##### Table of Contents



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 3, 2002

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[   ]
|-------------------

The number of shares outstanding of the registrants Common Stock, par
value $.01 per share, at September 6, 2002, was 32,865,221.





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TABLE OF CONTENTS



|                          |                                                                                                    |                                                                      |  |  |  |  |  | 
|------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  |  |  |  |  | 
|PART I-FINANCIAL         
|                          | Item 1  Condensed Consolidated Financial Statements:                                             
|                          |                                                                                                    | CONDENSED CONSOLIDATED BALANCE SHEETS                               
|                          |                                                                                                    | CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|                          |                                                                                                    | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                     
|                          |                                                                                                    | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                
|                          | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF CONSOLIDATED OPERATIONS
|                          | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                        
|PART II-OTHER INFORMATION
|                          | Item 1  Legal Proceedings                                                                        
|                          | 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                                      
|                          | Item 5  Other Information  Not Applicable                                                       
|                          | Item 6  Exhibits and Reports on Form 8-K                                                         
|SIGNATURES               
|EXHIBIT 10.1             



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##### Table of Contents









PACIFIC SUNWEAR OF CALIFORNIA, INC.

FORM 10-Q
For the Quarter Ended August 3, 2002

Index

|        |  |                                                                                                                                                    |  |      
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----
|PART I. |  | FINANCIAL INFORMATION                                                                                                                              |  | Page 
|       
|       
|       
|       
|Item 1. |  | Condensed Consolidated Financial Statements:                                                                                                       |  |      
|       
|       
|       
|       
|        |  | Condensed Consolidated Balance Sheets as of August 3, 2002 and
February 2, 2002                                                                    |  | 3    
|       
|       
|       
|       
|        |  | Condensed Consolidated Statements of Income and Comprehensive Income for
the second quarter and first half ended August 3, 2002 and August 5, 2001 |  | 4    
|       
|       
|       
|       
|        |  | Condensed Consolidated Statements of Cash Flows for the first half ended
August 3, 2002 and August 5, 2001.                                        |  | 5    
|       
|       
|       
|       
|        |  | Notes to Condensed Consolidated Financial Statements                                                                                               |  | 6-9  
|       
|       
|       
|       
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results
of Operations                                                              |  | 10-18
|       
|       
|       
|       
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                         |  | 19   
|       
|       
|       
|       
|PART II |  | OTHER INFORMATION                                                                                                                                  |  |      
|       
|       
|       
|       
|Item 1. |  | Legal Proceedings                                                                                                                                  |  | 20   
|       
|       
|       
|       
|Item 2. |  | Changes in Securities and Use of Proceeds                                                                                                          |  | 20   
|       
|       
|       
|       
|Item 3. |  | Defaults Upon Senior Securities                                                                                                                    |  | 20   
|       
|       
|       
|       
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                                                                |  | 20   
|       
|       
|       
|       
|Item 5. |  | Other Information                                                                                                                                  |  | 21   
|       
|       
|       
|       
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                                   |  | 21   
|       
|       
|       
|       
|        |  | SIGNATURE PAGE AND CERTIFICATIONS                                                                                                                  |  | 22   

2



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##### Table of Contents






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

ASSETS

|                                     |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |             |         |         |         | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | --------- | ------- | ----------- | ------- | ------- | ------- | 
|                                     |                                                                                                                                    |                                                                            |                            |                                            |         | August 3, |         | February 2,
|                                     |                                                                                                                                    |                                                                            |                            |                                            |         | 2002      |         | 2002       
|                                     |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |            
|CURRENT ASSETS:                      |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |            
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Cash and cash equivalents (Note 2)                                         |                            | $                                          | 4,171   |           |         | $           | 23,136  |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Accounts receivable                                                        |                            |                                            | 5,190   |           |         |             | 3,044   |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Merchandise inventories                                                    |                            |                                            | 153,205 |           |         |             | 102,512 |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Prepaid expenses, includes $9,137 and $8,410
of prepaid rent, respectively |                            |                                            | 14,154  |           |         |             | 11,856  |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Deferred taxes                                                             |                            |                                            | 4,282   |           |         |             | 4,282   |        
|                                     |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |             |         |        
|                                     |                                                                                                                                    |                                                                            |                            | Total current assets                       |         |           | 181,002 |             |         |         | 144,830 | 
|                                    
|                                    
|                                    
|                                    
|PROPERTY AND EQUIPMENT:              |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |            
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Land                                                                       |                            |                                            | 12,156  |           |         |             | 12,156  |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Buildings and building improvements                                        |                            |                                            | 26,475  |           |         |             | 26,475  |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Leasehold improvements                                                     |                            |                                            | 108,380 |           |         |             | 102,075 |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Furniture, fixtures and equipment                                          |                            |                                            | 136,383 |           |         |             | 125,706 |        
|                                     |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |             |         |        
|                                     |                                                                                                                                    |                                                                            |                            | Total property and equipment               |         |           | 283,394 |             |         |         | 266,412 | 
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Less accumulated depreciation and amortization                             |                            |                                            | (83,794 | )         |         |             | (71,412 | )      
|                                     |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |             |         |        
|                                     |                                                                                                                                    |                                                                            |                            | Net property and equipment                 |         |           | 199,600 |             |         |         | 195,000 | 
|                                    
|                                    
|                                    
|                                    
|OTHER ASSETS:                        |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |            
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Goodwill (Note 3)                                                          |                            |                                            | 6,492   |           |         |             | 6,492   |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Deferred compensation and other assets (Note 4)                            |                            |                                            | 9,676   |           |         |             | 7,807   |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Deferred taxes  noncurrent                                                |                            |                                            | 1,311   |           |         |             | 1,311   |        
|                                     |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |             |         |        
|                                     |                                                                                                                                    |                                                                            |                            | Total other assets                         |         |           | 17,479  |             |         |         | 15,610  | 
|                                     |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |             |         |        
|                                     |                                                                                                                                    |                                                                            |                            | Total assets                               |         | $         | 398,081 |             |         | $       | 355,440 | 
|                                     |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |             |         |        
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|LIABILITIES AND SHAREHOLDERS EQUITY
|                                    
|                                    
|                                    
|                                    
|CURRENT LIABILITIES:                 |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |            
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Line of credit (Note 5)                                                    |                            | $                                          | 11,700  |           |         | $           |        |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Current portion of long-term debt (Note 5)                                 |                            |                                            | 25,791  |           |         |             | 425     |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Current portion of capital lease obligations                               |                            |                                            | 834     |           |         |             | 834     |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Accounts payable                                                           |                            |                                            | 55,964  |           |         |             | 37,493  |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Accrued liabilities (Notes 6 and 9)                                        |                            |                                            | 21,388  |           |         |             | 17,743  |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                    | Income taxes payable                                                       |                            |                                            | 2,321   |           |         |             | 9,436   |        
|                                     |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |             |         |        
|                                     |                                                                                                                                    |                                                                            |                            | Total current liabilities                  |         |           | 117,998 |             |         |         | 65,931  | 
|                                    
|                                    
|                                    
|                                    
|Long-term debt (Note 5)              |                                                                                                                                    |                                                                            | 1,640                      |                                            |         |           | 24,597  |            
|                                    
|                                    
|                                    
|                                    
|Long-term capital lease obligations  |                                                                                                                                    |                                                                            | 287                        |                                            |         |           | 731     |            
|                                    
|                                    
|                                    
|                                    
|Deferred compensation                |                                                                                                                                    |                                                                            | 7,711                      |                                            |         |           | 7,439   |            
|                                    
|                                    
|                                    
|                                    
|Deferred rent                        |                                                                                                                                    |                                                                            | 9,636                      |                                            |         |           | 8,759   |            
|                                    
|                                    
|                                    
|                                    
|Other long-term liabilities          |                                                                                                                                    |                                                                            | 28                         |                                            |         |           | 28      |            
|                                    
|                                    
|                                    
|                                    
|SHAREHOLDERS EQUITY:                |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |            
|                                    
|                                    
|                                    
|                                    
|                                     | Preferred stock, par value $.01; authorized, 5,000,000;
none issued and outstanding                                                |                                                                            |                            |                                           |         |           |         |            |        
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, par value $.01; authorized 75,937,500 shares;
issued and outstanding, 32,859,931 and 32,770,502 shares,
respectively |                                                                            |                            | 329                                        |         |           |         | 328         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Additional paid-in capital                                                                                                         |                                                                            |                            | 90,676                                     |         |           |         | 88,416      |        
|                                    
|                                    
|                                    
|                                    
|                                     | Retained earnings                                                                                                                  |                                                                            |                            | 169,776                                    |         |           |         | 159,211     |        
|                                     |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |             |         |        
|                                     |                                                                                                                                    |                                                                            | Total shareholders equity |                                            |         | 260,781   |         |             |         | 247,955 |        
|                                     |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |             |         |        
|                                     |                                                                                                                                    |                                                                            |                            | Total liabilities and shareholders equity |         | $         | 398,081 |             |         | $       | 355,440 | 
|                                     |                                                                                                                                    |                                                                            |                            |                                            |         |           |         |             |         |        

See accompanying notes

3



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##### Table of Contents






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 3,                    |            | August 5,                |  | August 3, |            | August 5,
|                                                                       |  | 2002                         |            | 2001                     |  | 2002      |            | 2001     
|                                                                       |  |                              |            |                          |  |           |            |           |  |   |            |  |  |   |            |  
|Net sales                                                              |  | $                            | 190,854    |                          |  | $         | 156,509    |           |  | $ | 352,564    |  |  | $ | 294,207    |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Cost of goods sold, including
buying, distribution and
occupancy costs |  |                              | 130,249    |                          |  |           | 108,331    |           |  |   | 242,792    |  |  |   | 204,072    |  
|                                                                       |  |                              |            |                          |  |           |            |           |  |   |            |  |  |   |            |  
|Gross margin                                                           |  |                              | 60,605     |                          |  |           | 48,178     |           |  |   | 109,772    |  |  |   | 90,135     |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Selling, general and
administrative expenses (Note
9)                  |  |                              | 48,454     |                          |  |           | 42,437     |           |  |   | 92,168     |  |  |   | 83,039     |  
|                                                                       |  |                              |            |                          |  |           |            |           |  |   |            |  |  |   |            |  
|Operating income                                                       |  |                              | 12,151     |                          |  |           | 5,741      |           |  |   | 17,604     |  |  |   | 7,096      |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Interest expense/(income), net                                         |  |                              | 306        |                          |  |           | (12        | )         |  |   | 453        |  |  |   | (247       | )
|                                                                       |  |                              |            |                          |  |           |            |           |  |   |            |  |  |   |            |  
|Income before income tax
expense                                       |  |                              | 11,845     |                          |  |           | 5,753      |           |  |   | 17,151     |  |  |   | 7,343      |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Income tax expense (Note 7)                                            |  |                              | 4,549      |                          |  |           | 2,209      |           |  |   | 6,586      |  |  |   | 2,819      |  
|                                                                       |  |                              |            |                          |  |           |            |           |  |   |            |  |  |   |            |  
|Net income                                                             |  | $                            | 7,296      |                          |  | $         | 3,544      |           |  | $ | 10,565     |  |  | $ | 4,524      |  
|                                                                       |  |                              |            |                          |  |           |            |           |  |   |            |  |  |   |            |  
|Comprehensive income (Note 1)                                          |  | $                            | 7,296      |                          |  | $         | 3,544      |           |  | $ | 10,565     |  |  | $ | 4,524      |  
|                                                                       |  |                              |            |                          |  |           |            |           |  |   |            |  |  |   |            |  
|Net income per share, basic
(Note 8)                                   |  | $                            | 0.22       |                          |  | $         | 0.11       |           |  | $ | 0.32       |  |  | $ | 0.14       |  
|                                                                       |  |                              |            |                          |  |           |            |           |  |   |            |  |  |   |            |  
|Net income per share, diluted
(Note 8)                                 |  | $                            | 0.22       |                          |  | $         | 0.11       |           |  | $ | 0.32       |  |  | $ | 0.14       |  
|                                                                       |  |                              |            |                          |  |           |            |           |  |   |            |  |  |   |            |  
|Weighted average shares
outstanding, basic (Note 8)                    |  |                              | 32,838,249 |                          |  |           | 32,719,399 |           |  |   | 32,818,170 |  |  |   | 32,619,110 |  
|                                                                       |  |                              |            |                          |  |           |            |           |  |   |            |  |  |   |            |  
|Weighted average shares
outstanding, diluted (Note 8)                  |  |                              | 33,229,773 |                          |  |           | 33,101,815 |           |  |   | 33,315,937 |  |  |   | 33,135,948 |  
|                                                                       |  |                              |            |                          |  |           |            |           |  |   |            |  |  |   |            |  

See accompanying notes

4



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##### Table of Contents






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

|                                                                                  |              |                                                    |                                        |                                           |         |                          |         |           |         |         |         |  
|--------------------------------------------------------------------------------- | ------------ | -------------------------------------------------- | -------------------------------------- | ----------------------------------------- | ------- | ------------------------ | ------- | --------- | ------- | ------- | ------- | -
|                                                                                  |              |                                                    |                                        |                                           |         | For the First Half Ended
|                                                                                  |              |                                                    |                                        |                                           |         |                         
|                                                                                  |              |                                                    |                                        |                                           |         | August 3,                |         | August 5,
|                                                                                  |              |                                                    |                                        |                                           |         | 2002                     |         | 2001     
|                                                                                  |              |                                                    |                                        |                                           |         |                          |         |          
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |              |                                                    |                                        |                                           |         |                          |         |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Net income                                                                        |              | $                                                  | 10,565                                 |                                           |         | $                        | 4,524   |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Adjustments to reconcile net income to net cash
provided by operating activities: |              |                                                    |                                        |                                           |         |                          |         |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              | Depreciation and amortization                      |                                        |                                           | 16,057  |                          |         |           | 12,752  |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              | Loss on disposal of equipment (Note 9)             |                                        |                                           | 2,110   |                          |         |           | 5,285   |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              | Change in operating assets and liabilities:        |                                        |                                           |         |                          |         |           |         |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              |                                                    | Accounts receivable                    |                                           |         | (2,146                   | )       |           |         | (2,861  | )      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              |                                                    | Merchandise inventories                |                                           |         | (50,693                  | )       |           |         | (41,581 | )      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              |                                                    | Prepaid expenses                       |                                           |         | (1,494                   | )       |           |         | 694     |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              |                                                    | Deferred compensation and other assets |                                           |         | 278                      |         |           |         | (457    | )      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              |                                                    | Accounts payable                       |                                           |         | 18,471                   |         |           |         | 8,632   |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              |                                                    | Accrued liabilities                    |                                           |         | 3,645                    |         |           |         | 1,975   |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              |                                                    | Income taxes and deferred taxes        |                                           |         | (6,466                   | )       |           |         | 1,645   |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              |                                                    | Deferred rent                          |                                           |         | 877                      |         |           |         | 590     |        
|                                                                                  |              |                                                    |                                        |                                           |         |                          |         |          
|                                                                                  |              |                                                    |                                        | Net cash used in operating activities     |         |                          | (8,796  | )         |         |         | (8,802  | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |              |                                                    |                                        |                                           |         |                          |         |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              | Investment in property and equipment               |                                        |                                           | (22,742 | )                        |         |           | (39,963 | )      
|                                                                                  |              |                                                    |                                        |                                           |         |                          |         |          
|                                                                                  |              |                                                    |                                        | Net cash used in investing activities     |         |                          | (22,742 | )         |         |         | (39,963 | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |              |                                                    |                                        |                                           |         |                          |         |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              | Net borrowings under credit facility               |                                        |                                           | 11,700  |                          |         |           | 20,075  |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              | Proceeds from exercise of stock options            |                                        |                                           | 1,321   |                          |         |           | 3,686   |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              | Principal payments under capital lease obligations |                                        |                                           | (444    | )                        |         |           | (255    | )      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |              | Payments under long-term debt obligations          |                                        |                                           | (4      | )                        |         |           |        |        
|                                                                                  |              |                                                    |                                        |                                           |         |                          |         |          
|                                                                                  |              |                                                    |                                        | Net cash provided by financing activities |         |                          | 12,573  |           |         |         | 23,506  |  
|                                                                                  |              |                                                    |                                        |                                           |         |                          |         |          
|NET DECREASE IN CASH AND CASH EQUIVALENTS:                                        |              |                                                    | (18,965                                | )                                         |         |                          | (25,259 | )        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|CASH AND CASH EQUIVALENTS, beginning of period                                    |              |                                                    | 23,136                                 |                                           |         |                          | 28,971  |          
|                                                                                  |              |                                                    |                                        |                                           |         |                          |         |          
|CASH AND CASH EQUIVALENTS, end of period                                          |              | $                                                  | 4,171                                  |                                           |         | $                        | 3,712   |          
|                                                                                  |              |                                                    |                                        |                                           |         |                          |         |          
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:                                |              |                                                    |                                        |                                           |         |                          |         |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cash paid during the period for:                                                  |              |                                                    |                                        |                                           |         |                          |         |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Interest     |                                                    | $                                      | 565                                       |         |                          | $       | 39        |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Income taxes |                                                    | $                                      | 13,052                                    |         |                          | $       | 1,174     |        

Supplemental disclosures of non-cash transactions (in thousands): During the
first half ended August 3, 2002 and August 5, 2001, the Company recorded an
increase to additional paid-in capital of $649 and $2,485, respectively,
related to tax benefits associated with the exercise of non-qualified stock
options. Also, during each of the first halves ended August 3, 2002 and August
5, 2001, the Company recorded an increase to additional paid-in capital of $291
and $290, respectively, 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

5



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##### Table of Contents






PACIFIC SUNWEAR OF CALIFORNIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 significant
intercompany transactions have been eliminated in consolidation.

The Companys fiscal year is the 52- or 53-week period, which ends on the
Saturday closest to January 31. Fiscal 2002 is a 52-week period that ends
February 1, 2003. Fiscal 2001 was a 52-week period that ended on 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 expenses during the reported period. Actual
results could differ from these estimates. The results of operations for the
second quarter and first half ended August 3, 2002 are not necessarily
indicative of the results that may be expected for the fiscal year ending
February 1, 2003. For further information, refer to the financial statements
and notes thereto as of and for the years ended February 2, 2002, February 4,
2001 and January 30, 2000.

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

NOTE 2  Cash and Cash Equivalents

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

NOTE 3  Goodwill and Identified Intangible Assets

On February 3, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which eliminated the amortization of goodwill and other
intangible assets with indefinite useful lives. Upon adoption of SFAS No. 142,
the Company performed an impairment test of its goodwill and intangible assets
and determined that no impairment existed. Under SFAS No. 142, goodwill and
intangible assets will be tested for impairment at least annually and more
frequently if an event occurs which indicates the goodwill or intangible assets
may be impaired.

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 performed an impairment test of its
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.

Included in other assets is a covenant not to compete with a carrying value of
$4, net of accumulated amortization of $246, at August 3, 2002. The covenant
not to compete will be completely amortized during fiscal 2002.

6



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##### Table of Contents



SFAS No. 142 also requires disclosure of the after-tax impact to reported net
income and earnings per share of the adoption of the statement for all periods
presented. The following table recognizes the after-tax impact to the
Companys operational results of the adoption of SFAS No. 142 as if the
standard had been in effect for all periods presented:

|                               |                                |      |           |      |           |   |       |      | 
|------------------------------ | ------------------------------ | ---- | --------- | ---- | --------- | - | ----- | ---- | 
|                               |                                |      | August 3, |      | August 5,
|                               |                                | 2002 |           | 2001
|                               |                                |      |           |     
|For the First Half Ended:      |                                |      |           |      |           |   |       |     
|                              
|                              
|                              
|                              
|Reported net income            |                                | $    | 10,565    |      |           | $ | 4,524 |     
|                              
|                              
|                              
|                              
|Add back goodwill amortization |                                |      |          |      |           |   | 96    |     
|                               |                                |      |           |      |           |   |       |     
|Adjusted net income            |                                | $    | 10,565    |      |           | $ | 4,620 |     
|                              
|                              
|                              
|                              
|Basic earnings per share:      |                                |      |           |      |           |   |       |     
|                              
|                              
|                              
|                              
|                               | Reported net income            |      | $         | 0.32 |           |   | $     | 0.14 | 
|                              
|                              
|                              
|                              
|                               | Add back goodwill amortization |      |           | 0.00 |           |   |       | 0.00 | 
|                               |                                |      |           |      |           |   |       |     
|                               | Adjusted net income            |      | $         | 0.32 |           |   | $     | 0.14 | 
|                              
|                              
|                              
|                              
|Diluted earnings per share:    |                                |      |           |      |           |   |       |     
|                              
|                              
|                              
|                              
|                               | Reported net income            |      | $         | 0.32 |           |   | $     | 0.14 | 
|                              
|                              
|                              
|                              
|                               | Add back goodwill amortization |      |           | 0.00 |           |   |       | 0.00 | 
|                               |                                |      |           |      |           |   |       |     
|                               | Adjusted net income            |      | $         | 0.32 |           |   | $     | 0.14 | 
|                               |                                |      |           |      |           |   |       |     

NOTE 4  Deferred Compensation and Other Assets

Deferred compensation and other assets consist of the following:

|                                        |  |           |       |             |  |   |       | 
|--------------------------------------- |  | --------- | ----- | ----------- |  | - | ----- | 
|                                        |  | August 3, |       | February 2,
|                                        |  | 2002      |       | 2002       
|                                        |  |           |       |            
|Deferred compensation                   |  | $         | 7,950 |             |  | $ | 7,587 | 
|                                       
|                                       
|                                       
|                                       
|Long-term computer maintenance contract |  |           | 1,542 |             |  |   |      | 
|                                       
|                                       
|                                       
|                                       
|Other assets                            |  |           | 184   |             |  |   | 220   | 
|                                        |  |           |       |             |  |   |       | 
|                                        |  | $         | 9,676 |             |  | $ | 7,807 | 
|                                        |  |           |       |             |  |   |       | 

NOTE 5  Credit Facility

The Company amended its credit facility with a bank on August 19, 2002. The
credit facility expires March 31, 2004. The amended 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, and an additional
$25.0 million line of credit (the Construction Facility) which was used to
finance the construction of the Companys new corporate office and distribution
center. Interest on each of the Credit Line and Construction Facility is
payable monthly at the banks prime rate (4.75% at August 3, 2002) or at
optional interest rates that are primarily dependant upon the London Inter-bank
Offered Rates for the time period chosen. The Companys weighted average
interest rate on its outstanding borrowings was 3.77% at August 3, 2002. At
August 3, 2002, the Company had $11.7 million outstanding under the Credit Line
and $25.0 million outstanding under the Construction Facility. Additionally,
the Company had $9.3 million in letters of credit outstanding at August 3,
2002. 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 3, 2002, the Company was
in compliance with all of the covenants.

The Company intends to repay the $25.0 million outstanding under the
Construction Facility prior to September 30, 2002 using cash flows generated
from operations. Accordingly, the entire balance of the Construction Facility
has been included in the current portion of long-term debt at August 3, 2002.

7



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##### Table of Contents



NOTE 6  Accrued Liabilities

Accrued liabilities consist of the following:

|                                                               |  |           |        |             |  |   |        | 
|-------------------------------------------------------------- |  | --------- | ------ | ----------- |  | - | ------ | 
|                                                               |  | August 3, |        | February 2,
|                                                               |  | 2002      |        | 2002       
|                                                               |  |           |        |            
|Accrued compensation and benefits                              |  | $         | 6,369  |             |  | $ | 4,620  | 
|                                                              
|                                                              
|                                                              
|                                                              
|Sales tax payable                                              |  |           | 3,557  |             |  |   | 1,647  | 
|                                                              
|                                                              
|                                                              
|                                                              
|Accrued gift certificates and store merchandise credits        |  |           | 2,677  |             |  |   | 4,160  | 
|                                                              
|                                                              
|                                                              
|                                                              
|Reserve for store expansion/relocation and closing costs       |  |           | 1,799  |             |  |   | 2,094  | 
|                                                              
|                                                              
|                                                              
|                                                              
|Reserve for corporate rent  old corporate facilities
(Note 9) |  |           | 1,396  |             |  |   | 1,396  | 
|                                                              
|                                                              
|                                                              
|                                                              
|Accrued medical insurance costs                                |  |           | 1,352  |             |  |   | 855    | 
|                                                              
|                                                              
|                                                              
|                                                              
|Other accrued liabilities                                      |  |           | 4,238  |             |  |   | 2,971  | 
|                                                               |  |           |        |             |  |   |        | 
|                                                               |  | $         | 21,388 |             |  | $ | 17,743 | 
|                                                               |  |           |        |             |  |   |        | 

NOTE 7  Federal and State Income Tax Expense

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

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):

|                                 |  |                |       |                |  |        |            |           |  |        |      |        |  |   |       |           |  |  |            |  |  |   |      | 
|-------------------------------- |  | -------------- | ----- | -------------- |  | ------ | ---------- | --------- |  | ------ | ---- | ------ |  | - | ----- | --------- |  |  | ---------- |  |  | - | ---- | 
|                                 |  | August 3, 2002 |       | August 5, 2001
|                                 |  |                |       |               
|                                 |  | Net            |       |                |  |        |            | Per Share |  | Net    |      |        |  |   |       | Per Share
|                                 |  | Income         |       | Shares         |  | Amount |            | Income    |  | Shares |      | Amount
|                                 |  |                |       |                |  |        |            |           |  |        |      |       
|Second Quarter Ended:            |  |                |       |                |  |        |            |           |  |        |      |        |  |   |       |           |  |  |            |  |  |   |      | 
|                                
|                                
|                                
|                                
|Basic EPS:                       |  | $              | 7,296 |                |  |        | 32,838,249 |           |  | $      | 0.22 |        |  | $ | 3,544 |           |  |  | 32,719,399 |  |  | $ | 0.11 | 
|                                
|                                
|                                
|                                
|Effect of dilutive stock options |  |                |       |                |  |        | 391,524    |           |  |        |      |        |  |   |       |           |  |  | 382,416    |  |  |   |      | 
|                                
|                                
|                                
|                                
|Diluted EPS:                     |  | $              | 7,296 |                |  |        | 33,229,773 |           |  | $      | 0.22 |        |  | $ | 3,544 |           |  |  | 33,101,815 |  |  | $ | 0.11 | 

|                                 |  |                |        |                |  |        |            |           |  |        |      |        |  |   |       |           |  |  |            |  |  |   |      | 
|-------------------------------- |  | -------------- | ------ | -------------- |  | ------ | ---------- | --------- |  | ------ | ---- | ------ |  | - | ----- | --------- |  |  | ---------- |  |  | - | ---- | 
|                                 |  | August 3, 2002 |        | August 5, 2001
|                                 |  |                |        |               
|                                 |  | Net            |        |                |  |        |            | Per Share |  | Net    |      |        |  |   |       | Per Share
|                                 |  | Income         |        | Shares         |  | Amount |            | Income    |  | Shares |      | Amount
|                                 |  |                |        |                |  |        |            |           |  |        |      |       
|First Half Ended:                |  |                |        |                |  |        |            |           |  |        |      |        |  |   |       |           |  |  |            |  |  |   |      | 
|                                
|                                
|                                
|                                
|Basic EPS:                       |  | $              | 10,565 |                |  |        | 32,818,170 |           |  | $      | 0.32 |        |  | $ | 4,524 |           |  |  | 32,619,110 |  |  | $ | 0.14 | 
|                                
|                                
|                                
|                                
|Effect of dilutive stock options |  |                |        |                |  |        | 497,767    |           |  |        |      |        |  |   |       |           |  |  | 516,838    |  |  |   |      | 
|                                
|                                
|                                
|                                
|Diluted EPS:                     |  | $              | 10,565 |                |  |        | 33,315,937 |           |  | $      | 0.32 |        |  | $ | 4,524 |           |  |  | 33,135,948 |  |  | $ | 0.14 | 

Options to purchase 1,695,773 and 1,033,198 shares of common stock in the
second quarter of fiscal 2002 and fiscal 2001, respectively, and 950,904 and
443,326 shares of common stock in the first half of fiscal 2002 and fiscal
2001, 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  Corporate Relocation-Related Charges

During the first quarter of fiscal 2001, the Company recorded a non-cash charge
of $2.5 million after tax ($4.2 million pre-tax), or $.08 per basic and diluted
share, related to the disposal of most of the materials handling equipment in
the Companys former distribution center as part of its relocation to its new
distribution facility in Anaheim, California at the end of fiscal 2001. The
$4.2 million pre-tax charge is included in selling, general and administrative
expenses.

8



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During the second half of fiscal 2001, the Company recorded a $1.4 million
charge to reserve for rent expense associated with the Companys former
corporate offices, which remain unused after the Companys relocation to its
new corporate offices and distribution center at the end of fiscal 2001. The
current reserve of $1.4 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 premises within one year
changes, additional charges may be recorded in the future up to the net
remaining obligation under the lease depending on the facts and circumstances
in existence at the time. As of August 3, 2002, the aggregate net remaining
obligation under this lease is approximately $6.9 million.

NOTE 10  Subsequent Event

On August 30, 2002, the Company repaid the outstanding balance of $25.0 million
related to the Construction Facility using available cash generated from
operations (see Note 5).

9



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##### Table of Contents






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

Critical Accounting Policies

The preparation of condensed 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 through the Companys website. The Company
has recorded reserves 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 based 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. 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 increase future markdown rates.

Corporate Rent Reserve- During the second half of fiscal 2001, the Company
recorded a $1.4 million charge to reserve for rent expense associated with the
Companys former corporate offices, which remain unused after the Companys
relocation to its new corporate offices and distribution center at the end of
fiscal 2001. The current reserve of $1.4 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
premises within one year changes, additional charges may be recorded in the
future up to the net remaining obligation under the lease depending on the
facts and circumstances in existence at the time. As of August 3, 2002, the
aggregate net remaining obligation under this lease was approximately $6.9
million.

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 would be recorded in the future
that may have an adverse affect on the Companys operating results.

10



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##### Table of Contents



Results of Operations

The following table sets forth, for the periods indicated, the percentage of
the Companys net sales represented by certain income statement data. The
discussion that follows should be read in conjunction with the table below:

|                                                                       |  |                      |       |                  |  |        |       |        |  |  |       |   |  |  |       |  
|---------------------------------------------------------------------- |  | -------------------- | ----- | ---------------- |  | ------ | ----- | ------ |  |  | ----- | - |  |  | ----- | -
|                                                                       |  | Second Quarter Ended |       | First Half Ended
|                                                                       |  |                      |       |                 
|                                                                       |  | Aug 3,               |       | Aug 5,           |  | Aug 3, |       | Aug 5,
|                                                                       |  | 2002                 |       | 2001             |  | 2002   |       | 2001  
|                                                                       |  |                      |       |                  |  |        |       |        |  |  |       |   |  |  |       |  
|Net sales                                                              |  |                      | 100.0 | %                |  |        | 100.0 | %      |  |  | 100.0 | % |  |  | 100.0 | %
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Cost of goods sold, including
buying, distribution and
occupancy costs |  |                      | 68.2  |                  |  |        | 69.2  |        |  |  | 68.9  |   |  |  | 69.4  |  
|                                                                       |  |                      |       |                  |  |        |       |        |  |  |       |   |  |  |       |  
|Gross margin                                                           |  |                      | 31.8  |                  |  |        | 30.8  |        |  |  | 31.1  |   |  |  | 30.6  |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Selling, general and
administrative expenses                           |  |                      | 25.4  |                  |  |        | 27.1  |        |  |  | 26.1  |   |  |  | 28.2  |  
|                                                                       |  |                      |       |                  |  |        |       |        |  |  |       |   |  |  |       |  
|Operating income                                                       |  |                      | 6.4   |                  |  |        | 3.7   |        |  |  | 5.0   |   |  |  | 2.4   |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Interest expense/(income), net                                         |  |                      | 0.2   |                  |  |        | 0.0   |        |  |  | 0.1   |   |  |  | (0.1  | )
|                                                                       |  |                      |       |                  |  |        |       |        |  |  |       |   |  |  |       |  
|Income before income tax expense                                       |  |                      | 6.2   |                  |  |        | 3.7   |        |  |  | 4.9   |   |  |  | 2.5   |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Income tax expense                                                     |  |                      | 2.4   |                  |  |        | 1.4   |        |  |  | 1.9   |   |  |  | 1.0   |  
|                                                                       |  |                      |       |                  |  |        |       |        |  |  |       |   |  |  |       |  
|Net income                                                             |  |                      | 3.8   | %                |  |        | 2.3   | %      |  |  | 3.0   | % |  |  | 1.5   | %
|                                                                       |  |                      |       |                  |  |        |       |        |  |  |       |   |  |  |       |  

The thirteen weeks ended August 3, 2002 (second quarter) as compared to the
thirteen weeks ended August 5, 2001 (second quarter)

Net Sales

Net sales increased to $190.9 million for the second quarter of fiscal 2002
from $156.5 million for the second quarter of fiscal 2001, an increase of $34.4
million, or 22.0%. Of this $34.4 million increase, $13.5 million was
attributable to net sales generated by 67 new stores opened in fiscal 2001 and
not yet included in the comparable store base, $10.3 million was attributable
to net sales generated by 67 new stores opened in fiscal 2002 and not yet
included in the comparable store base, $10.3 million was attributable to a 7.3%
increase in comparable store net sales in the second quarter of fiscal 2002 as
compared to the second quarter of fiscal 2001, and $2.0 million was
attributable to other non-comparable store net sales. Offsetting these
increases was a $1.7 million decrease attributable to the closing of eight and
six stores during fiscal 2002 and fiscal 2001, 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 7.3% increase in comparable
store net sales in the second quarter of fiscal 2002, PacSun and PacSun Outlet
comparable store net sales increased 7.4% and d.e.m.o. comparable store net
sales increased 6.0%. 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 2002 compared to the
second quarter of fiscal 2001 and had no significant impact on the net sales
increase for the second quarter of fiscal 2002.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, increased to
$60.6 million for the second quarter of fiscal 2002 from $48.2 million for the
second quarter of fiscal 2001, an increase of $12.4 million, or 25.7%. As a
percentage of net sales, gross margin was 31.8% for the second quarter of
fiscal 2002 compared to 30.8% for the second quarter of fiscal 2001. Of this
1.0% increase, .4% 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, .3% was due to a decrease in buying costs as a percentage of net
sales primarily due to a decrease in salaries and travel expenses as a
percentage of net sales in the second quarter of fiscal 2002 as compared to the
second quarter of fiscal 2001 and .3% was due to a decrease in distribution
costs as a percentage of net sales primarily due to a decrease in freight and
payroll expenses as a percentage of net sales.

11



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##### Table of Contents



Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $48.4 million for the
second quarter of fiscal 2002 from $42.4 million for the second quarter of
fiscal 2001, an increase of $6.0 million, or 14.2%. These expenses decreased
to 25.4% as a percentage of net sales in the second quarter of fiscal 2002 from
27.1% in the second quarter of fiscal 2001. Of this 1.7% net decrease as a
percentage of net sales, 1.7% was attributable to decreased advertising
expenses as a percentage of net sales primarily due to the elimination of
television advertising in fiscal 2002, .5% was attributable to a decrease in
store payroll expenses as a percentage of net sales and .2% was due to moving
the timing of a physical inventory to the first quarter of fiscal 2002 from the
second quarter of fiscal 2001. Offsetting these decreases was a .7% increase
in store closing expenses as a percentage of net sales.

Income Tax Expense

Income tax expense was $4.5 million for the first thirteen weeks of fiscal 2002
compared to $2.2 million for the second quarter of fiscal 2001. The effective
income tax rate was 38.4% in each of the second quarters of fiscal 2002 and
fiscal 2001.

The twenty-six weeks ended August 3, 2002 (first half) as compared to the
twenty-six weeks ended August 5, 2001 (first half)

Net Sales

Net sales increased to $352.6 million for the first half of fiscal 2002 from
$294.2 million for the first half of fiscal 2001, an increase of $58.4 million,
or 19.9%. Of this $58.4 million increase, $32.9 million was attributable to
net sales generated by 67 new stores opened in fiscal 2001 and not yet included
in the comparable store base, $13.6 million was attributable to net sales
generated by 67 new stores opened in fiscal 2002 and not yet included in the
comparable store base, $11.1 million was attributable to a 4.2% increase in
comparable store net sales in the first half of fiscal 2002 compared to the
first half of fiscal 2001, and $3.8 million was attributable other
non-comparable store net sales. Offsetting these increases was a $3.0 million
decrease attributable to the closing of eight and six stores during fiscal 2002
and fiscal 2001, 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 4.2% increase in comparable store net sales in the first half
of fiscal 2002, PacSun and PacSun Outlet comparable store net sales increased
4.5% and d.e.m.o. comparable store net sales increased .9%. 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
2002 compared to the first half of fiscal 2001 and had no significant impact on
the net sales increase for the first half of fiscal 2002.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, increased to
$109.8 million for the first half of fiscal 2002 from $90.1 million for the
first half of fiscal 2001, an increase of $19.7 million, or 21.9%. As a
percentage of net sales, gross margin was 31.1% for the first half of fiscal
2002 compared to 30.6% for the first half of fiscal 2001. Of this .5% increase
as a percentage of net sales, .5% was due to a decrease in buying costs as a
percentage of net sales primarily due to a decrease in salaries and travel
expenses as a percentage of net sales in the first half of fiscal 2002 as
compared to the first half of fiscal 2001, .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 and .2% was due to a decrease in
distribution costs as a percentage of net sales primarily due to reduced
freight and payroll expenses as a percentage of net sales. Offsetting these
decreases was a .5% increase in occupancy costs as a percentage of net sales
compared to the first half of fiscal 2001, which was related to opening 59 net
new stores in the first half of fiscal 2002 and the residual impact from
opening 129 net new stores in fiscal 2001. Occupancy costs as a percentage of
net sales for new stores are generally higher than for mature stores.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $92.2 million for the
first half of fiscal 2002 from $83.0 million for the first half of fiscal 2001,
an increase of $9.2 million, or 11.1%. These expenses decreased to 26.1% as a
percentage of net sales in the first half of fiscal 2002 from 28.2% in the first
half of fiscal 2001, excluding the non-cash charge incurred in the first
quarter of fiscal 2001. Of this 2.1% net decrease as a percentage of net
sales, 1.2% was attributable to decreased advertising expenses as a percentage
of net sales primarily due to the elimination of television advertising in fiscal
2002, .9% was due to a decrease in store closing expenses as a percentage of
net sales and .2% was due to a decrease in store payroll expenses as a
percentage of net sales. Store closing expenses were higher in fiscal 2001 due
to the non-cash charge pre-tax charge of $4.2 million related to the disposal
of most of the materials handling equipment in the Companys former
distribution center as part of its relocation to its new distribution facility
in Anaheim, California at the end of fiscal 2001. Offsetting these decreases
was a .2% increase in other direct store selling expenses as a percentage of
net sales.

Income Tax Expense

Income tax expense was $6.6 million for the first half of fiscal 2002 compared
to $2.8 million for the first half of fiscal 2001. The effective income tax
rate was 38.4% in each of the first halves of fiscal 2002 and fiscal 2001.

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 used in operating activities for each of the first half of fiscal 2002
and fiscal 2001 was $8.8 million. For the first half of fiscal 2002 as
compared to the first half of fiscal 2001, changes in cash used were a decrease
in accrued income taxes and deferred income taxes of $8.1 million and a
decrease in losses on the disposal of property and equipment of $3.2 million,
offset by an increase in net income of $6.0 million, an increase in
depreciation of $3.3 million, an increase in accrued liabilities of $1.7
million and other items netting to a decrease in cash used of $.3 million.
Working capital at August 3, 2002 was $63.0 million compared to $78.9 million
at February 2, 2002, a decrease of $15.9 million. Of the $15.9 million
decrease in working capital, $25.0 million was due to the reclassification of
the Companys Construction Facility from long-term liabilities to current
liabilities due to the Companys intent to repay the Construction Facility
prior to September 30, 2002, $19.0 million was due to decreases in cash and
$11.7 million was due to net borrowings under the Companys Credit Line,
partially offset by an increase in inventory net of accounts payable of $32.2
million, a decrease in income taxes payable of $7.1 million and other items
netting to an increase in working capital of $.5 million. Inventories at
August 3, 2002 were $153.2 million compared to $102.5 million at February 2,
2002, an increase of $50.7 million. This increase was primarily related to
opening 59 net new stores and expanding/relocating 19 stores with more than 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 $22.7 million for property and
equipment for the first half of fiscal 2002 compared to $40.0 million for
property and equipment for the first half of fiscal 2001. Of the $22.7 million
of net cash used for investment in property and equipment in the first half of
fiscal 2002, $21.0 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 2002 was
$12.6 million compared to $23.5 million for the first half of fiscal 2001. Of
the $12.6 million of net cash provided by financing activities in the first
half of fiscal 2002, $11.7 million was due to net borrowings under the
Companys line of credit and $1.3 million was due to proceeds received from the
exercise of stock options, offset by $.4 million of payments under capital
lease and long-term debt obligations.

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The Company amended its credit facility with a bank on August 19, 2002. The
credit facility expires March 31, 2004. The amended 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, and an additional
$25.0 million line of credit (the Construction Facility) that was used to
finance the construction of the Companys new corporate office and distribution
center. Interest on each of the Credit Line and Construction Facility is
payable monthly at the banks prime rate (4.75% at August 3, 2002) or at
optional interest rates that are primarily dependant upon the London Inter-bank
Offered Rates for the time period chosen. The Companys weighted average
interest rate on its outstanding borrowings was 3.77% at August 3, 2002. At
August 3, 2002, the Company had $11.7 million outstanding under the Credit Line
and $25.0 million outstanding under the Construction Facility. Additionally,
the Company had $9.3 million in letters of credit outstanding at August 3,
2002. 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 3, 2002, the Company was
in compliance with all of the covenants.

The Company intends to repay the $25.0 million outstanding under the
Construction Facility prior to September 30, 2002 using cash flows generated
from operations. Accordingly, the entire balance of the Construction Facility
has been classified as current at August 3, 2002.

During the remainder of fiscal 2002, the Company plans to open approximately 16
net new stores, of which approximately 13 will be PacSun stores, approximately
two will be PacSun Outlet stores and approximately one will be a d.e.m.o.
store. The Company also plans to expand or relocate approximately 10 existing
smaller stores during the remainder of fiscal 2002. The Company estimates that
capital expenditures during the remainder of fiscal 2002 will be approximately
$16 million, of which approximately $14 million will be for new and existing
stores and approximately $2 million will be used for other capital
expenditures, including computer hardware and software. The Company plans to
open approximately 50 net new stores during the year ended January 31, 2004
(fiscal 2003).

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 six stores in fiscal
2001 and anticipates closing approximately ten stores in fiscal 2002.

The Company leases all of its retail store locations under operating leases.
The Company also leases equipment from time to time under capital leases.
Also, at any time, the Company is contingently liable for open letters of
credit with foreign suppliers of merchandise. For details concerning the
Companys financial commitments under these arrangements, please see Note 6 to
the consolidated financial statements contained in the Companys Form 10-K for
the year ended February 2, 2002.

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

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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
either 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.

New Accounting Pronouncements

Business Combinations, Goodwill and Other Intangible Assets  The Company
has adopted Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 prospectively prohibits the pooling of interest method
of accounting for business combinations initiated after June 30, 2001. SFAS
No. 142 requires companies to cease amortizing goodwill that existed at June
30, 2001 and, therefore, the Companys amortization of existing goodwill ceased
on February 2, 2002. In addition, under SFAS No. 142, any goodwill resulting
from acquisitions completed after June 30, 2001 will not be amortized. Upon
adoption of SFAS No. 142, the Company performed an impairment test of its
goodwill and intangible assets and determined that no impairment existed. In
the absence of any impairment issues, the Company expects the impact of these
statements to increase pre-tax income by approximately $.3 million per year
through 2022.

Accounting for the Impairment or Disposal of Long-Lived Assets  The Company
has adopted SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which supersedes 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. The adoption of SFAS No. 144 did not
have a significant impact on the Companys financial position or results of
operations. However, future impairment reviews may result in charges against
earnings if the Company is required to write down the value of long-lived
assets.

Accounting for Costs Associated with Exit or Disposal Activities  In June,
2002 the FASB issued SFAS No. 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 supercedes Emerging
Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under Issue 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 No. 146 also establishes that the liability should
initially be measured and recorded at fair value. The Company will adopt the
provisions of SFAS No. 146 for exit or disposal activities that are initiated
after February 1, 2003.

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.

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. The Companys first quarter historically accounts for the
smallest percentage of annual net sales. In each of fiscal 2001 and fiscal
2000, excluding sales generated by new and relocated/expanded stores, the
Christmas and back-to-school periods together accounted for approximately 34%
of the Companys annual net sales and a higher percentage of the Companys
operating income. In fiscal 2001, excluding net sales generated by new and
relocated/expanded stores, approximately 45% of the Companys annual net sales
occurred in the first half of the fiscal year and 55% 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

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This report on Form 10-Q contains forward-looking statements within the
meaning of Sections 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, 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 34% and 36% of net sales in fiscal 2001 and fiscal 2000,
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 affect 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 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.PacSun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.
During the remainder of fiscal 2002, the Company plans to open
approximately 16
net new stores, of which approximately 13 will be PacSun stores, approximately
two will be PacSun Outlet stores and approximately one will be a d.e.m.o.
store. The Company plans to open approximately 50 net new stores during the
year ended January 31, 2004 (fiscal 2003). 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. As the Companys operations grow, there could be increasing strain
on the Companys resources, and the Company could experience difficulties
relating to a variety of operational matters, including hiring, training and
managing an increasing number of employees, having sufficient working capital,
bank line of credit and cash flow from operating activities for the Companys
future operating and capital requirements, obtaining sufficient quantities of
merchandise from

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its preferred vendors, obtaining sufficient materials and contract
manufacturers to produce its private brand products and enhancing its
distribution, financial and operating systems. There can be no assurance 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.

Stores in the d.e.m.o. Format.Comparable store results for d.e.m.o. stores
did not meet managements expectations during the first half of fiscal 2002
(+.9%) nor during fiscal 2001 (+1.6%). The Company is not certain that
d.e.m.o. stores will achieve acceptable levels of sales or profitability in the
future. Continued disappointing sales results for d.e.m.o. stores may have a
material adverse affect on the Companys business, financial condition and
results of operations and may result in a greater number of store closings.

Internet Sales. The Company began selling merchandise over the internet in
June 1999. 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) the
failure to reach acceptable levels of profitability within the foreseeable
future, (ii) difficulties with hiring, retention and training of key personnel
to conduct the Companys internet operations, (iii) diversion of sales from
PacSun stores, (iv) rapid technological change, (v) liability for online
content and (vi) risks related to the failure of the computer systems that
operate the web site 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.

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 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.

Economic Impact of Recent Terrorist Attacks.The majority of the Companys
stores are located in regional shopping malls. In response to the terrorist
attacks of September 11, 2001, security is being heightened in public areas.
Any further threat of terrorist attacks or actual terrorist events,
particularly in public areas, could lead to

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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. For example, on September 11, 2001, a
substantial number of the Companys stores were closed early due to closure of
the malls in response to the terrorist attacks. Mall closures, as well as
lower customer traffic due to security concerns, could result in decreased
sales that would have a material adverse affect 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 and importing merchandise from 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; and (iv) local business practice
and political issues, including issues relating to compliance with domestic or
international labor standards which may result in adverse publicity. 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 affect 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 either 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 recently announced
that they will begin expensing stock option grants to employees. In addition,
the Securities and Exchange Commission has 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 annual 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.

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

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.

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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 3,
2002, $36.7 million in borrowings were outstanding under the Companys credit
facility. Based on the weighted average interest rate of 4.75% on the
Companys credit facility during the first half ended August 3, 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 $3,000
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 2, 2002. The Company is not a party with
respect to derivative financial instruments.

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PART II-OTHER INFORMATION




Item 1  Legal Proceedings

On September 17, 2001 a former Pacific Sunwear employee filed a putative class
action lawsuit against Pacific Sunwear which alleges that Pacific Sunwear has
not properly paid wages to its California-based store managers, co-managers and
assistant managers working in PacSun stores. The action, Auden v. Pacific
Sunwear of California, Inc., Case No. 01CC00383, was filed in the California
Superior Court for the County of Orange. The complaint in the action seeks
both monetary and injunctive relief. Pacific Sunwear has filed an answer in
the action denying the allegations and raising affirmative defenses. No class
has been certified at this time.

On May 3, 2002 a former Pacific Sunwear employee filed a putative class action
lawsuit against Pacific Sunwear in the California Superior Court for the County
of Orange, alleging claims substantially similar to the claims alleged in the
Auden case described above. In the case, Adams v. Pacific Sunwear of
California, Inc., Case No. 02CC00120, the plaintiff alleges that Pacific
Sunwear has not properly paid wages to its California store managers and
co-managers working in d.e.m.o. stores. The complaint in the action seeks
monetary and injunctive relief. Pacific Sunwear has filed an answer in the
action denying the allegations and raising affirmative defenses. No class has
been certified at this time.

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.




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 2002 Annual Meeting of Shareholders of the Company was held on May 29,
2002.

b) At the 2002 Annual Meeting, Greg H. Weaver, Julius Jensen III, Pearson C.
Cummin III, Peter L. Harris and Sally Frame Kasaks were elected as Directors of
the Company for a one-year term ending in 2003.

Voting at the 2002 Annual Meeting for the election of directors was as set
forth below. Each of the nominees identified below was elected a director.

|                      |  |               |            |               |  |  |         | 
|--------------------- |  | ------------- | ---------- | ------------- |  |  | ------- | 
|NAME                  |  | VOTES CASTFOR |            | VOTESWITHHELD
|                      |  |               |            |              
|Greg H. Weaver        |  |               | 26,469,155 |               |  |  | 66,352  | 
|                     
|                     
|                     
|                     
|Julius Jensen III     |  |               | 26,180,718 |               |  |  | 354,789 | 
|                     
|                     
|                     
|                     
|Pearson C. Cummin III |  |               | 26,353,076 |               |  |  | 182,431 | 
|                     
|                     
|                     
|                     
|Peter L. Harris       |  |               | 26,471,454 |               |  |  | 64,053  | 
|                     
|                     
|                     
|                     
|Sally Frame Kasaks    |  |               | 26,193,484 |               |  |  | 342,023 | 

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Item 5  Other Information  Not Applicable




Item 6  Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits:
| | --- |  | ---------

| | 10.1 |  | Third Amendment to Business Loan Agreement, dated as of
August 19, 2002, between the Company and Bank of America
N.A.
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------



| | (b) |  | Reports on Form 8-K:                                                                
| | --- |  | ------------------------------------------------------------------------------------
| |     |  | No reports were filed on form 8-K during the quarter for which this report is filed.

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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:   September 6, 2002 |  |  |  | \s\ GREG H. WEAVER                                                         
|                          |  |  |  |                                                                            
|                          |  |  |  | Greg H. Weaver
Chairman of the Board
and Chief Executive Officer           
|                         
|                         
|                         
|                         
|                          |  |  |  |                                                                            
|                         
|                         
|                         
|                         
|Date:   September 6, 2002 |  |  |  | \s\ CARL W. WOMACK                                                         
|                          |  |  |  |                                                                            
|                          |  |  |  | Carl W. Womack
Senior Vice President, Chief
Financial Officer and Secretary

CERTIFICATIONS

I, Greg H. Weaver, certify that:

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

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

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

|                         |  |                                                                 
|------------------------ |  | ----------------------------------------------------------------
|Date:  September 6, 2002 |  | \s\ GREG H. WEAVER                                              
|                         |  |                                                                 
|                         |  | Greg H. Weaver
Chairman of the Board
and Chief Executive Officer

I, Carl W. Womack, certify that:

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

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

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

| |  | 
| |  | 

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|                        |  |                                                                            
|----------------------- |  | ---------------------------------------------------------------------------
|Date: September 6, 2002 |  | \s\ CARL W. WOMACK                                                         
|                        |  |                                                                            
|                        |  | Carl W. Womack
Senior Vice President, Chief
Financial Officer and Secretary

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EXHIBIT INDEX




| | Exhibit No. |  | Description                                                                                                          
| | ----------- |  | ---------------------------------------------------------------------------------------------------------------------
| |             |  |                                                                                                                      
| | 10.1        |  | Third Amendment to Business Loan Agreement, dated as of
August 19, 2002, between the Company and Bank of America
N.A.