    
    None
   Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicExercise
    
    
    Contractual
    
    
    ValueStock Options/SARs
    
    Shares
    
    
    Price
    
    
    Term (Yrs.)
    
    
    ($000s)Outstanding at February 3, 2007
    
    
    2,931,920
    
    
    $
    19.43Granted
    
    
    390,000
    
    
    
    20.87Exercised
    
    
    (48,469
    )
    
    
    11.96Forfeited or expired
    
    
    (89,215
    )
    
    
    24.08Outstanding at May 5, 2007
    
    
    3,184,236
    
    
    $
    19.59
    
    
    
    5.37
    
    
    $
    9,132Vested and expected to vest at
May 5, 2007
    
    
    2,624,228
    
    
    $
    19.08
    
    
    
    5.19
    
    
    $
    9,007Exercisable at May 5, 2007
    
    
    1,779,086
    
    
    $
    17.36
    
    
    
    4.73
    
    
    $
    8,852
  9




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Weighted-Average Grant-Non-vested Shares
    
    Shares
    
    
    Date Fair ValueOutstanding at February 3, 2007
    
    
    327,387
    
    
    $
    19.85Granted
    
    
    352,464
    
    
    
    21.00Vested
    
    
    
    
    
    
    Forfeited
    
    
    (21,240
    )
    
    
    19.95Outstanding at May 5, 2007
    
    
    658,611
    
    
    $
    20.47
  7. NET (LOSS)/INCOME PER SHARE, BASIC AND DILUTED
  May 5, 2007
    
    April 29, 2006Net
    
    
    
    
    
    
    
    
    
    NetFirst Quarter Ended:
    
    Loss
    
    Shares
    
    EPS
    
    Income
    
    Shares
    
    EPSBasic EPS:
    
    $
    (5,058
    )
    
    
    69,578,259
    
    
    $
    (0.07
    )
    
    $
    11,865
    
    
    
    73,144,277
    
    
    $
    0.16Diluted EPS:Effect of dilutive stock options
    
    
    
    
    
    
    
    
    
    
    (0.00
    )
    
    
    
    
    
    
    567,433
    
    
    
    (0.00
    )$
    (5,058
    )
    
    
    69,578,259
    
    
    $
    (0.07
    )
    
    $
    11,865
    
    
    
    73,711,710
    
    
    $
    0.16
  8. OTHER CURRENT ASSETS
  May 5,
    
    
    February 3,2007
    
    
    2007Prepaid expenses
    
    $
    28,844
    
    
    $
    27,748Deferred income taxes
    
    
    7,291
    
    
    
    7,291Non-trade accounts receivable
    
    
    6,636
    
    
    
    11,216Income taxes receivable
    
    
    6,011
    
    
    
    Total other current assets
    
    $
    48,782
    
    
    $
    46,255
 10




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9. OTHER CURRENT LIABILITIES
  May 5,
    
    
    February 3,2007
    
    
    2007Accrued capital expenditures
    
    $
    18,519
    
    
    $
    13,802Accrued gift cards
    
    
    10,415
    
    
    
    14,007Accrued compensation and benefits
    
    
    9,608
    
    
    
    15,529Sales taxes payable
    
    
    3,803
    
    
    
    4,771Income taxes payable
    
    
    
    
    
    
    8,706Other
    
    
    20,176
    
    
    
    17,137Total other current liabilities
    
    $
    62,521
    
    
    $
    73,952
 10. INCOME TAXES
    11. COMMITMENTS AND CONTINGENCIES
 Litigation
 Letters of Credit
 11




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12. SUBSEQUENT EVENT
  12




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ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF CONSOLIDATED
OPERATIONS
  Cautionary Note Regarding Forward-Looking Statements
  Executive Overview
  Comparable (or same store) sales
 Net merchandise margins
 Operating margin
 13




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Store sales trends
 Cash flow and liquidity (working capital)
 Critical Accounting Policies
  Recognition of Revenue
 Valuation of Inventories
 Determination of Stock-Based Compensation Expense
  Store Operating Lease Accounting
 14




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Evaluation of Long-Lived Assets
  Evaluation of Insurance Reserves
 Evaluation of Income Taxes
 Evaluation of Litigation Matters
 15




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Results of Operations
  First Quarter EndedMay 5,
    
    April 29,2007
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold, including buying,
distribution and occupancy costs
    
    
    74.2
    
    
    
    67.6Gross margin
    
    
    25.8
    
    
    
    32.4Selling, general and administrative expenses
    
    
    28.7
    
    
    
    26.6Operating (loss)/income
    
    
    (2.9
    )
    
    
    5.8Interest income
    
    
    0.3
    
    
    
    0.6(Loss)/Income before income tax (benefit)/expense
    
    
    (2.6
    )
    
    
    6.4Income tax (benefit)/expense
    
    
    (1.0
    )
    
    
    2.4Net (loss)/income
    
    
    (1.6
    )%
    
    
    4.0
    %
  May 5, 2007
    
    April 29, 2006PacSun stores
    
    
    845
    
    
    
    820Outlet stores
    
    
    117
    
    
    
    97demo stores
    
    
    212
    
    
    
    200One Thousand Steps stores
    
    
    9
    
    
    
    5Total stores
    
    
    1,183
    
    
    
    1,122Square footage (in 000s)
    
    
    4,274
    
    
    
    4,004
  The first quarter (thirteen weeks) ended May 5, 2007 as compared to the first quarter (thirteen
weeks) ended April 29, 2006
 Net Sales
  $millions
    
    
    Attributable to$
    21
    
    
    Net sales from stores opened in fiscal 2006 not yet included in the comparable store base4
    
    
    Other non-comparable sales (net sales from expanded or relocated stores not yet included
in the comparable store base and internet net sales)(1
    )
    
    20 closed stores in fiscal 2007 and 3 closed stores in fiscal 2006(3
    )
    
    1.2% decrease in comparable store net sales in the first quarter of fiscal 2007 compared
to the first quarter of fiscal 2006$
    21
    
    
    Total
 16




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Gross Margin
  Selling, General and Administrative Expenses
  %
    
    Attributable to0.9
    
    
    Increase in store payroll of approximately $6 million, primarily due
to the 104 new store additions during fiscal 2006 and the first
quarter of fiscal 2007 and deleveraging these costs against the
negative comparable store net sales result in the first quarter of
fiscal 2007. In total, these payroll costs increased in absolute
dollars to $44 million for the first quarter of fiscal 2007 from $38
million during the first quarter of fiscal 2006.0.5
    
    
    Increase in depreciation expenses of approximately $3 million for the
first quarter of fiscal 2007 compared to the first quarter of fiscal
2006, primarily due to the 104 new store additions during fiscal 2006
and the first quarter of fiscal 2007, as well as the impact of the
Companys store remodeling program in the first quarter of fiscal
2007.0.3
    
    
    Increase in other selling expenses of $1 million attributable to the
demo store closure activities previously announced (see Note 4 to the
condensed consolidated financial statements).0.3
    
    
    Increase in consulting expenses of $1 million associated with an
ongoing strategic branding study in the first quarter of fiscal 2007.0.1
    
    
    Net increase in all other selling, general and administrative expenses.2.1
    
    
    Total
 Net Interest Income
  17




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Income Tax (Benefit)/Expense
  Liquidity and Capital Resources
  Operating Cash Flows
  $millions
    
    
    Attributable to$
    (17
    )
    
    Decrease in net income.(4
    )
    
    Decrease in cash flows from deferred lease incentives due to
fewer new store openings in the first quarter of fiscal 2007 (4)
compared to the first quarter of fiscal 2006 (20).(3
    )
    
    Decrease in cash flows related to non-inventory current assets,
primarily due to increased income tax receivable accruals,
partially offset by quicker collection of other non-trade
receivables.2
    
    
    Increase in cash flows from all other assets and liabilities6
    
    
    Increase in cash flows from accounts payable, net of inventory,
due to timing of payments and reductions in overall inventory
levels versus the first quarter of last year.6
    
    
    Increase in cash flows related to deferred compensation
liabilities due to lower cash disbursements in the first quarter
of fiscal 2007 compared to the first quarter of fiscal 2006.$
    (10
    )
    
    Total
 Working Capital
  $millions
    
    
    Description$
    195
    
    
    Working capital at February 3, 2007(28
    )
    
    Decrease in cash and marketable securities, net of income taxes and accounts payable,
primarily due to capital expenditures and income tax payments, among other items (see
cash flow statement).4
    
    
    Net increase in working capital attributable to all other current assets and liabilities.$
    171
    
    
    Working capital at May 5, 2007
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##### Table of Contents



Investing Cash Flows
  Financing Cash Flows
  Credit Facility
  Contractual Obligations
  Payments Due by PeriodContractual Obligations
    
    
    
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More than(in millions)
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsOperating lease obligations
    
    $
    720
    
    
    $
    111
    
    
    $
    213
    
    
    $
    178
    
    
    $
    218Letters of credit
    
    
    25
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    745
    
    
    $
    136
    
    
    $
    213
    
    
    $
    178
    
    
    $
    218
  19




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##### Table of Contents



Operating Leases
  Indemnifications
   New Accounting Pronouncements
  Inflation
  Seasonality and Quarterly Results
  20




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##### Table of Contents



ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4  CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 Item 1  Legal Proceedings
  
 Item 1A  Risk Factors
  Our comparable store net sales results will fluctuate significantly, which can cause volatility in
our operating performance and stock price.
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##### Table of Contents



Our failure to identify and respond appropriately to changing consumer preferences and fashion
trends in a timely manner could have a material adverse impact on our profitability.
 We are currently evaluating store design alternatives for all of our retail concepts, which may not
result in improved operational performance.
 Our continued growth depends, in part, on our ability to develop new store concepts and/or open new
stores that achieve acceptable levels of profitability. Any failure to do so may negatively impact
our stock price and operational performance.
 We launched operations of a new retail concept, One Thousand Steps, in fiscal 2006, which could
divert attention from existing operations.
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##### Table of Contents



We face significant competition from both vertically-integrated and brand-based competitors that
are growing rapidly, which could have a material adverse effect on our business.
 Our customers may not prefer our proprietary brand merchandise, which may negatively impact our
profitability.
 Our current or prospective vendors may be unable or unwilling to supply us with adequate quantities
of their merchandise in a timely manner or at acceptable prices, which could have a material
adverse impact on our business.
 Our foreign sources of production may not always be reliable, which may result in a disruption in
the flow of new merchandise to our stores.
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##### Table of Contents



The loss of key personnel could have a material adverse effect on our business at any time.
 Our information systems may not be adequate to support future growth, which could disrupt business
operations.
 Adverse outcomes of litigation matters could significantly affect our operational results.
 Our dependence on a single distribution facility exposes us to significant business disruption
risks.
 Our stock price can fluctuate significantly due to a variety of factors, which can negatively
impact our total market value.
 Selling merchandise over the internet carries particular risks that can have a negative impact on
our business.
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##### Table of Contents



Any failure by us to maintain credit facility financial covenants could have a material adverse
impact on our business.
 The effects of terrorism or war could significantly impact consumer spending and our operational
performance.
   
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3  Defaults upon Senior Securities
  
 Item 4  Submission of Matters to a Vote of Security Holders
  
 Item 5  Other Information
  25




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##### Table of Contents



Item 6  Exhibits
 Exhibit 10.1
    
    Summary of Named Executive Officers Annual Compensation for fiscal 2007Exhibit 10.2
    
    Summary of Board CompensationExhibit 10.3
    
    Employment Agreement, dated as of May 22, 2007, between the Company and Sally Frame Kasaks (1)Exhibit 10.4
    
    Form of Stock Appreciation Rights Agreement between the Company and Sally Frame Kasaks (1)Exhibit 10.5
    
    Form of Restricted Stock Unit Agreement between the Company and Sally Frame Kasaks (1)Exhibit 31
    
    Written statements of Sally Frame Kasaks and Gerald M. Chaney pursuant to section 302 of the Sarbanes-Oxley Act of
2002.Exhibit 32
    
    Written statement of Sally Frame Kasaks and Gerald M. Chaney pursuant to section 906 of the Sarbanes-Oxley Act of
2002.
 
 Note Reference:
 (1)
    
    Incorporated by reference from the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on May 23, 2007
 26




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##### Table of Contents



SIGNATURES
  PACIFIC SUNWEAR OF CALIFORNIA, INC.
(Registrant)Date:  June 7, 2007
    /s/   SALLY FRAME KASAKSSally Frame KasaksChairman and Chief Executive Officer
(Principal Executive Officer)Date:  June 7, 2007
    /s/   GERALD M. CHANEYGerald M. ChaneySenior Vice President,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer) 27




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##### Table of Contents



EXHIBIT INDEX
 Exhibit 10.1
    
    Summary of Named Executive Officers Annual Compensation for fiscal 2007Exhibit 10.2
    
    Summary of Board CompensationExhibit 10.3
    
    Employment Agreement, dated as of May 22, 2007, between the Company and Sally Frame Kasaks (1)Exhibit 10.4
    
    Form of Stock Appreciation Rights Agreement between the Company and Sally Frame Kasaks (1)Exhibit 10.5
    
    Form of Restricted Stock Unit Agreement between the Company and Sally Frame Kasaks (1)Exhibit 31
    
    Written statements of Sally Frame Kasaks and Gerald M. Chaney pursuant to section 302 of the Sarbanes-Oxley Act of
2002.Exhibit 32
    
    Written statement of Sally Frame Kasaks and Gerald M. Chaney pursuant to section 906 of the Sarbanes-Oxley Act of
2002.
 
 Note Reference:
 (1)
    
    Incorporated by reference from the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on May 23, 2007