##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C 20549


FORM 10-Q

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|X |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended August 2, 2003

OR

|   |  |                                                                                          
|-- |  | -----------------------------------------------------------------------------------------
|__ |  | 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.)
|                                                                                       |  |                                               
|3450 East Miraloma Avenue
Anaheim, California
(Address of principal executive offices) |  | 92806
(Zip code)                              

(714) 414-4000
(Registrants telephone number, including area code)

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   x    No   __

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes   x    No   __

The number of shares outstanding of the registrants Common Stock, par
value $.01 per share, at August 25, 2003, was 51,770,519.





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TABLE OF CONTENTS



|                          |                                                                                                             |                                                                      |  |  |  |  |  | 
|------------------------- | ----------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  |  |  |  |  | 
|                          |                                                                                                             | CONDENSED CONSOLIDATED BALANCE SHEETS                               
|                          |                                                                                                             | CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|                          |                                                                                                             | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                     
|                          |                                                                                                             | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                
|                          | ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF CONSOLIDATED OPERATIONS
|                          | ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                        
|                          | ITEM 4  CONTROLS AND PROCEDURES                                                                           
|PART II-OTHER INFORMATION
|                          | Item 1  Legal Proceedings                                                                                 
|                          | Item 2  Changes in 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                                                                                 
|                          | Item 6  Exhibits and Reports on Form 8-K                                                                  
|SIGNATURES               
|EXHIBIT INDEX            
|EXHIBIT 31               
|EXHIBIT 32               



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##### Table of Contents



PACIFIC SUNWEAR OF CALIFORNIA, INC.

FORM 10-Q
For the Quarter Ended August 2, 2003

Index

|         |  |                                                                                       |  |                                                                                                                                                    |       |  |      | 
|-------- |  | ------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- | ----- |  | ---- | 
|PART I.  |  | FINANCIAL INFORMATION                                                                 |  | Page                                                                                                                                              
|Item 1.  |  | Condensed Consolidated Financial Statements (unaudited):                              |  |                                                                                                                                                    |       | 
|         |  |                                                                                       |  | Condensed Consolidated Balance Sheets as of August 2, 2003 and February 1, 2003                                                                    |       |  | 3    | 
|         |  |                                                                                       |  | Condensed Consolidated Statements of Income and Comprehensive Income for the
second quarter and first half ended August 2, 2003 and August 3, 2002 |       |  | 4    | 
|         |  |                                                                                       |  | Condensed Consolidated Statements of Cash Flows for the first half ended
August 2, 2003 and August 3, 2002                                         |       |  | 5    | 
|         |  |                                                                                       |  | Notes to Condensed Consolidated Financial Statements                                                                                               |       |  | 6-13 | 
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  |                                                                                                                                                    | 14-23 | 
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                                                                    | 23    | 
|Item 4   |  | Controls and Procedures                                                               |  |                                                                                                                                                    | 23    | 
|PART II. |  | OTHER INFORMATION                                                                     |  |                                                                                                                                                    |       | 
|Item 1.  |  | Legal Proceedings                                                                     |  |                                                                                                                                                    | 23-24 | 
|Item 2.  |  | Changes in Securities and Use of Proceeds                                             |  |                                                                                                                                                    | 24    | 
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  |                                                                                                                                                    | 24    | 
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  |                                                                                                                                                    | 24    | 
|Item 5.  |  | Other Information                                                                     |  |                                                                                                                                                    | 24    | 
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                                                    | 25    | 
|         |  |                                                                                       |  | SIGNATURE PAGE                                                                                                                                     |       |  | 26   | 

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PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share amounts)

ASSETS

|                                       |                                                                                                                                    |                              |                                            |                                      |         |           |         |             |         |         |         | 
|-------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ------------------------------------------ | ------------------------------------ | ------- | --------- | ------- | ----------- | ------- | ------- | ------- | 
|                                       |                                                                                                                                    |                              |                                            |                                      |         | August 2, |         | February 1,
|CURRENT ASSETS:                        |                                                                                                                                    | 2003                         |                                            | 2003                                
|                                       |                                                                                                                                    |                              |                                            |                                     
|                                       | Cash and cash equivalents                                                                                                          |                              | $                                          | 62,836                               |         |           | $       | 36,438      |        
|                                       | Accounts receivable                                                                                                                |                              |                                            | 4,358                                |         |           |         | 2,916       |        
|                                       | Merchandise inventories                                                                                                            |                              |                                            | 186,033                              |         |           |         | 123,433     |        
|                                       | Prepaid expenses, includes $9,919 and $9,664 of prepaid rent, respectively                                                         |                              |                                            | 16,397                               |         |           |         | 14,871      |        
|                                       | Income tax receivable                                                                                                              |                              |                                            | 2,708                                |         |           |         |            |        
|                                       | Deferred tax asset                                                                                                                 |                              |                                            | 4,975                                |         |           |         | 4,975       |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       |                                                                                                                                    | Total current assets         |                                            |                                      | 277,307 |           |         |             | 182,633 |        
|PROPERTY AND EQUIPMENT:                |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       | Land                                                                                                                               |                              |                                            | 12,156                               |         |           |         | 12,156      |        
|                                       | Buildings and building improvements                                                                                                |                              |                                            | 26,681                               |         |           |         | 26,680      |        
|                                       | Leasehold improvements                                                                                                             |                              |                                            | 113,231                              |         |           |         | 111,431     |        
|                                       | Furniture, fixtures and equipment                                                                                                  |                              |                                            | 161,064                              |         |           |         | 148,377     |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       |                                                                                                                                    | Total property and equipment |                                            |                                      | 313,132 |           |         |             | 298,644 |        
|                                       | Less accumulated depreciation and amortization                                                                                     |                              |                                            | (111,853                             | )       |           |         | (97,131     | )      
|                                       |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       |                                                                                                                                    | Net property and equipment   |                                            |                                      | 201,279 |           |         |             | 201,513 |        
|OTHER ASSETS:                          |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       | Goodwill                                                                                                                           |                              |                                            | 6,492                                |         |           |         | 6,492       |        
|                                       | Deferred compensation and other assets                                                                                             |                              |                                            | 9,569                                |         |           |         | 9,105       |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       |                                                                                                                                    | Total other assets           |                                            |                                      | 16,061  |           |         |             | 15,597  |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       |                                                                                                                                    |                              |                                            | Total assets                         |         | $         | 494,647 |             |         | $       | 399,743 | 
|                                       |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       |                                                                                                                                    |                              |                                            | LIABILITIES AND SHAREHOLDERS EQUITY |         |           |         |             |         |         |         | 
|CURRENT LIABILITIES:                   |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       | Line of credit                                                                                                                     |                              | $                                          |                                     |         |           | $       |            |        
|                                       | Current portion of long-term debt                                                                                                  |                              |                                            | 851                                  |         |           |         | 829         |        
|                                       | Current portion of capital lease obligations                                                                                       |                              |                                            | 1,250                                |         |           |         | 1,521       |        
|                                       | Accounts payable                                                                                                                   |                              |                                            | 74,144                               |         |           |         | 28,456      |        
|                                       | Accrued liabilities                                                                                                                |                              |                                            | 35,833                               |         |           |         | 34,522      |        
|                                       | Income taxes payable                                                                                                               |                              |                                            |                                     |         |           |         | 8,000       |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       |                                                                                                                                    | Total current liabilities    |                                            |                                      | 112,078 |           |         |             | 73,328  |        
|LONG-TERM LIABILITIES:                 |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       | Long-term debt                                                                                                                     |                              |                                            | 674                                  |         |           |         | 1,102       |        
|                                       | Long-term capital lease obligations                                                                                                |                              |                                            | 1,736                                |         |           |         | 2,236       |        
|                                       | Deferred compensation (Note 10)                                                                                                    |                              |                                            | 10,335                               |         |           |         | 7,097       |        
|                                       | Deferred rent                                                                                                                      |                              |                                            | 11,429                               |         |           |         | 10,574      |        
|                                       | Deferred tax liability                                                                                                             |                              |                                            | 3,015                                |         |           |         | 3,015       |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       |                                                                                                                                    | Total long-term liabilities  |                                            |                                      | 27,189  |           |         |             | 24,024  |        
|Commitments and contingencies (Note 9) |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|SHAREHOLDERS EQUITY:                  |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       | Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued and
outstanding                                          |                              |                                            |                                     |         |           |         |            |        
|                                       | Common stock, $.01 par value; 113,906,250 shares authorized; 51,496,024 and
49,488,764 shares issued and outstanding, respectively |                              |                                            | 515                                  |         |           |         | 495         |        
|                                       | Additional paid-in capital                                                                                                         |                              |                                            | 124,618                              |         |           |         | 93,008      |        
|                                       | Retained earnings                                                                                                                  |                              |                                            | 230,247                              |         |           |         | 208,888     |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       |                                                                                                                                    | Total shareholders equity   |                                            |                                      | 355,380 |           |         |             | 302,391 |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |           |         |            
|                                       |                                                                                                                                    |                              | Total liabilities and shareholders equity |                                      | $       | 494,647   |         |             | $       | 399,743 |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |           |         |            

See accompanying notes

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PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
(in thousands, except share and per share amounts)

|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|---------------------------------------------------------------------- |  | ---------------------------- | ---------- | ------------------------ |  | -------------- | ---------- | -------------- |  | - | ---------- |  |  | - | ---------- | -
|                                                                       |  | For the Second Quarter Ended |            | For the First Half Ended
|                                                                       |  |                              |            |                         
|                                                                       |  | August 2, 2003               |            | August 3, 2002           |  | August 2, 2003 |            | August 3, 2002
|                                                                       |  |                              |            |                          |  |                |            |               
|Net sales                                                              |  | $                            | 234,392    |                          |  | $              | 190,854    |                |  | $ | 432,723    |  |  | $ | 352,564    |  
|Cost of goods sold, including
buying, distribution and
occupancy costs |  |                              | 154,558    |                          |  |                | 130,249    |                |  |   | 289,034    |  |  |   | 242,792    |  
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|Gross margin                                                           |  |                              | 79,834     |                          |  |                | 60,605     |                |  |   | 143,689    |  |  |   | 109,772    |  
|Selling, general and
administrative expenses                           |  |                              | 58,180     |                          |  |                | 48,454     |                |  |   | 109,141    |  |  |   | 92,168     |  
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|Operating income                                                       |  |                              | 21,654     |                          |  |                | 12,151     |                |  |   | 34,548     |  |  |   | 17,604     |  
|Interest income/(expense), net                                         |  |                              | 69         |                          |  |                | (306       | )              |  |   | 129        |  |  |   | (453       | )
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|Income before income tax expense                                       |  |                              | 21,723     |                          |  |                | 11,845     |                |  |   | 34,677     |  |  |   | 17,151     |  
|Income tax expense                                                     |  |                              | 8,343      |                          |  |                | 4,549      |                |  |   | 13,318     |  |  |   | 6,586      |  
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|Net income                                                             |  | $                            | 13,380     |                          |  | $              | 7,296      |                |  | $ | 21,359     |  |  | $ | 10,565     |  
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|Comprehensive income                                                   |  | $                            | 13,380     |                          |  | $              | 7,296      |                |  | $ | 21,359     |  |  | $ | 10,565     |  
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|Net income per share, basic                                            |  | $                            | 0.26       |                          |  | $              | 0.15       |                |  | $ | 0.43       |  |  | $ | 0.21       |  
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|Net income per share, diluted                                          |  | $                            | 0.26       |                          |  | $              | 0.15       |                |  | $ | 0.41       |  |  | $ | 0.21       |  
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|Weighted average shares
outstanding, basic                             |  |                              | 50,590,427 |                          |  |                | 49,257,374 |                |  |   | 50,136,729 |  |  |   | 49,227,256 |  
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|Weighted average shares
outstanding, diluted                           |  |                              | 52,069,358 |                          |  |                | 49,844,660 |                |  |   | 51,554,346 |  |  |   | 49,973,906 |  
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|Proforma net income per share,
basic (Note 11)                         |  | $                            | 0.18       |                          |  | $              | 0.10       |                |  | $ | 0.28       |  |  | $ | 0.14       |  
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|Proforma net income per share,
diluted (Note 11)                       |  | $                            | 0.17       |                          |  | $              | 0.10       |                |  | $ | 0.28       |  |  | $ | 0.14       |  
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|Proforma weighted average
shares outstanding, basic (Note
11)          |  |                              | 75,885,641 |                          |  |                | 73,886,061 |                |  |   | 75,205,094 |  |  |   | 73,840,883 |  
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  
|Proforma weighted average
shares outstanding, diluted
(Note 11)        |  |                              | 78,104,037 |                          |  |                | 74,766,990 |                |  |   | 77,331,519 |  |  |   | 74,960,859 |  
|                                                                       |  |                              |            |                          |  |                |            |                |  |   |            |  |  |   |            |  

See accompanying notes

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PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

|                                                                                  |                                                     |                                        |                                                     |         |                          |         |                |         |         |         |  
|--------------------------------------------------------------------------------- | --------------------------------------------------- | -------------------------------------- | --------------------------------------------------- | ------- | ------------------------ | ------- | -------------- | ------- | ------- | ------- | -
|                                                                                  |                                                     |                                        |                                                     |         | For the First Half Ended
|                                                                                  |                                                     |                                        |                                                     |         |                         
|                                                                                  |                                                     |                                        |                                                     |         | August 2, 2003           |         | August 3, 2002
|                                                                                  |                                                     |                                        |                                                     |         |                          |         |               
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |                                                     |                                        |                                                     |         |                          |         |                |        
|Net income                                                                        |                                                     | $                                      | 21,359                                              |         |                          | $       | 10,565         |        
|Adjustments to reconcile net income to net cash provided by operating
activities: |                                                     |                                        |                                                     |         |                          |         |                |        
|                                                                                  | Depreciation and amortization                       |                                        |                                                     | 17,752  |                          |         |                | 16,057  |        
|                                                                                  | Loss on disposal of equipment                       |                                        |                                                     | 1,085   |                          |         |                | 2,110   |        
|                                                                                  | Change in operating assets and liabilities:         |                                        |                                                     |         |                          |         |                |         |        
|                                                                                  |                                                     | Accounts receivable                    |                                                     |         | (1,442                   | )       |                |         | (2,146  | )      
|                                                                                  |                                                     | Merchandise inventories                |                                                     |         | (62,600                  | )       |                |         | (50,693 | )      
|                                                                                  |                                                     | Prepaid expenses                       |                                                     |         | (1,526                   | )       |                |         | (1,494  | )      
|                                                                                  |                                                     | Deferred compensation and other assets |                                                     |         | 2,774                    |         |                |         | 278     |        
|                                                                                  |                                                     | Accounts payable                       |                                                     |         | 45,688                   |         |                |         | 18,471  |        
|                                                                                  |                                                     | Accrued liabilities                    |                                                     |         | 1,311                    |         |                |         | 3,645   |        
|                                                                                  |                                                     | Income taxes and deferred taxes        |                                                     |         | (581                     | )       |                |         | (6,466  | )      
|                                                                                  |                                                     | Deferred rent                          |                                                     |         | 855                      |         |                |         | 877     |        
|                                                                                  |                                                     |                                        |                                                     |         |                          |         |                |        
|                                                                                  |                                                     |                                        | Net cash provided by/(used in) operating activities |         |                          | 24,675  |                |         |         | (8,796  | )
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |                                                     |                                        |                                                     |         |                          |         |                |        
|                                                                                  | Investment in property and equipment                |                                        |                                                     | (18,603 | )                        |         |                | (22,742 | )      
|                                                                                  |                                                     |                                        |                                                     |         |                          |         |                |        
|                                                                                  |                                                     |                                        | Net cash used in investing activities               |         |                          | (18,603 | )              |         |         | (22,742 | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |                                                     |                                        |                                                     |         |                          |         |                |        
|                                                                                  | Proceeds from exercise of stock options             |                                        |                                                     | 21,503  |                          |         |                | 1,321   |        
|                                                                                  | Net borrowings under credit facility                |                                        |                                                     |        |                          |         |                | 11,700  |        
|                                                                                  | Principal payments under capital lease obligations  |                                        |                                                     | (771    | )                        |         |                | (444    | )      
|                                                                                  | Principal payments under long-term debt obligations |                                        |                                                     | (406    | )                        |         |                | (4      | )      
|                                                                                  |                                                     |                                        |                                                     |         |                          |         |                |        
|                                                                                  |                                                     |                                        | Net cash provided by financing activities           |         |                          | 20,326  |                |         |         | 12,573  |  
|                                                                                  |                                                     |                                        |                                                     |         |                          |         |                |        
|NET DECREASE IN CASH AND CASH EQUIVALENTS:                                        |                                                     |                                        | 26,398                                              |         |                          |         | (18,965        | )      
|CASH AND CASH EQUIVALENTS, beginning of period                                    |                                                     |                                        | 36,438                                              |         |                          |         | 23,136         |        
|                                                                                  |                                                     |                                        |                                                     |         |                          |         |                |        
|CASH AND CASH EQUIVALENTS, end of period                                          |                                                     | $                                      | 62,836                                              |         |                          | $       | 4,171          |        
|                                                                                  |                                                     |                                        |                                                     |         |                          |         |                |        
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:                                |                                                     |                                        |                                                     |         |                          |         |                |        
|Cash paid during the period for:                                                  |                                                     |                                        |                                                     |         |                          |         |                |        
|                                                                                  | Interest                                            |                                        | $                                                   | 135     |                          |         | $              | 565     |        
|                                                                                  | Income taxes                                        |                                        | $                                                   | 13,899  |                          |         | $              | 13,052  |        

Supplemental disclosures of non-cash transactions (in thousands): During the
first half ended August 2, 2003 and August 3, 2002, the Company recorded an
increase to additional paid-in capital of $10,127 and $649, respectively,
related to tax benefits associated with the exercise of non-qualified stock
options. Also, during the first half ended August 3, 2002, the Company
recorded an increase to additional paid-in capital of $291 related to the
issuance of restricted stock to satisfy certain deferred compensation
liabilities. In addition, during the first half ended August 3, 2002, the
Company purchased a prepaid three-year computer maintenance agreement under a
long-term debt obligation for $2,413.

See accompanying notes

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PACIFIC SUNWEAR OF CALIFORNIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, all amounts in thousands unless otherwise indicated)

NOTE 1  BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements are unaudited and
have been prepared in accordance with accounting principles generally accepted
in the United States of America (GAAP) for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. The condensed consolidated
financial statements include the accounts of Pacific Sunwear of California,
Inc. and its wholly owned subsidiaries (the Company). All intercompany
transactions have been eliminated in consolidation.

The Companys fiscal year is the 52- or 53-week period ending on the Saturday
closest to January 31. Fiscal 2003 is the 52-week period ending January 31,
2004. Fiscal 2002 was the 52-week period ended February 1, 2003. Fiscal
2001 was the 52-week period ended February 2, 2002.

In the opinion of management, all adjustments consisting only of normal
recurring entries necessary for a fair presentation have been included. The
preparation of the condensed consolidated financial statements in conformity
with GAAP necessarily requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the condensed consolidated
financial statements and reported revenues and expenses during the reporting
period. Actual results could differ from these estimates. The results of
operations for the second quarter and first half ended August 2, 2003, are not
necessarily indicative of the results that may be expected for fiscal 2003.
For further information, refer to the Companys consolidated financial
statements and notes thereto on Form 10-K as of and for the years ended
February 1, 2003, February 2, 2002, and February 4, 2001.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation The consolidated financial statements include the
accounts of Pacific Sunwear of California, Inc. and its wholly owned
subsidiaries, Pacific Sunwear Stores Corp. and ShopPacSun.com Corp. All
intercompany transactions have been eliminated in consolidation.

Use of Estimates  The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America necessarily requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the consolidated financial
statements as well as the reported revenues and expenses during the reporting
period. Actual results could differ from these estimates.

Revenue Recognition  Sales are recognized upon purchase by customers at the
Companys retail store locations or upon shipment for orders received through
the Companys website. The Company has accrued $.7 million as of August 2,
2003 to estimate sales returns by customers based on historical sales return
results. Actual return rates have historically been within managements
expectations and the accruals established.

Inventory Valuation  Merchandise inventories are stated at the lower of cost
(first-in, first-out method) or market. Cost is determined using the retail
inventory method. At any one time, inventories include items that have been
marked down to managements best estimate of their fair market value.
Management bases the decision to mark down merchandise upon the age of the item
and its current rate of sale.

Goodwill and Other Intangible Assets  On February 3, 2002, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill
and Intangible Assets, which revised the accounting for purchased goodwill and
intangible assets. Under SFAS No. 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are tested for impairment annually
and also in the

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event of an impairment indicator. The Company completed the required
transitional impairment test and the annual test and determined that no
impairment existed. Any subsequent impairment losses will be reflected in
operating income. With the adoption of SFAS No. 142, the Company discontinued
amortization of goodwill.

The Company evaluates the recoverability of goodwill at least annually based on
a two-step impairment test. The first step compares the fair value of each
reporting unit with its carrying amount, including goodwill. If the carrying
amount exceeds fair value, then the second step of the impairment test is
performed to measure the amount of any impairment loss. Fair value is
determined based on estimated future cash flows, discounted at a rate that
approximates the Companys cost of capital. Such estimates are subject to
change and the Company may be required to recognize impairment losses in the
future.

Other Long-Lived Assets  On February 3, 2002, the Company adopted SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, which
superseded previous guidance on financial accounting and reporting for the
impairment or disposal of long-lived assets and for segments of a business to
be disposed of. Upon adoption of SFAS No. 144, the Company reviewed long-lived
assets and determined that no impairment existed. Under SFAS No. 144,
long-lived assets, including amortizing intangible assets, will be tested for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable.

Income Taxes  Current income tax expense is the amount of income taxes
expected to be payable for the current year. A deferred income tax asset or
liability is established for the expected future consequences of temporary
differences in the financial reporting and tax bases of assets and liabilities.
The Company considers future taxable income and ongoing prudent and feasible
tax planning in assessing the value of its deferred tax assets. If the Company
determines that it is more likely than not that these assets will not be
realized, the Company would reduce the value of these assets to their expected
realizable value through a valuation allowance, thereby decreasing net income.
Evaluating the value of these assets is necessarily based on the Companys
judgment. If the Company subsequently determined that the deferred tax assets,
which had been written down, would be realized in the future, the value of the
deferred tax assets would be increased, thereby increasing net income in the
period when that determination was made.

Litigation  The Company is involved from time to time in litigation
incidental to its business. Management believes that the outcome of current
litigation will not have a material adverse effect upon the results of
operations or financial condition of the Company and, from time to time, may
make provisions for potential litigation losses. Depending on the actual
outcome of pending litigation, charges in excess of any provisions could be
recorded in the future which may have an adverse effect on the Companys
operating results (see Note 9).

Stock Split  On December 18, 2002, the Company effected a three-for-two stock
split. All share and per share amounts have been restated to give retroactive
recognition to the stock split in prior periods.

Stock-Based Compensation  The Company accounts for stock-based compensation
in accordance with Accounting Principles Board (APB) Opinion No. 25. In
March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44 of APB Opinion No. 25, Accounting for Certain
Transactions Involving Stock Compensation, which, among other things,
addressed accounting consequences of a modification that reduces the exercise
price of a fixed stock option award (otherwise known as repricing). The
adoption of this interpretation did not impact the Companys consolidated
financial statements.

SFAS No. 123 (SFAS 123), Accounting for Stock-Based Compensation, requires
the disclosure of pro forma net income and earnings per share. Under SFAS 123,
the fair value of stock-based awards to employees is calculated through the use
of option-pricing models, even though such models were developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Companys stock option
awards. These models also require subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect the
calculated values. The Companys calculations were made using the
Black-Scholes option-

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pricing model with the following weighted average assumptions: expected life, 5
years; stock volatility, 45.3% for fiscal 2003 and 60.9% for fiscal 2002;
risk-free interest rates, 3.3% for fiscal 2003 and 4.7% for fiscal 2002; and no
dividends during the expected term. The Companys calculations are based on a
single-option valuation approach and forfeitures are recognized as they occur.
If the computed fair values of the fiscal 2003 and fiscal 2002 awards had been
amortized to expense over the vesting period of the awards, net income and
earnings per share for the second quarter and first half ended August 2, 2003
would have been reduced to the pro forma amounts indicated below:

|                              |                                                                                                                                             |            |   |                              |   |                          |   |                |   |                |   |        |   |  |   |        |   | 
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | - | ---------------------------- | - | ------------------------ | - | -------------- | - | -------------- | - | ------ | - |  | - | ------ | - | 
|                              |                                                                                                                                             |            |   | For the Second Quarter Ended |   | For the First Half Ended
|                              |                                                                                                                                             |            |   |                              |   |                         
|                              |                                                                                                                                             |            |   | August 2, 2003               |   | August 3, 2002           |   | August 2, 2003 |   | August 3, 2002
|                              |                                                                                                                                             |            |   |                              |   |                          |   |                |   |               
|                              |                                                                                                                                             | Net Income |   |                              |   |                          |   |                |   |                |   |        |   |  |   |        |   | 
|                              | As reported                                                                                                                                 |            | $ | 13,380                       |   |                          | $ | 7,296          |   |                | $ | 21,359 |   |  | $ | 10,565 |  
|                              | Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effects |            |   | (1,570                       | ) |                          |   | (1,437         | ) |                |   | (3,090 | ) |  |   | (2,962 | )
|                              |                                                                                                                                             |            |   |                              |   |                          |   |                |   |                |   |        |   |  |   |       
|                              | Pro forma                                                                                                                                   |            | $ | 11,810                       |   |                          | $ | 5,859          |   |                | $ | 18,269 |   |  | $ | 7,603  |  
|                              |                                                                                                                                             |            |   |                              |   |                          |   |                |   |                |   |        |   |  |   |       
|                              | Net Income Per Share, Basic                                                                                                                 |            |   |                              |   |                          |   |                |   |                |   |        |   |  |   |        |  
|                              | As reported                                                                                                                                 |            | $ | 0.26                         |   |                          | $ | 0.15           |   |                | $ | 0.43   |   |  | $ | 0.21   |  
|                              | Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effects |            |   | (0.03                        | ) |                          |   | (0.03          | ) |                |   | (0.07  | ) |  |   | (0.06  | )
|                              |                                                                                                                                             |            |   |                              |   |                          |   |                |   |                |   |        |   |  |   |       
|                              | Pro forma                                                                                                                                   |            | $ | 0.23                         |   |                          | $ | 0.12           |   |                | $ | 0.36   |   |  | $ | 0.15   |  
|                              |                                                                                                                                             |            |   |                              |   |                          |   |                |   |                |   |        |   |  |   |       
|Net Income Per Share, Diluted |                                                                                                                                             |            |   |                              |   |                          |   |                |   |                |   |        |   |  |   |       
|                              | As reported                                                                                                                                 |            | $ | 0.26                         |   |                          | $ | 0.15           |   |                | $ | 0.41   |   |  | $ | 0.21   |  
|                              | Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effects |            |   | (0.03                        | ) |                          |   | (0.03          | ) |                |   | (0.05  | ) |  |   | (0.06  | )
|                              |                                                                                                                                             |            |   |                              |   |                          |   |                |   |                |   |        |   |  |   |       
|                              | Pro forma                                                                                                                                   |            | $ | 0.23                         |   |                          | $ | 0.12           |   |                | $ | 0.36   |   |  | $ | 0.15   |  
|                              |                                                                                                                                             |            |   |                              |   |                          |   |                |   |                |   |        |   |  |   |       

New Accounting Pronouncements  In April 2002, the FASB issued SFAS No. 145
(SFAS 145), Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. SFAS 145 amended certain
provisions of SFAS 13 and requires the fair value recognition of guarantee
obligations under which the Company may become secondarily liable. The Company
adopted SFAS 145 during fiscal 2002. The adoption of SFAS 145 resulted in the
recognition of a $.5 million liability related to the Companys guarantee of an
assignees performance under a lease obligation (see Note 9).

In June 2002, the FASB issued SFAS No. 146 (SFAS 146), Accounting for Costs
Associated with Exit or Disposal Activities, which addresses financial
accounting and reporting for costs associated with exit or disposal activities
and supersedes Emerging Issues Task Force Issue 94-3 (EITF 94-3), Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF 94-3, a
liability for an exit cost, as defined in EITF 94-3, was recognized at the date
of an entitys commitment to an exit plan. SFAS 146 also establishes that the
liability should initially be measured and recorded at fair value. The Company
adopted the provisions of SFAS 146 for exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS 146 has not had a material
impact on the Companys financial position or results of operations.

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In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others. FIN 45 elaborates on the
disclosures to be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
It also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002; while the provisions of the disclosure
requirements are effective for financial statements of interim or annual
reports ending after December 15, 2002. The adoption of FIN 45 has not had a
material impact on the Companys financial position or results of operations
upon adoption.

In December 2002, the FASB issued SFAS No. 148 (SFAS 148), Accounting for
Stock-Based Compensation  Transition and Disclosure. SFAS 148 amends SFAS
123, Accounting for Stock-Based Compensation, to provide alternative methods
for voluntary transition to SFAS 123s fair value method of accounting for
stock-based employee compensation (the fair value method). SFAS 148 also
requires disclosure of the effects of an entitys accounting policy with
respect to stock-based employee compensation on reported net income (loss) and
earnings (loss) per share in annual and interim financials statements. The
Company is required to follow the prescribed disclosure format and has provided
the additional disclosures required by SFAS 148 for the quarterly period ended
August 2, 2003 elsewhere in this Note 2.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. In general, a variable interest
entity is a corporation, partnership, trust, or any other legal structure used
for business purposes that either (a) does not have equity investors with
voting rights or (b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities. FIN 46 requires
certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in the first fiscal year or
interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. Since the
Company does not currently have any variable interest entities, the adoption of
the provisions of FIN 46 did not have a material impact on the Companys
financial position or results of operations.

On February 2, 2003, the Company adopted the Financial Accounting Standards
Boards Emerging Issues Task Force (EITF) Issue No. 02-16 Accounting by a
Reseller for Cash Consideration Received from a Vendor (EITF 02-16). The
consensus reached by the EITF addressed the accounting for cash consideration
received from a vendor, which includes vendor allowances, rebates, cooperative
advertising payments, etc. The consensus of the EITF establishes an overall
presumption that cash received from a vendor is a reduction in the price of a
vendors products and should be recognized accordingly as a reduction in cost
of sales at the time the related inventory is sold. Some consideration could
be characterized as a reduction of expense if the cash received represents a
reimbursement of specific, incremental, identifiable costs incurred by the
retailer to sell the vendors products. The adoption of EITF 02-16 did not
have a material impact on the Companys financial position or results of
operations.

Reclassifications  Certain prior year amounts have been reclassified to
conform to the current year presentation.

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NOTE 3  CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and marketable securities with
original maturities of three months or less.

NOTE 4  DEFERRED COMPENSATION AND OTHER ASSETS

Deferred compensation and other assets consist of the following:

|                                         |  |           |       |             |  |   |       | 
|---------------------------------------- |  | --------- | ----- | ----------- |  | - | ----- | 
|                                         |  | August 3, |       | February 1,
|                                         |  | 2002      |       | 2003       
|                                         |  |           |       |            
|Deferred compensation                    |  | $         | 8,665 |             |  | $ | 7,565 | 
|Long-term computer maintenance contracts |  |           | 738   |             |  |   | 1,359 | 
|Other assets                             |  |           | 166   |             |  |   | 181   | 
|                                         |  |           |       |             |  |   |       | 
|                                         |  | $         | 9,569 |             |  | $ | 9,105 | 
|                                         |  |           |       |             |  |   |       | 

NOTE 5  CREDIT FACILITY

The Company has a credit facility with a bank, which expires March 31, 2004.
The credit facility provides for a $45.0 million line of credit (the Credit
Line) to be used for cash advances, commercial letters of credit and shipside
bonds. Interest on the Credit Line is payable monthly at the banks prime rate
(4.25% at August 2, 2003) or at optional interest rates that are primarily
dependent upon the London Inter-bank Offered Rates for the time period chosen.
The Company did not borrow under the Credit Line at any time during the first
half ended August 2, 2003. The Company had $20.7 million outstanding in
letters of credit at August 2, 2003. The credit facility subjects the Company
to various restrictive covenants, including maintenance of certain financial
ratios, and prohibits payment of cash dividends on common stock. At August 2,
2003, the Company was in compliance with all of the covenants.

NOTE 6  ACCRUED LIABILITIES

Accrued liabilities consist of the following:

|                                                         |  |           |        |             |  |   |        | 
|-------------------------------------------------------- |  | --------- | ------ | ----------- |  | - | ------ | 
|                                                         |  | August 2, |        | February 1,
|                                                         |  | 2003      |        | 2003       
|                                                         |  |           |        |            
|Accrued compensation and benefits                        |  | $         | 12,399 |             |  | $ | 14,420 | 
|Sales tax payable                                        |  |           | 4,566  |             |  |   | 2,290  | 
|Accrued store expansion/relocation and closing costs     |  |           | 3,351  |             |  |   | 3,653  | 
|Accrued gift cards and store merchandise credits         |  |           | 2,728  |             |  |   | 5,967  | 
|Accrued medical insurance costs                          |  |           | 1,698  |             |  |   | 980    | 
|Reserve for corporate rent  former corporate facilities |  |           | 1,173  |             |  |   | 1,263  | 
|Other accrued liabilities                                |  |           | 9,918  |             |  |   | 5,949  | 
|                                                         |  |           |        |             |  |   |        | 
|                                                         |  | $         | 35,833 |             |  | $ | 34,522 | 
|                                                         |  |           |        |             |  |   |        | 

NOTE 7  FEDERAL AND STATE INCOME TAX EXPENSE

The combined federal and state income tax expense was calculated using
estimated effective annual tax rates.

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NOTE 8  NET INCOME PER SHARE, BASIC AND DILUTED

The following table summarizes the computation of EPS (all amounts in thousands
except share and per share amounts):

|                                 |  |                |        |                |  |              |            |            |  |        |      |              |  |   |       |  |  |  |            |     |  |   |      | 
|-------------------------------- |  | -------------- | ------ | -------------- |  | ------------ | ---------- | ---------- |  | ------ | ---- | ------------ |  | - | ----- |  |  |  | ---------- | --- |  | - | ---- | 
|Second Quarter Ended:            |  | August 2, 2003 |        | August 3, 2002
|                                 |  |                |        |               
|                                 |  |                |        |                |  |              |            |            |  | Per    |      |              |  |   |       |  |  |  |            | Per
|                                 |  | Net Income     |        | Shares         |  | Share Amount |            | Net Income |  | Shares |      | Share Amount
|                                 |  |                |        |                |  |              |            |            |  |        |      |             
|Basic EPS:                       |  | $              | 13,380 |                |  |              | 50,590,427 |            |  | $      | 0.26 |              |  | $ | 7,296 |  |  |  | 49,257,374 |     |  | $ | 0.15 | 
|Diluted EPS:                     |  |                |        |                |  |              |            |            |  |        |      |              |  |   |       |  |  |  |            |     |  |   |      | 
|Effect of dilutive stock options |  |                |       |                |  |              | 1,478,931  |            |  |        |     |              |  |   |      |  |  |  | 587,286    |     |  |   |     | 
|                                 |  |                |        |                |  |              |            |            |  |        |      |              |  |   |       |  |  |  |            |     |  |   |      | 
|                                 |  | $              | 13,380 |                |  |              | 52,069,358 |            |  | $      | 0.26 |              |  | $ | 7,296 |  |  |  | 49,844,660 |     |  | $ | 0.15 | 
|                                 |  |                |        |                |  |              |            |            |  |        |      |              |  |   |       |  |  |  |            |     |  |   |      | 

|                                 |  |                |        |                |  |              |            |            |  |        |       |              |  |   |        |  |  |  |            |     |  |   |      | 
|-------------------------------- |  | -------------- | ------ | -------------- |  | ------------ | ---------- | ---------- |  | ------ | ----- | ------------ |  | - | ------ |  |  |  | ---------- | --- |  | - | ---- | 
|First Half Ended:                |  | August 2, 2003 |        | August 3, 2002
|                                 |  |                |        |               
|                                 |  |                |        |                |  |              |            |            |  | Per    |       |              |  |   |        |  |  |  |            | Per
|                                 |  | Net Income     |        | Shares         |  | Share Amount |            | Net Income |  | Shares |       | Share Amount
|                                 |  |                |        |                |  |              |            |            |  |        |       |             
|Basic EPS:                       |  | $              | 21,359 |                |  |              | 50,136,729 |            |  | $      | 0.43  |              |  | $ | 10,565 |  |  |  | 49,227,256 |     |  | $ | 0.21 | 
|Diluted EPS:                     |  |                |        |                |  |              |            |            |  |        |       |              |  |   |        |  |  |  |            |     |  |   |      | 
|Effect of dilutive stock options |  |                |       |                |  |              | 1,417,617  |            |  |        | (0.02 | )            |  |   |       |  |  |  | 746,650    |     |  |   |     | 
|                                 |  |                |        |                |  |              |            |            |  |        |       |              |  |   |        |  |  |  |            |     |  |   |      | 
|                                 |  | $              | 21,359 |                |  |              | 51,554,346 |            |  | $      | 0.41  |              |  | $ | 10,565 |  |  |  | 49,973,906 |     |  | $ | 0.21 | 
|                                 |  |                |        |                |  |              |            |            |  |        |       |              |  |   |        |  |  |  |            |     |  |   |      | 

Options to purchase 2,500 and 2,543,660 shares of common stock in the second
quarter of fiscal 2003 and fiscal 2002, respectively, and 92,044 and 1,426,356
shares of common stock in the first half of fiscal 2003 and fiscal 2002,
respectively, were not included in the computation of diluted earnings per
common share because the option exercise price was greater than the average
market price of the common stock.

NOTE 9  COMMITMENTS AND CONTINGENCIES

The Company has minimum annual rental commitments under existing store leases,
the lease for its former corporate offices and distribution center, capital
leases for computer equipment, and other long-term debt obligations for
multi-year computer maintenance contracts. The Company leases all of its
retail store locations under operating leases. The Company leases equipment,
from time to time, under capital leases. In addition, at any time, the Company
is contingently liable for open letters of credit with foreign suppliers of
merchandise. There were $20.7 million of open letters of credit outstanding as
of August 2, 2003. As of August 2, 2003, the Companys future financial
commitments under these arrangements are as follows:

|                            |  |                        |       |        |  |           |      |           |  |                   |       |  |  |   |       |  |  |   |       | 
|--------------------------- |  | ---------------------- | ----- | ------ |  | --------- | ---- | --------- |  | ----------------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|Contractual Obligations     |  | Payments Due by Period
|                            |  |                       
|                            |  |                        |       |        |  | Less than |      |           |  |                   |       |  |  |   |       |  |  |  
|(in millions)               |  | Total                  |       | 1 year |  | 1-3 years |      | 3-5 years |  | More than 5 years
|                            |  |                        |       |        |  |           |      |           |  |                  
|Operating lease obligations |  | $                      | 553.2 |        |  | $         | 76.5 |           |  | $                 | 152.3 |  |  | $ | 146.6 |  |  | $ | 177.8 | 
|Capital lease obligations   |  |                        | 3.0   |        |  |           | 1.3  |           |  |                   | 1.7   |  |  |   |      |  |  |   |      | 
|Long-term debt obligations  |  |                        | 1.5   |        |  |           | 0.9  |           |  |                   | 0.6   |  |  |   |      |  |  |   |      | 
|Letters of credit           |  |                        | 20.7  |        |  |           | 20.7 |           |  |                   |      |  |  |   |      |  |  |   |      | 
|                            |  |                        |       |        |  |           |      |           |  |                   |       |  |  |   |       |  |  |   |       | 
|Total                       |  | $                      | 578.4 |        |  | $         | 99.4 |           |  | $                 | 154.6 |  |  | $ | 146.6 |  |  | $ | 177.8 | 
|                            |  |                        |       |        |  |           |      |           |  |                   |       |  |  |   |       |  |  |   |       | 

Litigation  During the first quarter ended May 3, 2003, the Company reached an
agreement, subject to court approval, to settle all claims related to two
lawsuits concerning overtime pay for a total of $4.0 million. The Company had
accrued $3.9 million related to these matters at February 1, 2003. The suits
are Auden v. Pacific Sunwear of California, Inc., which was filed September 17,
2001, and Adams v. Pacific Sunwear of California, Inc., which was filed August
2, 2002. The complaints allege that the Company improperly classified certain
California-based employees as exempt from overtime pay. The Company

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denies the allegations underlying the suits, but has agreed to settle the suits
to avoid the cost, distraction and uncertainty associated with protracted
litigation. The court has granted preliminary approval of the settlement and
is expected to conduct final fairness hearings regarding the settlement in
September or October 2003. The settlement did not have a material impact on
results of operations for the second quarter or first half ended August 2,
2003.

The Company is involved from time to time in litigation incidental to its
business. Management believes that the outcome of current litigation will not
have a material adverse effect upon the results of operations or financial
condition of the Company.

Indemnities, Commitments, and Guarantees  During its normal course of
business, the Company has made certain indemnities, commitments and guarantees
under which it may be required to make payments in relation to certain
transactions. These indemnities include those given to various lessors in
connection with facility leases for certain claims arising from such leases and
indemnification undertakings to directors and officers of the Company to the
maximum extent permitted under the laws of the State of California. The
Company has issued guarantees in the form of standby letters of credit as
security for merchandise shipments from overseas. There were $20.7 million of
these letters of credit outstanding at August 2, 2003. The Company has also
issued a guarantee of a sublease on one of its store locations under which the
Company remains secondarily liable on the sublease should the sublessee default
on its lease payments. The term of the sublease ends December 31, 2014. The
Company has recorded $.5 million in accrued liabilities to recognize the
estimated fair value of this guarantee. The aggregate rental payments
remaining on the master lease agreement at August 2, 2003, were $6.2 million.
The duration of these indemnities, commitments and guarantees varies, and in
certain cases, is indefinite. The majority of these indemnities, commitments
and guarantees do not provide for any limitation of the maximum potential
future payments the Company could be obligated to make. The Company has not
recorded any liability for these above indemnities, commitments and guarantees
in the accompanying consolidated balance sheets other than as noted.

The Company maintains a private label credit card through a third party to
promote the PacSun brand image and lifestyle. The third party services the
customer accounts and retains all risk and financial obligation associated with
any outstanding balances on customer accounts. The Company has no financial
obligation and does not provide any guarantee related to any outstanding
balances resulting from the use of these private label credit cards by its
customers.

Reserve for Corporate Rent  Former Corporate Facilities  During fiscal 2001,
the Company recorded a $1.4 million charge to accrue for rent expense
associated with the Companys former corporate offices, which remain unused as
of August 2, 2003. The current accrual of $1.2 million is approximately the
amount of rent expense for one year, within which time the Company currently
believes a tenant will be identified to sublease the premises. To the extent
managements estimates relating to the Companys ability to sublease these
facilities changes or is incorrect, additional charges may be recorded in the
future up to the net remaining obligation under the lease. As of August 2,
2003, the aggregate net remaining obligation under this lease was approximately
$5.8 million. This amount is included in the contractual obligations table
above.

NOTE 10  RESTRICTED STOCK

During the year ended January 30, 2000, the Company granted a restricted stock
award of 75,000 shares with a purchase price of $0.01 per share to its Chief
Executive Officer. The 75,000 share award vests 25% on each of September 17,
2001, 2002, 2003 and 2004, if, in each instance, certain cumulative annual
earnings per share growth targets have been satisfied. The Company recorded
$229 of deferred compensation expense associated with this award during the
year ended February 4, 2001. During fiscal 2001, the Company reversed all
previously recognized expenses of $317 associated with this award because the
cumulative annual earnings per share growth targets had not then been
satisfied. No additional expenses have been recognized for this award because
the cumulative annual earnings per share growth targets had not been met as of
February 1, 2003. Under the award agreement, shares that do not vest at a
given vesting date due to the cumulative annual earnings per share growth
targets not being met remain

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available for future vesting if the cumulative annual earnings per share growth
targets are met as of a subsequent vesting date. It is possible that the
cumulative annual earnings per share growth target for this award may be
achieved in fiscal 2003 and, if that target is met, the Company will be
required to record compensation expense during the year ending January 31,
2004. If the target is met, the compensation expense to be recognized will be
based on the closing market price of the Companys stock as of January 31, 2004
minus the purchase price of $.01 per share. For example, based on the closing
market price of the Companys stock at August 2, 2003 of $29.92, the Company
would, assuming the cumulative annual earnings per share growth target is met,
record $2.1 million in compensation expense related to this award in the year
ending January 31, 2004.

During the year ended February 4, 2001, the Company granted a restricted stock
award of 112,500 shares with a purchase price of $0.01 per share to its Chief
Executive Officer. The 112,500 share award vests 25% on each of March 15,
2002, 2003, 2004 and 2005, if, in each instance, certain cumulative annual
earnings per share growth targets have been satisfied. The Company recorded
$38 of deferred compensation expense associated with this award during the year
ended February 4, 2001. During fiscal 2001, the Company reversed all
previously recognized expenses of $38 associated with this award because the
cumulative annual earnings per share growth targets had not then been
satisfied. Under the award agreement, shares that do not vest at a given
vesting date due to the cumulative annual earnings per share growth targets not
being met remain available for future vesting if the cumulative annual earnings
per share growth targets are met as of a subsequent vesting date. During the
second quarter of fiscal 2003, the Company determined that it is probable that
the cumulative annual earnings per share growth target for this award will be
achieved in fiscal 2003 and, accordingly, the Company recorded compensation
expense of $2.1 million to recognize the cumulative value of the award. This
expense has been accrued within deferred compensation liabilities on the
balance sheet. The Company will be required to recognize additional
compensation expense related to this award in each future quarter based on
additional vesting of the shares and the market price of the Companys stock.
For example, based on the market price of the Companys stock at August 2, 2003
of $29.92, the Company would be required to record additional compensation
expense of approximately $.2 million in each quarter based on additional
vesting of the shares until the shares are delivered to the Chief Executive
Officer. Additionally, based on any change in the market price of the
Companys stock in future quarters, the cumulative compensation expense
recognized for this award will continue to be adjusted until the shares are
delivered to the Chief Executive Officer.

NOTE 11  SUBSEQUENT EVENT  STOCK SPLIT

On August 7, 2003, the Company announced a three-for-two stock split. The
record date for the split is August 25, 2003. Shareholders of record as of
that date will receive one new share of common stock for every two shares they
owned on the record date. The additional shares will be mailed on or about
September 5, 2003. Cash will be paid in lieu of issuing fractional shares
based on the closing market price of the Companys common stock on August 25,
2003.

The disclosures of proforma net income per share, both basic and diluted, as
well as proforma weighted shares outstanding, both basic and diluted, are
presented as if the stock split had taken effect as of the balance sheet date.
Currently, the Companys common stock is not yet trading on a post-split basis.
The Companys common stock will begin trading on a post-split basis on
September 8, 2003.

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ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF CONSOLIDATED OPERATIONS

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements as well as the
reported revenues and expenses during the reported period. Actual results
could differ from these estimates. The accounting policies that the Company
believes are the most critical to aid in fully understanding and evaluating
reported financial results include the following:

Revenue Recognition- Sales are recognized upon purchase by customers at the
Companys retail store locations or upon shipment for orders received through
the Companys website. The Company has accrued $.7 million as of August 2,
2003 to estimate sales returns by customers based on historical sales return
results. Actual return rates have historically been within managements
expectations and the reserves established. However, in the unlikely event that
the actual rate of sales returns by customers increased significantly, the
Companys operational results could be adversely affected.

Inventory Valuation- Merchandise inventories are stated at the lower of cost
(first-in, first-out method) or market. Cost is determined using the retail
inventory method. At any one time, inventories include items that have been
marked down to managements best estimate of their fair market value.
Management bases the decision to mark down merchandise upon the age of the item
and its current rate of sale. To the extent that management estimates differ
from actual results, additional markdowns may have to be recorded, which could
reduce the Companys gross margins and operating results.

Long-Lived Assets- In the normal course of business, the Company acquires
tangible and intangible assets. The Company periodically evaluates the
recoverability of the carrying amount of its long-lived assets (including
property, plant and equipment, and other intangible assets) whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. Impairment is assessed when the undiscounted expected
future cash flows derived from an asset or asset group are less than its
carrying amount. Impairments are recognized in operating earnings. The
Company uses its best judgment based on the most current facts and
circumstances surrounding its business when applying these impairment rules to
determine the timing of the impairment test, the undiscounted cash flows used
to assess impairments, and the fair value of a potentially impaired asset.
Changes in assumptions used could have a significant impact on the Companys
assessment of recoverability. Numerous factors, including changes in the
Companys business, industry segment, and global economy, could significantly
impact managements decision to retain, dispose of, or idle certain of its
long-lived assets.

Goodwill and Other Intangible Assets- The Company evaluates the recoverability
of goodwill at least annually based on a two-step impairment test. The first
step compares the fair value of each reporting unit with its carrying amount,
including goodwill. If the carrying amount exceeds fair value, then the second
step of the impairment test is performed to measure the amount of any
impairment loss. Fair value is determined based on estimated future cash
flows, discounted at a rate that approximates the Companys cost of capital.
Such estimates are subject to change and the Company may be required to
recognize impairment losses in the future.

Income Taxes- Current income tax expense is the amount of income taxes
expected to be payable for the current year. A deferred income tax asset or
liability is established for the expected future consequences of temporary
differences in the financial reporting and tax bases of assets and liabilities.
The Company considers future taxable income and ongoing prudent and feasible
tax planning in assessing the value of its deferred tax assets. If the Company
determines that it is more likely than not that these assets will not be
realized, the Company would reduce the value of these assets to their expected
realizable value through a valuation allowance, thereby decreasing net income.
Evaluating the value of these assets is necessarily based on the Companys
judgment. If the Company subsequently determined that the deferred tax assets,

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which had been written down, would be realized in the future, the value of the
deferred tax assets would be increased, thereby increasing net income in the
period when that determination was made.

Litigation- The Company is involved from time to time in litigation incidental
to its business. Management believes that the outcome of current litigation
will not have a material adverse effect upon the results of operations or
financial condition of the Company and, from time to time, may make provisions
for potential litigation losses. Depending on the actual outcome of pending
litigation, charges in excess of any provisions could be recorded in the future
that may have an adverse effect on the Companys operating results (see Note 9
to the condensed consolidated financial statements).

Results of Operations

The following table sets forth selected income statement data of the Company
expressed as a percentage of net sales for the periods indicated. The
discussion that follows should be read in conjunction with the table below:

|                                                                       |  |                      |       |                  |  |             |       |             |  |  |       |   |  |  |       |  
|---------------------------------------------------------------------- |  | -------------------- | ----- | ---------------- |  | ----------- | ----- | ----------- |  |  | ----- | - |  |  | ----- | -
|                                                                       |  | Second Quarter Ended |       | First Half Ended
|                                                                       |  |                      |       |                 
|                                                                       |  | Aug 2, 2003          |       | Aug 3, 2002      |  | Aug 2, 2003 |       | Aug 3, 2002
|                                                                       |  |                      |       |                  |  |             |       |            
|Net sales                                                              |  |                      | 100.0 | %                |  |             | 100.0 | %           |  |  | 100.0 | % |  |  | 100.0 | %
|Cost of goods sold, including
buying, distribution and occupancy costs |  |                      | 66.0  |                  |  |             | 68.2  |             |  |  | 66.8  |   |  |  | 68.9  |  
|                                                                       |  |                      |       |                  |  |             |       |             |  |  |       |   |  |  |       |  
|Gross margin                                                           |  |                      | 34.0  |                  |  |             | 31.8  |             |  |  | 33.2  |   |  |  | 31.1  |  
|Selling, general and
administrative expenses                           |  |                      | 24.8  |                  |  |             | 25.4  |             |  |  | 25.2  |   |  |  | 26.1  |  
|                                                                       |  |                      |       |                  |  |             |       |             |  |  |       |   |  |  |       |  
|Operating income                                                       |  |                      | 9.2   |                  |  |             | 6.4   |             |  |  | 8.0   |   |  |  | 5.0   |  
|Interest income/(expense), net                                         |  |                      | (0.0  | )                |  |             | (0.2  | )           |  |  | (0.0  | ) |  |  | (0.1  | )
|                                                                       |  |                      |       |                  |  |             |       |             |  |  |       |   |  |  |       |  
|Income before income tax expense                                       |  |                      | 9.2   |                  |  |             | 6.2   |             |  |  | 8.0   |   |  |  | 4.9   |  
|Income tax expense                                                     |  |                      | 3.5   |                  |  |             | 2.4   |             |  |  | 3.1   |   |  |  | 1.9   |  
|                                                                       |  |                      |       |                  |  |             |       |             |  |  |       |   |  |  |       |  
|Net income                                                             |  |                      | 5.7   | %                |  |             | 3.8   | %           |  |  | 4.9   | % |  |  | 3.0   | %
|                                                                       |  |                      |       |                  |  |             |       |             |  |  |       |   |  |  |       |  

The following table sets forth the Companys number of stores and total square
footage as of the dates indicated:

|                          |  |                |       |                |  |  |       | 
|------------------------- |  | -------------- | ----- | -------------- |  |  | ----- | 
|                          |  | August 2, 2003 |       | August 3, 2002
|                          |  |                |       |               
|PacSun stores             |  |                | 650   |                |  |  | 599   | 
|Outlet stores             |  |                | 75    |                |  |  | 70    | 
|d.e.m.o. stores           |  |                | 114   |                |  |  | 108   | 
|                          |  |                |       |                |  |  |       | 
|Total stores              |  |                | 839   |                |  |  | 777   | 
|                          |  |                |       |                |  |  |       | 
|Square footage (in 000s) |  |                | 2,844 |                |  |  | 2,577 | 

The thirteen weeks ended August 2, 2003 (second quarter) as compared to the
thirteen weeks ended August 3, 2002 (second quarter)

Net Sales

Net sales increased to $234.4 million for the second quarter of fiscal 2003
from $190.9 million for the second quarter of fiscal 2002, an increase of $43.5
million, or 22.8%. Of this $43.5 million increase, $25.0 million was
attributable to a 13.9% increase in comparable store net sales in the second
quarter of fiscal 2003 as compared to the second quarter of fiscal 2002, $7.9
million was attributable to net sales generated by 23 new stores opened in
fiscal 2002 and not yet included in the comparable store base, $7.6 million was
attributable to net sales generated by 51 new stores opened in fiscal 2003 and
not yet included in the comparable store base, and $4.1 million was
attributable to other non-comparable store net sales.

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Offsetting these increases was a $1.1 million decrease attributable to the
closing of three stores during fiscal 2003 and twelve stores during fiscal
2002. Other non-comparable store net sales consist primarily of sales from
stores that have been expanded or relocated and not yet included in the
comparable store base as well as merchandise sold over the internet. Of the
13.9% increase in comparable store net sales in the second quarter of fiscal
2003, PacSun and PacSun Outlet comparable store net sales increased 13.2% and
d.e.m.o. comparable store net sales increased 21.9%. The increase in
comparable store net sales within PacSun and PacSun Outlet was primarily
attributable to increases in comparable store net sales of footwear, juniors
and accessories. The increase in comparable store net sales within d.e.m.o.
was attributable to increases in comparable store net sales of young mens,
juniors and accessories. Stores are deemed comparable stores on the first day
of the first month following the one-year anniversary of their opening or
expansion/relocation. Retail prices of the Companys merchandise remained
relatively unchanged in the second quarter of fiscal 2003 compared to the
second quarter of fiscal 2002 and had no significant impact on the net sales
increase for the second quarter of fiscal 2003.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, increased to
$79.8 million for the second quarter of fiscal 2003 from $60.6 million for the
second quarter of fiscal 2002, an increase of $19.2 million, or 31.7%. As a
percentage of net sales, gross margin was 34.0% for the second quarter of
fiscal 2003 compared to 31.8% for the second quarter of fiscal 2002. Of this
2.2% increase, occupancy costs decreased 1.5% as a percentage of net sales
compared to the second quarter of fiscal 2002, primarily due to the 13.9%
comparable store net sales increase which leveraged these costs, net
merchandise margins increased .6% as a percentage of net sales due to a higher
initial markup partially offset by a slightly higher markdown rate, and
distribution costs as a percentage of net sales decreased .2% due to freight
and labor efficiencies in the new distribution center as well as leveraging
these costs over higher total sales. Offsetting these increases was a .1%
increase in buying costs as a percentage of net sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $58.2 million for the
second quarter of fiscal 2003 from $48.5 million for the second quarter of
fiscal 2002, an increase of $9.7 million, or 20.0%. These expenses decreased
to 24.8% as a percentage of net sales in the second quarter of fiscal 2003 from
25.4% in the second quarter of fiscal 2002. Of this .6% net decrease as a
percentage of net sales, 1.0% was due to a decrease in store payroll expenses
as a percentage of net sales and .3% was due to a decrease in depreciation and
other store selling expenses as a percentage of net sales, primarily due to the
13.9% comparable store net sales increase which leveraged these costs. Store
closing expenses decreased .4% as a percentage of net sales. These decreases
were partially offset by a 1.1% increase in general and administrative expenses
as a percentage of net sales, primarily due to recording $2.1 million in
restricted stock expense in the second quarter of fiscal 2003 related to the
Companys determination in this quarter that the cumulative annual earnings per
share growth target for the year ending January 31, 2004 of a restricted stock
award made to the Chief Executive Officer during the year ended February 4,
2001 will most likely be met (see Note 10 to the condensed consolidated
financial statements).

Income Tax Expense

Income tax expense was $8.3 million for the second quarter of fiscal 2003
compared to $4.5 million for the second quarter of fiscal 2002. The effective
income tax rate was 38.4% in each of the second quarters of fiscal 2003 and
fiscal 2002.

The twenty-six weeks ended August 2, 2003 (first half) as compared to the
twenty-six weeks ended August 3, 2002 (first half)

Net Sales

Net sales increased to $432.7 million for the first half of fiscal 2003 from
$352.6 million for the first half of fiscal 2002, an increase of $80.1 million,
or 22.7%. Of this $80.1 million increase, $44.6 million was

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attributable to a 13.6% increase in comparable store net sales in the first
half of fiscal 2003 compared to the first half of fiscal 2002, $21.1 million
was attributable to net sales generated by 23 new stores opened in fiscal 2002
and not yet included in the comparable store base, $9.3 million was
attributable to net sales generated by 51 new stores opened in fiscal 2003 and
not yet included in the comparable store base, and $7.8 million was
attributable to other non-comparable store net sales. Offsetting these
increases was a $2.7 million decrease attributable to the closing of three and
twelve stores during fiscal 2003 and fiscal 2002, respectively. Other
non-comparable store net sales consist primarily of sales from stores that have
been expanded or relocated and not yet included in the comparable store base as
well as merchandise sold over the internet. Of the 13.6% increase in
comparable store net sales in the first half of fiscal 2003, PacSun and PacSun
Outlet comparable store net sales increased 11.9% and d.e.m.o. comparable store
net sales increased 29.1%. The increase in comparable store net sales within
PacSun and PacSun Outlet was primarily attributable to increases in comparable
store net sales of footwear, juniors and accessories. The increase in
comparable store net sales within d.e.m.o. was attributable to increases in
comparable store net sales of young mens, juniors and accessories. Stores are
deemed comparable stores on the first day of the first month following the
one-year anniversary of their opening or expansion/relocation. Retail prices
of the Companys merchandise remained relatively unchanged in the first half of
fiscal 2003 compared to the first half of fiscal 2002 and had no significant
impact on the net sales increase for the first half of fiscal 2003.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, increased to
$143.7 million for the first half of fiscal 2003 from $109.8 million for the
first half of fiscal 2002, an increase of $33.9 million, or 30.9%. As a
percentage of net sales, gross margin was 33.2% for the first half of fiscal
2003 compared to 31.1% for the first half of fiscal 2002. Of this 2.1%
increase as a percentage of net sales, 1.5% was due to a decrease in occupancy
costs as a percentage of net sales, primarily due to the 13.6% comparable store
net sales increase which leveraged these costs over higher total sales, .3% was
due to a decrease in distribution costs as a result of freight and labor
efficiencies in the new distribution center as well as leveraging these costs
over higher total sales, and .3% was due to an increase in net merchandise
margins as a percentage of net sales due to a higher initial markup partially
offset by a higher markdown rate.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $109.1 million for
the first half of fiscal 2003 from $92.2 million for the first half of fiscal
2002, an increase of $16.9 million, or 18.3%. These expenses decreased to
25.2% as a percentage of net sales in the first half of fiscal 2003 from 26.1%
in the first half of fiscal 2002. Of this .9% net decrease as a percentage of
net sales, .9% was due to a decrease in store payroll expenses as a percentage
of net sales and .5% was due to a decrease in depreciation and other store
selling expenses, primarily due to the 13.6% comparable store net sales
increase which leveraged these costs over higher total sales. In addition, .3%
was due to a decrease in store closing expenses as a percentage of net sales.
Offsetting these decreases was a .8% increase in general and administrative
expenses, primarily due to recording $2.1 million in restricted stock expense
in the second quarter of fiscal 2003 related to the Companys determination in
this quarter that the cumulative annual earnings per share growth target for
the year ending January 31, 2004 of a restricted stock award made to the Chief
Executive Officer during the year ended February 4, 2001 will most likely be
met (see Note 10 to the condensed consolidated financial statements), as well
as higher bonus expense.

Income Tax Expense

Income tax expense was $13.3 million for the first half of fiscal 2003 compared
to $6.6 million for the first half of fiscal 2002. The effective income tax
rate was 38.4% in each of the first halves of fiscal 2003 and fiscal 2002.

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Liquidity and Capital Resources

The Company has financed its operations from internally generated cash flow,
short-term and long-term borrowings and equity financing. The Companys
primary capital requirements have been for the construction of new stores,
remodeling, expansion, or relocation of selected stores, financing of
inventories, and, in fiscal 2001, construction of the Companys new corporate
offices and distribution center.

Net cash provided by operating activities for the first half of fiscal 2003 was
$24.7 million as compared to cash used of $8.8 million for the first half of
fiscal 2002. This $33.5 million increase in cash provided was attributable to
a $15.3 million increase in accounts payable net of inventory increases,
primarily due to timing of payments, an increase in net income of $10.8
million, an increase in accrued income taxes and deferred income taxes of $5.9
million, and other items netting to an increase in cash provided of $1.5
million. Working capital at August 2, 2003, was $165.2 million compared to
$109.3 million at February 1, 2003, an increase of $55.9 million. The increase
in working capital at August 2, 2003, as compared to February 1, 2003, was
attributable to an increase in cash of $26.4 million, an increase in
inventories, net of accounts payable, of $16.9 million, a decrease in accrued
income taxes of $10.7 million, and other items netting to an increase of $1.9
million. The increase in inventories was related to increases in inventories
in comparable stores which generated a 13.6% increase in comparable store net
sales during the first half of fiscal 2003 as well as opening 48 net new stores
and expanding/relocating 9 stores with over 50% larger average square footage
than their previous locations. The Companys average store inventories vary
throughout the year and increase in advance of the peak selling periods of
spring break, back-to-school and Christmas.

Net cash used in investing activities was $18.6 million for property and
equipment for the first half of fiscal 2003 compared to $22.7 million for
property and equipment for the first half of fiscal 2002. Of the $18.6 million
of net cash used for investment in property and equipment in the first half of
fiscal 2003, $16.9 million was used for new and existing stores and $1.7
million was used for other capital expenditures, including computer hardware
and software.

Net cash provided by financing activities for the first half of fiscal 2003 was
$20.3 million compared to $12.6 million for the first half of fiscal 2002. Of
the $20.3 million of net cash provided by financing activities in the first
half of fiscal 2003, $21.5 million was due to proceeds received from the
exercise of stock options, offset by $1.2 million of payments under capital
lease and long-term debt obligations.

The Company has a credit facility with a bank, which expires March 31, 2004.
The credit facility provides for a $45.0 million line of credit (the Credit
Line) to be used for cash advances, commercial letters of credit and shipside
bonds. Interest on the Credit Line is payable monthly at the banks prime rate
(4.25% at August 2, 2003) or at optional interest rates that are primarily
dependant upon the London Inter-bank Offered Rates for the time period chosen.
The Company did not borrow under the Credit Line at any time during the first
half ended August 2, 2003. The Company had $20.7 million outstanding in
letters of credit at August 2, 2003. The credit facility subjects the Company
to various restrictive covenants, including maintenance of certain financial
ratios, and prohibits payment of cash dividends on common stock. At August 2,
2003, the Company was in compliance with all of the covenants.

The Company has minimum annual rental commitments under existing store leases,
the lease for its former corporate offices and distribution center, capital
leases for computer equipment, and other long-term debt obligations for
multi-year computer maintenance contracts. The Company leases all of
its retail store locations under operating leases. The Company leases equipment,
from time to time, under capital leases. In addition, at any time, the Company
is contingently liable for open letters of credit with foreign suppliers of
merchandise. As of August 2, 2003, the Companys future financial commitments
under these arrangements are as follows:

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|                            |  |                        |       |                  |  |           |      |           |  |                   |       |  |  |   |       |  |  |   |       | 
|--------------------------- |  | ---------------------- | ----- | ---------------- |  | --------- | ---- | --------- |  | ----------------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|Contractual Obligations     |  | Payments Due by Period
|                            |  |                       
|(in millions)               |  | Total                  |       | Less than 1 year |  | 1-3 years |      | 3-5 years |  | More than 5 years
|                            |  |                        |       |                  |  |           |      |           |  |                  
|Operating lease obligations |  | $                      | 553.2 |                  |  | $         | 76.5 |           |  | $                 | 152.3 |  |  | $ | 146.6 |  |  | $ | 177.8 | 
|Capital lease obligations   |  |                        | 3.0   |                  |  |           | 1.3  |           |  |                   | 1.7   |  |  |   |      |  |  |   |      | 
|Long-term debt obligations  |  |                        | 1.5   |                  |  |           | 0.9  |           |  |                   | 0.6   |  |  |   |      |  |  |   |      | 
|Letters of credit           |  |                        | 20.7  |                  |  |           | 20.7 |           |  |                   |      |  |  |   |      |  |  |   |      | 
|                            |  |                        |       |                  |  |           |      |           |  |                   |       |  |  |   |       |  |  |   |       | 
|Total                       |  | $                      | 578.4 |                  |  | $         | 99.4 |           |  | $                 | 154.6 |  |  | $ | 146.6 |  |  | $ | 177.8 | 
|                            |  |                        |       |                  |  |           |      |           |  |                   |       |  |  |   |       |  |  |   |       | 

The Company reviews the operating performance of its stores on an ongoing basis
to determine which stores, if any, to expand, relocate or close. Most leases
contain cancellation or kick-out clauses in the Companys favor that relieve
the Company of any future obligation under a lease if specified sales levels
are not achieved by a specified date. The Company closed twelve stores in
fiscal 2002 and anticipates closing approximately four stores in fiscal 2003.

During the remainder of fiscal 2003, the Company plans to open approximately 38
net new stores, of which approximately 27 will be PacSun stores, approximately
four will be PacSun Outlet stores and approximately seven will be d.e.m.o.
stores. The Company also plans to expand or relocate approximately 20
additional existing smaller stores during the remainder of fiscal 2003. The
Company estimates that capital expenditures during the remainder of fiscal 2003
will be approximately $27 million, of which approximately $26 million will be
for opening, expanding or relocating stores and approximately $1 million will
be used for other capital expenditures, including computer hardware and
software.

The Company relies primarily on internally generated cash flows to finance its
operations. In addition, to the extent necessary, the Company relies on its
credit facility to finance operations and provide additional resources for
capital expenditures. Management believes that the Companys working capital,
cash flows from operating activities and credit facility will be sufficient to
meet the Companys operating and capital expenditure requirements for the next
twelve months.

The Companys success is largely dependent upon its ability to gauge the
fashion tastes of its customers and provide merchandise that satisfies customer
demand. Any inability to provide appropriate merchandise in sufficient
quantities in a timely manner could have a material adverse effect on the
Companys business, operating results, cash flows from operations and financial
condition. Any economic downturn that affects the retail industry as a whole
could also adversely affect the Companys business, operating results, cash
flows from operations and financial condition.

A significant decrease in the Companys operating results could adversely
affect the Companys ability to maintain required financial ratios under the
Companys credit facility. Required financial ratios include total liabilities
to tangible net worth ratio, limitations on capital expenditures and
achievement of certain rolling four-quarter EBITDA requirements. If these
financial ratios are not maintained, the bank will have the option to require
immediate repayment of all amounts outstanding under the credit facility. The
most likely result would require the Company to renegotiate certain terms of
the credit agreement, obtain a waiver from the bank, or obtain a new credit
agreement with another bank, which may contain different terms. As of August
2, 2003, the Company had no borrowings outstanding under its credit facility.

New Accounting Pronouncements

Information regarding new accounting pronouncements is contained in Note 2 to
the condensed consolidated financial statements which note is incorporated
herein by reference.

Inflation

The Company does not believe that inflation has had a material effect on
the results of operations in the recent past. There can be no assurance that
the Companys business will not be affected by inflation in the future.

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Seasonality and Quarterly Results

The Companys business is seasonal by nature, with the Christmas and
back-to-school periods historically accounting for the largest percentage of
annual net sales. In each of fiscal 2002 and fiscal 2001, excluding sales
generated by new and relocated/expanded stores, the Christmas and
back-to-school periods together accounted for approximately 36% of the
Companys annual net sales and a higher percentage of the Companys operating
income. In fiscal 2002, excluding net sales generated by new and
relocated/expanded stores, approximately 43% of the Companys annual net sales
occurred in the first half of the fiscal year and approximately 57% in the
second half. The Companys quarterly results of operations may also fluctuate
significantly as a result of a variety of factors, including the timing of
store openings; the amount of revenue contributed by new stores; the timing and
level of markdowns; the timing of store closings, expansions and relocations;
competitive factors; and general economic conditions.

Cautionary Note Regarding Forward-Looking Statements and Risk Factors

This report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 (the Exchange Act), and the Company intends
that such forward-looking statements be subject to the safe harbors created
thereby. The Company is hereby providing cautionary statements identifying
important factors that could cause the Companys actual results to differ
materially from those projected in forward-looking statements of the Company
herein. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions, future events or
performance (often, but not always through the use of words or phrases such as
will result, expects to, will continue, anticipates, plans,
intends, estimated, projects and outlook) are not historical facts and
may be forward-looking and, accordingly, such statements involve estimates,
assumptions and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements. All
forward-looking statements included in this report are based on information
available to the Company as of the date hereof, and the Company assumes no
obligation to update or revise any such forward-looking statements to reflect
events or circumstances that occur after such statements are made. Such
uncertainties include, among others, the following factors:

Merchandising/Fashion Sensitivity.The Companys success is largely dependent
upon its ability to gauge the fashion tastes of its customers and to provide
merchandise that satisfies customer demand in a timely manner. The Companys
failure to anticipate, identify or react appropriately in a timely manner to
changes in fashion trends could have a material adverse effect on the Companys
business, financial condition and results of operations. Misjudgments or
unanticipated fashion changes could also have a material adverse effect on the
Companys image with its customers.

Private Label Merchandise.Sales from private label merchandise accounted for
approximately 33% and 34% of net sales in fiscal 2002 and fiscal 2001,
respectively. The Company may increase the percentage of net sales in private
label merchandise in the future, although there can be no assurance that the
Company will be able to achieve increases in private label merchandise sales as
a percentage of net sales. Because the Companys private label merchandise
generally carries higher merchandise margins than its other merchandise, the
Companys failure to anticipate, identify and react in a timely manner to
fashion trends with its private label merchandise, particularly if the
percentage of net sales derived from private label merchandise increases, may
have a material adverse effect on the Companys business, financial condition
and results of operations.

Fluctuations in Comparable Store Net Sales Results.The Companys comparable
store net sales results have fluctuated significantly in the past on a monthly,
quarterly, and annual basis, and are expected to continue to fluctuate in the
future. A variety of factors affect the Companys comparable store net sales
results, including changes in fashion trends, changes in the Companys
merchandise mix, calendar shifts of holiday periods, actions by competitors,
weather conditions and general economic conditions. The Companys comparable
store net sales results for any particular fiscal month, fiscal quarter or
fiscal year in

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the future may decrease. As a result of these or other factors, the Companys
future comparable store net sales results are likely to have a significant
effect on the market price of the Companys common stock.

Expansion and Management of Growth.The Companys continued growth depends to
a significant degree on its ability to open and operate stores on a profitable
basis and on managements ability to manage the Companys planned expansion of
PacSun and d.e.m.o. stores. During the remainder of fiscal 2003, the Company
plans to open approximately 38 net new stores, of which approximately 27 will
be PacSun stores, approximately four will be PacSun Outlet stores and
approximately seven will be d.e.m.o. stores. During the year ended January 29,
2005, the Company plans to open approximately 100 net new stores, of which
approximately 65 will be PacSun stores, approximately five will be PacSun
Outlet stores and approximately 30 will be d.e.m.o. stores. The Companys
planned expansion is dependent upon a number of factors, including the ability
of the Company to locate and obtain favorable store sites, negotiate acceptable
lease terms, obtain adequate supplies of merchandise and hire and train
qualified management level and other employees. Factors beyond the Companys
control may also affect the Companys ability to expand, including general
economic and business conditions affecting consumer spending. There can be no
assurance that the Company will achieve its planned expansion or that such
expansion will be profitable or that the Company will be able to manage its
growth effectively. Any failure to manage growth could have a material adverse
effect on the Companys business, financial condition and results of
operations.

Reliance on Key Personnel.The continued success of the Company is dependent
to a significant degree upon the services of its key personnel, particularly
its executive officers. The loss of the services of any member of senior
management could have a material adverse effect on the Companys business,
financial condition and results of operations. The Companys success in the
future will also be dependent upon the Companys ability to attract and retain
qualified personnel. The Companys inability to attract and retain qualified
personnel in the future could have a material adverse effect on the Companys
business, financial condition and results of operations.

Dependence on Single Distribution Facility.The Companys distribution
functions for all of its stores and for internet sales are handled from a
single facility in Anaheim, California. Any significant interruption in the
operation of the distribution facility due to natural disasters, accidents,
system failures or other unforeseen causes would have a material adverse effect
on the Companys business, financial condition and results of operations.
There can be no assurance that the Companys new corporate office and
distribution center will be adequate to support the Companys future growth.

Internet Sales. The Companys internet operations are subject to numerous
risks, including unanticipated operating problems, reliance on third party
computer hardware and software providers, system failures and the need to
invest in additional computer systems. There can be no assurance that the
internet operations will achieve sales and profitability levels that justify
the Companys investment therein. The internet operations also involve other
risks that could have a material adverse effect on the Company, including (i)
difficulties with hiring, retention and training of key personnel to conduct
the Companys internet operations, (ii) diversion of sales from PacSun stores,
(iii) rapid technological change, (iv) liability for online content and (v)
risks related to the failure of the computer systems that operate the website
and its related support systems, including computer viruses, telecommunication
failures and electronic break-ins and similar disruptions. In addition, the
internet operations involve risks which are beyond the Companys control that
could have a material adverse effect on the Company, including (i) price
competition involving the items the Company intends to sell, (ii) the entry of
the Companys vendors into the internet business, in direct competition with
the Company, (iii) the level of merchandise returns experienced by the Company,
(iv) governmental regulation, (v) online security breaches, (vi) credit card
fraud and (vii) competition and general economic conditions and economic
conditions specific to the internet, online commerce and the apparel industry.

Economic Impact of Terrorism.The majority of the Companys stores are located
in regional shopping malls. Any threat of terrorism or actual terrorist
events, particularly in public areas, could lead to lower customer traffic in
regional shopping malls. In addition, local authorities or mall management
could close regional shopping malls in response to any immediate security
concern. Mall closures, as well as lower

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customer traffic due to security concerns, could result in decreased sales,
which could have a material adverse effect on the Companys business, financial
condition and results of operations.

Reliance on Foreign Sources of Production.The Company purchases merchandise
directly in foreign markets for its private label brands. In addition, the
Company purchases merchandise from domestic vendors, some of which is
manufactured overseas. The Company does not have any long-term merchandise
supply contracts and its imports are subject to existing or potential duties,
tariffs and quotas. The Company faces competition from other companies for
production facilities and import quota capacity. The Company also faces a
variety of other risks generally associated with doing business in foreign
markets, importing merchandise from abroad, and purchasing merchandise from
vendors who manufacture products abroad, such as: (i) political instability;
(ii) imposition of new legislation relating to import quotas that may limit the
quantity of goods which may be imported into the United States from countries
in a region that the Company does business; (iii) imposition of duties, taxes,
and other charges on imports; (iv) local business practice and political
issues, including issues relating to compliance with domestic or international
labor standards which may result in adverse publicity; and (v) the failure of
vendors to deliver ordered goods on schedule or at all. New initiatives may be
proposed that may have an impact on the trading status of certain countries and
may include retaliatory duties or other trade sanctions, which, if enacted,
would increase the cost of products, purchased from suppliers in countries that
the Company does business with. The inability of the Company to rely on its
foreign sources of production due to any of the factors listed above could have
a material adverse effect on the Companys business, financial condition and
results of operations.

Credit Facility Financial Covenants.A significant decrease in the Companys
operating results could adversely affect the Companys ability to maintain
required financial ratios under the Companys credit facility. Required
financial ratios include total liabilities to tangible net worth ratio,
limitations on capital expenditures and achievement of certain rolling
four-quarter EBITDA requirements. If these financial ratios are not
maintained, the bank will have the option to require immediate repayment of all
amounts outstanding under the credit facility. The most likely result would
require the Company to renegotiate certain terms of the credit agreement,
obtain a waiver from the bank, or obtain a new credit agreement with another
bank, which may contain different terms.

Stock Options.A number of publicly traded companies have announced that they
will begin expensing stock option grants to employees. In addition, the FASB
and the Securities and Exchange Commission (the Commission) have indicated
that possible rule changes requiring expensing of stock options may be adopted
in the near future. Currently, the Company includes such expenses on a pro
forma basis in the notes to the Companys financial statements in accordance
with accounting principles generally accepted in the United States of America
but does not include stock option expenses in the Companys reported financial
statements. If accounting standards are changed to require the Company to
expense stock options, the Companys reported earnings will decrease and its
stock price could decline.

Litigation.The Company is involved from time to time in litigation incidental
to its business. Management believes that the outcome of current litigation
will not have a material adverse effect upon the results of operations or
financial condition of the Company. However, managements assessment of the
Companys current litigation could change in light of the discovery of facts
with respect to legal actions pending against the Company not presently known
to the Company or determinations by judges, juries or other finders of fact
which do not accord with managements evaluation of the possible liability or
outcome of such litigation.

Volatility of Stock Price.The market price of the Companys common stock has
fluctuated substantially in the past and there can be no assurance that the
market price of the common stock will not continue to fluctuate significantly.
Future announcements or management discussions concerning the Company or its
competitors, internet sales results, d.e.m.o. sales and profitability results,
quarterly variations in operating results or comparable store net sales,
changes in earnings estimates by analysts or changes in accounting policies,
among other factors, could cause the market price of the common stock to
fluctuate substantially. In addition, stock markets have experienced extreme
price and volume volatility in recent years. This

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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.

*************

The Company cautions that the risk factors described above could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Further, management cannot assess the impact of each such factor on the
Companys business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.




ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

To the extent the Company borrows under its credit facility, the Company is
exposed to market risk related to changes in interest rates. At August 2,
2003, there were no borrowings outstanding under the Companys credit facility
and the Company did not borrow under the credit facility at any time during the
first half ended August 2, 2003. Based on the weighted average interest
rate of 3.67% on the Companys credit facility during fiscal 2002, if interest
rates on the credit facility were to increase by 10%, and to the extent
borrowings were outstanding, for every $1.0 million outstanding on the
Companys credit facility, net income would be reduced by approximately $3.0
thousand per year. A discussion of the Companys accounting policies for
financial instruments and further disclosures relating to financial instruments
is included in the Summary of Significant Accounting Policies and Nature of
Business in the Notes to Consolidated Financial Statements in the Companys
Form 10-K for the year ended February 1, 2003. The Company is not a party with
respect to derivative financial instruments.




ITEM 4  CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Chief Executive Officer
and Chief Financial Officer of the Company (collectively, the certifying
officers) have evaluated the effectiveness of the Companys disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act). These disclosure controls and procedures
are designed to ensure that the information required to be disclosed by the
Company in its periodic reports filed with the Commission is recorded,
processed, summarized and reported within the time periods specified by the
Commissions rules and forms, and that the information is communicated to the
certifying officers on a timely basis.

The certifying officers concluded, based on their evaluation, that the
Companys disclosure controls and procedures are effective for the Company,
taking into consideration the size and nature of the Companys business and
operations.

No change in the Companys internal control over financial reporting occurred
during the last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial
reporting.




PART II-OTHER INFORMATION




Item 1  Legal Proceedings

During the first quarter ended May 3, 2003, the Company reached an agreement,
subject to court approval, to settle all claims related to two lawsuits
concerning overtime pay for a total of $4.0 million. The Company had accrued
$3.9 million related to these matters at February 1, 2003. The suits are Auden
v. Pacific Sunwear of California, Inc., which was filed September 17, 2001, and
Adams v. Pacific Sunwear of California, Inc., which was filed August 2, 2002.
The complaints allege that the Company improperly classified certain
California-based employees as exempt from overtime pay. The Company denies
the allegations underlying the suits, but has agreed to settle the suits to
avoid the cost, distraction and uncertainty associated with protracted
litigation. The court has granted preliminary approval of the settlement and
is expected to conduct final fairness hearings regarding the settlement in
September or

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October 2003. The settlement did not have a material impact on results of
operations for the second quarter or first half ended August 2, 2003.




Item 2  Changes in Securities and Use of Proceeds- Not Applicable




Item 3  Defaults Upon Senior Securities- Not Applicable




Item 4  Submission of Matters to a Vote of Security Holders

a) The 2003 Annual Meeting of Shareholders of the Company was held on May 21,
2003.

c) At the 2003 Annual Meeting, Sally Frame Kasaks, Thomas Murnane and Peter
Starrett were elected as Class I Directors of the Company for a one-year term
ending in 2004 and Greg H. Weaver, Julius Jensen III and Pearson C. Cummin III
were elected as Class II Directors of the Company for a two-year term ending in
2005.

The shareholders voted on and approved the amended and restated Pacific Sunwear
of California, Inc. 1999 Stock Award Plan, which increased the number of
shares, authorized to be issued under the plan by 2,500,000, as well as amended
certain other provisions in the plan.

The shareholders voted on and ratified the appointment of Deloitte & Touche LLP
as independent auditors for the Company for the year ending January 31, 2004.

Voting at the 2003 Annual Meeting for the election of directors was as set
forth below. Each of the nominees identified below was elected a director.

|                      |  |                |            |                |  |  |           | 
|--------------------- |  | -------------- | ---------- | -------------- |  |  | --------- | 
|NAME                  |  | VOTES CAST FOR |            | VOTES WITHHELD
|                      |  |                |            |               
|Class I Directors:    |  |                |            |                |  |  |           | 
|Sally Frame Kasaks    |  |                | 39,598,106 |                |  |  | 270,768   | 
|Thomas Murnane        |  |                | 39,538,930 |                |  |  | 329,944   | 
|Peter Starrett        |  |                | 39,714,285 |                |  |  | 154,589   | 
|Class II Directors:   |  |                |            |                |  |  |           | 
|Greg H. Weaver        |  |                | 39,488,708 |                |  |  | 380,166   | 
|Julius Jensen III     |  |                | 38,080,922 |                |  |  | 1,787,952 | 
|Pearson C. Cummin III |  |                | 38,781,781 |                |  |  | 1,087,093 | 

With respect to the approval of the amended and restated Pacific Sunwear of
California, Inc. 1999 Stock Award Plan, 22,260,537 votes were cast for
approval, 12,933,729 votes were cast against, 10,165 votes abstained and there
were 14,690,264 broker non-votes.

With respect to the ratification of the appointment of Deloitte & Touche LLP as
independent auditors for the Company for the year ended January 31, 2004,
39,642,879 votes were cast for approval, 219,708 votes were cast against, 6,287
votes abstained and there were 10,025,821 broker non-votes.




Item 5  Other Information- Not Applicable

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Item 6  Exhibits and Reports on Form 8-K

|           |  |                                                                                                                   
|---------- |  | ------------------------------------------------------------------------------------------------------------------
|Exhibit 31 |  | Written statements of Greg H. Weaver and Carl W. Womack pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.
|Exhibit 32 |  | Written statement of Greg H. Weaver and Carl W. Womack pursuant to section 906 of the
Sarbanes-Oxley Act of 2002. 

On May 12, 2003, the Company filed an 8-K furnishing a press release announcing
results of operations for the quarter ended May 2, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                      |  |                                                                            
|--------------------- |  | ---------------------------------------------------------------------------
|                      |  | Pacific Sunwear of California, Inc.
(Registrant)                           
|Date: August 27, 2003 |  | /s/ GREG H. WEAVER                                                         
|                      |  |                                                                            
|                      |  | Greg H. Weaver
Chairman of the Board
and Chief Executive Officer           
|                      |  |                                                                            
|Date: August 27, 2003 |  | /s/ CARL W. WOMACK                                                         
|                      |  |                                                                            
|                      |  | Carl W. Womack
Senior Vice President, Chief
Financial Officer and Secretary

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EXHIBIT INDEX

|           |  |                                                                                                                   
|---------- |  | ------------------------------------------------------------------------------------------------------------------
|Exhibit 31 |  | Written statements of Greg H. Weaver and Carl W. Womack pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.
|Exhibit 32 |  | Written statement of Greg H. Weaver and Carl W. Womack pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.