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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C 20549


FORM 10-Q

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


For the quarterly period ended November 1, 2003

OR

o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934


Commission file number 0-21296

PACIFIC SUNWEAR OF CALIFORNIA, INC.

CALIFORNIA
(State of Incorporation)
    
    95-3759463
(I.R.S Employer Identification No.)


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.

Yesx
    
    Noo


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

Yesx
    
    Noo


The number of shares outstanding of the registrants Common Stock, par
value $.01 per share, at December 3, 2003, was 78,269,460.





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|                          |                                                                                                              |  |  |  |  |  |  | 
|------------------------- | ------------------------------------------------------------------------------------------------------------ |  |  |  |  |  |  | 
|                          | CONDENSED CONSOLIDATED BALANCE SHEETS                                                                       
|                          | CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME                                        
|                          | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                                             
|                          | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                        
|                          | ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF CONSOLIDATED OPERATIONS
|                          | ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                        
|                          | ITEM 4 -- CONTROLS AND PROCEDURES                                                                           
|PART II-OTHER INFORMATION
|                          | Item 1 -- Legal Proceedings                                                                                 
|                          | Item 2 -- Changes in Securities and Use of Proceeds - Not Applicable                                        
|                          | Item 3 -- Defaults Upon Senior Securities - Not Applicable                                                  
|                          | Item 4 -- Submission of Matters to a Vote of Security Holders - Not Applicable                              
|                          | Item 5 -- Other Information - Not Applicable                                                                
|                          | Item 6 -- Exhibits and Reports on Form 8-K                                                                  
|SIGNATURES               
|Exhibit Index            
|EXHIBIT 31               
|EXHIBIT 32               



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PACIFIC SUNWEAR OF CALIFORNIA, INC.

FORM 10-Q
For the Quarter Ended November 1, 2003

Table of Contents

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


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

ASSETS

November 1,
    
    February 1,2003
    
    2003CURRENT ASSETS:Cash and cash equivalents
    
    $
    83,495
    
    
    $
    36,438Short-term investments
    
    
    10,410
    
    
    
    Accounts receivable
    
    
    3,888
    
    
    
    2,916Merchandise inventories
    
    
    169,184
    
    
    
    123,433Prepaid expenses, includes $10,242 and $9,664 of prepaid rent, respectively
    
    
    16,532
    
    
    
    14,871Deferred tax asset
    
    
    4,975
    
    
    
    4,975Total current assets
    
    
    288,484
    
    
    
    182,633PROPERTY AND EQUIPMENT:Land
    
    
    12,156
    
    
    
    12,156Buildings and building improvements
    
    
    26,681
    
    
    
    26,680Leasehold improvements
    
    
    117,105
    
    
    
    111,431Furniture, fixtures and equipment
    
    
    167,283
    
    
    
    148,377Total property and equipment
    
    
    323,225
    
    
    
    298,644Less accumulated depreciation and amortization
    
    
    (119,462
    )
    
    
    (97,131
    )Net property and equipment
    
    
    203,763
    
    
    
    201,513OTHER ASSETS:Goodwill
    
    
    6,492
    
    
    
    6,492Deferred compensation and other assets
    
    
    10,310
    
    
    
    9,105Total other assets
    
    
    16,802
    
    
    
    15,597Total assets
    
    $
    509,049
    
    
    $
    399,743LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    37,564
    
    
    $
    28,456Accrued liabilities
    
    
    41,278
    
    
    
    34,522Income taxes payable
    
    
    7,450
    
    
    
    8,000Current portion of long-term debt
    
    
    864
    
    
    
    829Current portion of capital lease obligations
    
    
    1,088
    
    
    
    1,521Total current liabilities
    
    
    88,244
    
    
    
    73,328LONG-TERM LIABILITIES:Long-term debt
    
    
    453
    
    
    
    1,102Long-term capital lease obligations
    
    
    1,483
    
    
    
    2,236Deferred compensation (Note 8)
    
    
    14,261
    
    
    
    7,097Deferred rent
    
    
    11,808
    
    
    
    10,574Deferred tax liability
    
    
    3,015
    
    
    
    3,015Total long-term liabilities
    
    
    31,020
    
    
    
    24,024Commitments and contingencies (Note 7)SHAREHOLDERS EQUITY:Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued and
outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 170,859,375 shares authorized; 78,018,331 and
74,233,146 shares issued and outstanding, respectively
    
    
    780
    
    
    
    742Additional paid-in capital
    
    
    134,250
    
    
    
    92,761Retained earnings
    
    
    254,755
    
    
    
    208,888Total shareholders equity
    
    
    389,785
    
    
    
    302,391Total liabilities and shareholders equity
    
    $
    509,049
    
    
    $
    399,743


See accompanying notes

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

For the Third Quarter Ended
    
    For the Nine Months EndedNovember 1, 2003
    
    November 2, 2002
    
    November 1, 2003
    
    November 2, 2002Net sales
    
    $
    281,253
    
    
    $
    228,239
    
    
    $
    713,976
    
    
    $
    580,803Cost of goods sold, including
buying, distribution and occupancy
costs
    
    
    180,636
    
    
    
    149,324
    
    
    
    469,671
    
    
    
    392,116Gross margin
    
    
    100,617
    
    
    
    78,915
    
    
    
    244,305
    
    
    
    188,687Selling, general and administrative
expenses
    
    
    61,358
    
    
    
    52,959
    
    
    
    170,499
    
    
    
    145,126Operating income
    
    
    39,259
    
    
    
    25,956
    
    
    
    73,806
    
    
    
    43,561Interest income/(expense), net
    
    
    213
    
    
    
    (140
    )
    
    
    342
    
    
    
    (593
    )Income before income tax expense
    
    
    39,472
    
    
    
    25,816
    
    
    
    74,148
    
    
    
    42,968Income tax expense
    
    
    14,963
    
    
    
    9,914
    
    
    
    28,281
    
    
    
    16,500Net income
    
    $
    24,509
    
    
    $
    15,902
    
    
    $
    45,867
    
    
    $
    26,468Comprehensive income
    
    $
    24,509
    
    
    $
    15,902
    
    
    $
    45,867
    
    
    $
    26,468Net income per share, basic (Note 2)
    
    $
    0.32
    
    
    $
    0.22
    
    
    $
    0.60
    
    
    $
    0.36Net income per share,
diluted (Note 2)
    
    $
    0.31
    
    
    $
    0.21
    
    
    $
    0.59
    
    
    $
    0.35Weighted average shares
outstanding, basic (Note 2)
    
    
    77,685,516
    
    
    
    73,955,606
    
    
    
    76,031,944
    
    
    
    73,879,124Weighted average shares
outstanding, diluted (Note 2)
    
    
    79,876,426
    
    
    
    74,923,747
    
    
    
    78,322,218
    
    
    
    74,947,662


See accompanying notes

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

For the Nine Months EndedNovember 1, 2003
    
    November 2, 2002CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    45,867
    
    
    $
    26,468Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    26,939
    
    
    
    24,903Loss on disposal of equipment
    
    
    1,492
    
    
    
    3,125Change in operating assets and liabilities:Accounts receivable
    
    
    (972
    )
    
    
    625Merchandise inventories
    
    
    (45,751
    )
    
    
    (47,515
    )Prepaid expenses
    
    
    (1,661
    )
    
    
    (1,682
    )Deferred compensation and other assets
    
    
    5,959
    
    
    
    615Accounts payable
    
    
    9,108
    
    
    
    3,032Accrued liabilities
    
    
    6,756
    
    
    
    9,902Income taxes and deferred taxes
    
    
    13,899
    
    
    
    1,447Deferred rent
    
    
    1,234
    
    
    
    1,365Net cash provided by operating activities
    
    
    62,870
    
    
    
    22,285CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of short-term investments
    
    
    (10,410
    )
    
    
    Investment in property and equipment
    
    
    (30,681
    )
    
    
    (30,127
    )Net cash used in investing activities
    
    
    (41,091
    )
    
    
    (30,127
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from exercise of stock options
    
    
    27,111
    
    
    
    1,609Net borrowings under credit facility
    
    
    
    
    
    
    9,000Principal payments under capital lease obligations
    
    
    (1,186
    )
    
    
    (623
    )Principal payments under long-term debt obligations
    
    
    (614
    )
    
    
    (25,280
    )Cash paid in-lieu of fractional shares due to 3-for-2 stock split
    
    
    (33
    )
    
    
    Net cash provided by/(used in) financing activities
    
    
    25,278
    
    
    
    (15,294
    )NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS:
    
    
    47,057
    
    
    
    (23,136
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    36,438
    
    
    
    23,136CASH AND CASH EQUIVALENTS, end of period
    
    $
    83,495
    
    
    $
    SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:Cash paid during the period for:Interest
    
    $
    185
    
    
    $
    836Income taxes
    
    $
    14,382
    
    
    $
    15,053


Supplemental disclosures of non-cash transactions (in thousands): During the
nine months ended November 1, 2003 and November 2, 2002, the Company recorded
an increase to additional paid-in capital of $14,449 and $694, respectively,
related to tax benefits associated with the exercise of non-qualified stock
options. Also, during the nine months ended November 2, 2002, the Company
recorded an increase to additional paid-in capital of $291 related to the
issuance of restricted stock to satisfy certain deferred compensation
liabilities. In addition, during the nine months ended November 2, 2002, the
Company purchased a prepaid three-year computer maintenance agreement under a
long-term debt obligation for $2,413.

See accompanying notes

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PACIFIC SUNWEAR OF CALIFORNIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, all amounts in thousands except share and per share amounts, 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, Pacific Sunwear Stores Corp. and
ShopPacSun.com Corp. (the Company). All intercompany transactions have been
eliminated in consolidation.

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

In the opinion of management, all adjustments consisting only of normal
recurring entries necessary for a fair presentation have been included. The
preparation of 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 the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements as
well as the reported revenues and expenses during the reporting period. Actual
results could differ from these estimates. The results of operations for the
third quarter and nine months ended November 1, 2003, are not necessarily
indicative of the results that may be expected for fiscal 2003. For further
information, refer to the Companys consolidated financial statements and notes
thereto on Form 10-K for the year ended February 1, 2003.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition  Sales are recognized upon purchase by customers at the
Companys retail store locations or upon shipment of orders received through
the Companys website. The Company has accrued $.8 million as of November 1,
2003 for estimated sales returns by customers based on historical sales return
results. Actual return rates have historically been within managements
expectations and the accruals established.

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

Investments  Held to Maturity  Held-to-maturity investments consist of
marketable corporate and U.S. agency debt instruments with original maturities
of three months to one year and are carried at amortized cost. Cost is
determined by specific identification. As of November 1, 2003, the market
value of the Companys portfolio is $10.4 million, consisting of corporate
debentures of $6.0 million and U.S. agency debentures of $4.4 million.

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

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

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

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

Other Long-Lived Assets  On February 3, 2002, the Company adopted SFAS 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 144, the Company reviewed long-lived
assets and determined that no impairment existed. Under SFAS 144, long-lived
assets, including amortizing intangible assets, will be tested for impairment
whenever events or changes in circumstances indicate that the carrying value of
such assets may not be recoverable.

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

Litigation  The Company is involved from time to time in litigation incidental
to its business. Management believes that the outcome of current litigation
will not have a material adverse effect upon the results of operations or
financial condition of the Company and, from time to time, may make provisions
for potential litigation losses. Depending on the actual outcome of pending
litigation, charges in excess of any provisions could be recorded in the future
which may have an adverse effect on the Companys operating results (see Note
7).

Stock Splits  On each of August 25, 2003, and December 18, 2002, the Company
effected a three-for-two stock split. All share and per share amounts have
been restated to give retroactive recognition to the stock splits in prior
periods.

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

In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS 148 amends SFAS 123,
Accounting for Stock-Based Compensation, to provide alternative methods for
voluntary transition to SFAS 123s fair value method of accounting for
stock-based employee compensation (the fair value method). SFAS 148 also
requires disclosure of the effects of an entitys accounting policy with
respect to stock-based employee compensation on reported net income (loss) and
earnings (loss) per share in annual and interim financials statements. The
Company is required

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to follow the prescribed disclosure format and has provided the additional
disclosures required by SFAS 148 for the quarterly period ended November 1,
2003 below.

SFAS 123, Accounting for Stock-Based Compensation, requires the disclosure of
pro forma net income and earnings per share. Under SFAS 123, the fair value of
stock-based awards to employees is calculated through the use of option-pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Companys stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. The
Companys calculations were made using the Black-Scholes option-pricing model
with the following weighted average assumptions: expected life, 5 years; stock
volatility, 40.4% for fiscal 2003 and 55.1% for fiscal 2002; risk-free interest
rates, 3.3% for fiscal 2003 and 2.9% for fiscal 2002; and no dividends during
the expected term. The Companys calculations are based on a single-option
valuation approach and forfeitures are recognized as they occur. If the
computed fair values of the fiscal 2003 and fiscal 2002 awards had been
amortized to expense over the vesting period of the awards, net income and
earnings per share for the third quarter and nine months ended November 1, 2003
and November 2, 2002 would have been reduced to the pro forma amounts indicated
below:

For the Third Quarter Ended
    
    For the Nine Months EndedNovember 1, 2003
    
    November 2, 2002
    
    November 1, 2003
    
    November 2, 2002Net IncomeAs reported
    
    $
    24,509
    
    
    $
    15,902
    
    
    $
    45,867
    
    
    $
    26,468Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effects
    
    
    (1,437
    )
    
    
    (1,369
    )
    
    
    (4,515
    )
    
    
    (4,263
    )Pro forma
    
    $
    23,072
    
    
    $
    14,533
    
    
    $
    41,352
    
    
    $
    22,205Net Income Per Share, BasicAs reported
    
    $
    0.32
    
    
    $
    0.22
    
    
    $
    0.60
    
    
    $
    0.36Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effects
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    (0.06
    )
    
    
    (0.06
    )Pro forma
    
    $
    0.30
    
    
    $
    0.20
    
    
    $
    0.54
    
    
    $
    0.30Net Income Per Share, DilutedAs reported
    
    $
    0.31
    
    
    $
    0.21
    
    
    $
    0.59
    
    
    $
    0.35Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effects
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    (0.06
    )
    
    
    (0.05
    )Pro forma
    
    $
    0.29
    
    
    $
    0.20
    
    
    $
    0.53
    
    
    $
    0.30


New Accounting Pronouncements  In April 2002, the FASB issued SFAS 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections. SFAS 145 amended certain provisions of
SFAS 13 and requires the fair value recognition of guarantee obligations under
which the Company may become secondarily liable. The Company adopted SFAS 145
during fiscal 2002. The adoption of SFAS 145 resulted in the recognition of a
$.5 million liability related to the Companys guarantee of an assignees
performance under a lease obligation (see Note 7).

In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with exit or disposal activities and supersedes
Emerging Issues Task Force Issue 94-3 (EITF 94-3), Liability Recognition for

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Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS 146 requires that
a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF 94-3, a liability for an
exit cost, as defined in EITF 94-3, was recognized at the date of an entitys
commitment to an exit plan. SFAS 146 also establishes that the liability
should initially be measured and recorded at fair value. The Company adopted
the provisions of SFAS 146 for exit or disposal activities initiated after
December 31, 2002. The adoption of SFAS 146 has not had a material impact on
the Companys financial position or results of operations.

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

In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities. In general, a variable interest entity is a corporation,
partnership, trust, or any other legal structure used for business purposes
that either (a) does not have equity investors with voting rights or (b) has
equity investors that do not provide sufficient financial resources for the
entity to support its activities. FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Certain of the disclosure requirements apply in
all financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. Since the Company does not currently
have any variable interest entities, the adoption of the provisions of FIN 46
did not have a material impact on the Companys financial position or results
of operations.

On February 2, 2003, the Company adopted EITF 02-16, Accounting by a Reseller
for Cash Consideration Received from a Vendor. The consensus reached by the
EITF addressed the accounting for cash consideration received from a vendor,
which includes vendor allowances, rebates, cooperative advertising payments,
etc. The consensus of the EITF establishes an overall presumption that cash
received from a vendor is a reduction in the price of a vendors products and
should be recognized accordingly as a reduction in cost of sales at the time
the related inventory is sold. Some consideration could be characterized as a
reduction of expense if the cash received represents a reimbursement of
specific, incremental, identifiable costs incurred by the retailer to sell the
vendors products. The adoption of EITF 02-16 did not have a material impact
on the Companys financial position or results of operations.

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

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NOTE 3  DEFERRED COMPENSATION AND OTHER ASSETS

Deferred compensation and other assets consist of the following:

November 1,
    
    February 1,2003
    
    2003Deferred compensation
    
    $
    9,607
    
    
    $
    7,565Long-term computer maintenance contracts
    
    
    536
    
    
    
    1,359Other assets
    
    
    167
    
    
    
    181$
    10,310
    
    
    $
    9,105


NOTE 4  CREDIT FACILITY

The Company has a credit facility with a bank, which expires on March 31, 2004.
The credit facility provides for a $45.0 million line of credit (the Credit
Line) to be used for cash advances, commercial letters of credit and shipside
bonds. Interest on the Credit Line is payable monthly at the banks prime rate
(4.25% at November 1, 2003) or at optional interest rates that are primarily
dependent upon the London Inter-bank Offered Rates for the time period chosen.
The Company did not borrow under the Credit Line at any time during the nine
months ended November 1, 2003. The Company had $23.5 million outstanding in
letters of credit at November 1, 2003. The credit facility subjects the
Company to various restrictive covenants, including maintenance of certain
financial ratios, and prohibits payment of cash dividends on common stock. At
November 1, 2003, the Company was in compliance with all of the covenants.

NOTE 5  ACCRUED LIABILITIES

Accrued liabilities consist of the following:

November 1,
    
    February 1,2003
    
    2003Accrued compensation and benefits
    
    $
    16,380
    
    
    $
    14,420Excess facilities and sublease loss charges (Note 7)
    
    
    3,899
    
    
    
    3,803Sales tax payable
    
    
    3,239
    
    
    
    2,290Accrued gift cards and store merchandise credits
    
    
    2,216
    
    
    
    5,967Accrued medical insurance costs
    
    
    1,853
    
    
    
    980Accrued store expansion/relocation and closing costs
    
    
    1,212
    
    
    
    1,069Other accrued liabilities
    
    
    12,479
    
    
    
    5,993$
    41,278
    
    
    $
    34,522


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NOTE 6  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):

Third Quarter Ended:
    
    November 1, 2003
    
    November 2, 2002Per Share
    
    
    
    
    
    
    
    
    
    Per ShareNet Income
    
    Shares
    
    Amount
    
    Net Income
    
    Shares
    
    AmountBasic EPS:
    
    $
    24,509
    
    
    
    77,685,516
    
    
    $
    0.32
    
    
    $
    15,902
    
    
    
    73,955,606
    
    
    $
    0.22Diluted EPS:Effect of dilutive stock options
    
    
    
    
    
    
    2,190,910
    
    
    
    (0.01
    )
    
    
    
    
    
    
    968,141
    
    
    
    (0.01
    )$
    24,509
    
    
    
    79,876,426
    
    
    $
    0.31
    
    
    $
    15,902
    
    
    
    74,923,747
    
    
    $
    0.21


Nine Months Ended:
    
    November 1, 2003
    
    November 2, 2002Per Share
    
    
    
    
    
    
    
    
    
    Per ShareNet Income
    
    Shares
    
    Amount
    
    Net Income
    
    Shares
    
    AmountBasic EPS:
    
    $
    45,867
    
    
    
    76,031,944
    
    
    $
    0.60
    
    
    $
    26,468
    
    
    
    73,879,124
    
    
    $
    0.36Diluted EPS:Effect of dilutive stock options
    
    
    
    
    
    
    2,290,274
    
    
    
    (0.01
    )
    
    
    
    
    
    
    1,068,538
    
    
    
    (0.01
    )$
    45,867
    
    
    
    78,322,218
    
    
    $
    0.59
    
    
    $
    26,468
    
    
    
    74,947,662
    
    
    $
    0.35


Options to purchase 2,073 and 3,485,120 shares of common stock in the third
quarter of fiscal 2003 and fiscal 2002, respectively, and 14,335 and 2,149,792
shares of common stock in the first nine months of fiscal 2003 and fiscal 2002,
respectively, were not included in the computation of diluted earnings per
share because the option exercise price was greater than the average market
price of the Companys common stock.

NOTE 7  COMMITMENTS AND CONTINGENCIES

The Company has minimum annual rental commitments under existing store leases,
the lease for its former corporate offices and distribution center, capital
leases for computer equipment, and other long-term debt obligations for
multi-year computer maintenance contracts. The Company leases all of its
retail store locations under operating leases. The Company leases equipment,
from time to time, under capital leases. In addition, at any time, the Company
is contingently liable for open letters of credit with foreign suppliers of
merchandise. There were $23.5 million of open letters of credit outstanding as
of November 1, 2003. As of November 1, 2003, the Companys future financial
commitments under these arrangements are as follows:

Contractual Obligations
    
    Payments Due by Period(in millions)Total
    
    Less than
    
    1-3
    
    3-5
    
    More than1 year
    
    years
    
    years
    
    5 yearsOperating lease obligations
    
    $
    587.0
    
    
    $
    79.1
    
    
    $
    158.0
    
    
    $
    153.0
    
    
    $
    196.9Capital lease obligations
    
    
    2.6
    
    
    
    1.1
    
    
    
    1.5
    
    
    
    
    
    
    
    Long-term debt obligations
    
    
    1.3
    
    
    
    0.9
    
    
    
    0.4
    
    
    
    
    
    
    
    Letters of credit
    
    
    23.5
    
    
    
    23.5
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    614.4
    
    
    $
    104.6
    
    
    $
    159.9
    
    
    $
    153.0
    
    
    $
    196.9


Litigation  During the first quarter ended May 3, 2003, the Company reached an
agreement to settle all claims related to two lawsuits concerning overtime pay
for a total of $4.0 million. The Company had accrued $3.9 million related to
these matters at February 1, 2003. The suits are Auden v. Pacific Sunwear of
California, Inc., which was filed September 17, 2001, and Adams v. Pacific
Sunwear of California, Inc.,

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which was filed August 2, 2002. The complaints allege that the Company
improperly classified certain California-based employees as exempt from
overtime pay. The court has granted preliminary approval of the settlement and
a final approval is expected to be issued during the fourth quarter of fiscal
2003. The settlement did not have a material impact on results of operations
for the third quarter or nine months ended November 1, 2003.

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

Indemnities, Commitments, and Guarantees  During its normal course of
business, the Company has made certain indemnities, commitments and guarantees
under which it may be required to make payments in relation to certain
transactions. These indemnities include those given to various lessors in
connection with facility leases for certain claims arising from such leases.
The Company has issued guarantees in the form of standby letters of credit as
security for merchandise shipments from overseas. There were $23.5 million of
these letters of credit outstanding at November 1, 2003. The Company has also
issued a guarantee of a sublease on one of its store locations under which the
Company remains secondarily liable on the sublease should the sublessee default
on its lease payments. The term of the sublease ends December 31, 2014. The
Company has recorded $.5 million in accrued liabilities to recognize the
estimated fair value of this guarantee. The aggregate rental payments
remaining on the master lease agreement at November 1, 2003, were $6.1 million.
The duration of these indemnities, commitments and guarantees varies, and in
certain cases, is indefinite. The majority of these indemnities, commitments
and guarantees do not provide for any limitation of the maximum potential
future payments the Company could be obligated to make. The Company has not
recorded any liability for these above indemnities, commitments and guarantees
in the accompanying consolidated balance sheets other than as noted.

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

Excess Facilities and Sublease Loss Charges  The Company remains liable under
two operating leases covering its former corporate offices and a former store
location. These facilities remain vacant at November 1, 2003. During fiscal
2002, the Company recorded sublease loss charges of $3.8 million to accrue for
the difference between the Companys remaining contractual lease obligations
and the rate and timeframe within which the Company expected to be able to
sublease these properties. In the third quarter of fiscal 2003, based on a
review of real estate market conditions and on-going negotiations, the Company
revised its sublease income and sublease commencement assumptions and increased
its estimated sublease loss charges by $.1 million to a total of $3.9 million.
To the extent managements estimates relating to the Companys ability to
sublease these facilities at the assumed rates or within the assumed timeframes
changes or is incorrect, additional charges may be recorded in the future up to
the net remaining obligation under the corresponding leases. As of November 1,
2003, the aggregate remaining obligations under these leases were approximately
$5.4 million for the former corporate offices and approximately $6.9 million
for the former store location. These amounts are included in the contractual
obligations table above.

NOTE 8  RESTRICTED STOCK

During the year ended January 30, 2000, the Company granted a restricted stock
award of 112,500 shares with a purchase price of $0.01 per share to its Chief
Executive Officer. The 112,500 share award vests 25% on each of September 17,
2001, 2002, 2003 and 2004, if, in each instance, certain cumulative annual
earnings per share growth targets have been satisfied. Under the award
agreement, shares that do not vest at a given vesting date due to the
cumulative annual earnings per share growth targets not being met remain
available for future vesting if the cumulative annual earnings per share growth
targets are met as of a subsequent vesting date. During the third quarter of
fiscal 2003, the Company determined that it is probable that the cumulative
annual earnings per share growth target for this award will be achieved in

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fiscal 2003 and, accordingly, the Company recorded compensation expense of $2.1
million to recognize the cumulative value of the award to date. This expense
accrual is included in deferred compensation liabilities on the balance sheet.
The Company will be required to recognize additional compensation expense
related to this award in future quarters based on additional vesting of the
shares and the market price of the Companys stock. For example, based on the
closing market price of the Companys stock at November 1, 2003 of $23.08, the
Company would be required to record additional compensation expense of
approximately $.1 million per quarter based on additional vesting of the shares
until the shares are delivered to the Chief Executive Officer in September
2004. Additionally, based on any change in the market price of the Companys
stock in future quarters, the cumulative compensation expense recognized for
this award will continue to be adjusted until the shares are delivered to the
Chief Executive Officer in September 2004.

During the year ended February 4, 2001, the Company granted a restricted stock
award of 168,750 shares with a purchase price of $0.01 per share to its Chief
Executive Officer. The 168,750 share award vests 25% on each of March 15,
2002, 2003, 2004 and 2005, if, in each instance, certain cumulative annual
earnings per share growth targets have been satisfied. Under the award
agreement, shares that do not vest at a given vesting date due to the
cumulative annual earnings per share growth targets not being met remain
available for future vesting if the cumulative annual earnings per share growth
targets are met as of a subsequent vesting date. During the second quarter of
fiscal 2003, the Company determined that it is probable that the cumulative
annual earnings per share growth target for this award will be achieved in
fiscal 2003 and, accordingly, the Company recorded compensation expense of $2.1
million to recognize the cumulative value of the award. Additionally, during
the third quarter ended November 1, 2003, the Company recognized additional
compensation expense of $.6 million related to this award based on additional
vesting of the shares and changes in the market price of the Companys stock.
These expense accruals are included in deferred compensation liabilities on the
balance sheet. The Company will continue to be required to recognize
additional compensation expense related to this award in future quarters based
on additional vesting of the shares and the market price of the Companys
stock. For example, based on the market price of the Companys stock at
November 1, 2003 of $23.08, the Company would be required to record additional
compensation expense of approximately $.2 million per quarter based on
additional vesting of the shares until the shares are delivered to the Chief
Executive Officer in March 2005. Additionally, based on any change in the
market price of the Companys stock in future quarters, the cumulative
compensation expense recognized for this award will continue to be adjusted
until the shares are delivered to the Chief Executive Officer in March 2005.

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

Critical Accounting Policies

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

Revenue Recognition- Sales are recognized upon purchase by customers at the
Companys retail store locations or upon shipment for orders received through
the Companys website. The Company has accrued $.8 million as of November 1,
2003 to estimate sales returns by customers based on historical sales return
results. Actual return rates have historically been within managements
expectations and the reserves established. However, in the unlikely event that
the actual rate of sales returns by customers increased significantly, the
Companys operational results could be adversely affected.

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

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

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

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

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

Litigation- The Company is involved from time to time in litigation incidental
to its business. Management believes that the outcome of current litigation
will not have a material adverse effect upon the results of operations or
financial condition of the Company and, from time to time, may make provisions
for potential litigation losses. Depending on the actual outcome of pending
litigation, charges in excess of any provisions could be recorded in the future
which may have an adverse effect on the Companys operating results (see Note 7
to the condensed consolidated financial statements).

Results of Operations

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

Third Quarter Ended
    
    Nine Months EndedNov 1,
    
    Nov 2,
    
    Nov 1,
    
    Nov 2,2003
    
    2002
    
    2003
    
    2002Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold, including
buying, distribution and
occupancy costs
    
    
    64.2
    
    
    
    65.4
    
    
    
    65.8
    
    
    
    67.5Gross margin
    
    
    35.8
    
    
    
    34.6
    
    
    
    34.2
    
    
    
    32.5Selling, general and
administrative expenses
    
    
    21.8
    
    
    
    23.2
    
    
    
    23.9
    
    
    
    25.0Operating income
    
    
    14.0
    
    
    
    11.4
    
    
    
    10.3
    
    
    
    7.5Interest income/(expense), net
    
    
    0.0
    
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    (0.1
    )Income before income tax expense
    
    
    14.0
    
    
    
    11.3
    
    
    
    10.4
    
    
    
    7.4Income tax expense
    
    
    5.3
    
    
    
    4.3
    
    
    
    4.0
    
    
    
    2.8Net income
    
    
    8.7
    %
    
    
    7.0
    %
    
    
    6.4
    %
    
    
    4.6
    %


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

November 1,
    
    November 2,2003
    
    2002PacSun stores
    
    
    664
    
    
    
    607Outlet stores
    
    
    78
    
    
    
    71d.e.m.o. stores
    
    
    121
    
    
    
    109Total stores
    
    
    863
    
    
    
    787Square footage (in 000s)
    
    
    2,937
    
    
    
    2,626


The thirteen weeks ended November 1, 2003 (third quarter) as compared to the
thirteen weeks ended November 2, 2002 (third quarter)

Net Sales

Net sales increased to $281.3 million for the third quarter of fiscal 2003 from
$228.2 million for the third quarter of fiscal 2002, an increase of $53.1
million, or 23.3%. Of this $53.1 million increase, $29.7 million was
attributable to a 13.8% increase in comparable store net sales in the third
quarter of fiscal 2003 as compared to the third quarter of fiscal 2002, $15.7
million was attributable to net sales generated by 75 new stores opened in
fiscal 2003 and not yet included in the comparable store base, $3.8 million was
attributable to net sales generated by 12 new stores opened in fiscal 2002 and
not yet included in the comparable store base, and $4.9 million was
attributable to other non-comparable store net sales. Offsetting these
increases

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was a $1.0 million decrease attributable to the closing of three stores during
fiscal 2003 and twelve stores during fiscal 2002. Other non-comparable store
net sales consist primarily of sales from stores that have been expanded or
relocated and not yet included in the comparable store base as well as
merchandise sold over the internet. Of the 13.8% increase in comparable store
net sales in the third quarter of fiscal 2003, PacSun and PacSun Outlet
comparable store net sales increased 13.2% and d.e.m.o. comparable store net
sales increased 19.9%. The increase in comparable store net sales within
PacSun and PacSun Outlet was primarily attributable to increases in comparable
store net sales of footwear, accessories, juniors and, to a lesser extent,
young mens merchandise. The increase in comparable store net sales within
d.e.m.o. was attributable to increases in comparable store net sales of
accessories, juniors and, to a lesser extent, young mens merchandise. 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 third quarter
of fiscal 2003 compared to the third quarter of fiscal 2002 and had no
significant impact on the net sales increase for the third quarter of fiscal
2003.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, increased to
$100.6 million for the third quarter of fiscal 2003 from $78.9 million for the
third quarter of fiscal 2002, an increase of $21.7 million, or 27.5%. As a
percentage of net sales, gross margin was 35.8% for the third quarter of fiscal
2003 compared to 34.6% for the third quarter of fiscal 2002. Of this 1.2%
increase, occupancy costs decreased 1.4% as a percentage of net sales compared
to the third quarter of fiscal 2002, primarily due to the 13.8% comparable
store net sales increase which leveraged these costs, and net merchandise
margins increased .1% as a percentage of net sales due to a higher initial
markup partially offset by a slightly higher markdown rate. Offsetting these
increases was a .3% increase in buying costs as a percentage of net sales
primarily due to consulting expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $61.4 million for the
third quarter of fiscal 2003 from $53.0 million for the third quarter of fiscal
2002, an increase of $8.4 million, or 15.8%. These expenses decreased to 21.8%
as a percentage of net sales in the third quarter of fiscal 2003 from 23.2% in
the third quarter of fiscal 2002. Of this 1.4% net decrease as a percentage of
net sales, 1.2% was due to a decrease in store payroll expenses as a percentage
of net sales and 1.1% was due to a decrease in depreciation and other store
selling expenses as a percentage of net sales, primarily due to the 13.8%
comparable store net sales increase which leveraged these costs over higher
total sales. These decreases were partially offset by a .8% increase in
general and administrative expenses as a percentage of net sales, primarily due
to recording $2.7 million in restricted stock expense in the third quarter of
fiscal 2003 related to the Companys determination that it is probable that the
cumulative annual earnings per share growth targets for the year ending January
31, 2004 of two restricted stock awards made to the Chief Executive Officer
will be met (see Note 8 to the condensed consolidated financial statements).
In addition, store relocation/expansion and closing expenses were up .1% as a
percentage of net sales.

Income Tax Expense

Income tax expense was $15.0 million for the third quarter of fiscal 2003
compared to $9.9 million for the third quarter of fiscal 2002. The effective
income tax rate was 37.9% in the third quarter of fiscal 2003 compared to 38.4%
in the third quarter of fiscal 2002. The lower effective income tax rate for
fiscal 2003 was primarily attributable to a lower weighted effective state
income tax rate for the Company. The weighted effective state income tax rate
of the Company will vary depending on a number of factors, such as differing
income tax rates and net sales by state.

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The thirty-nine weeks ended November 1, 2003 (nine months) as compared to the
thirty-nine weeks ended November 2, 2002 (nine months)

Net Sales

Net sales increased to $714.0 million for the first nine months of fiscal 2003
from $580.8 million for the first nine months of fiscal 2002, an increase of
$133.2 million, or 22.9%. Of this $133.2 million increase, $74.3 million was
attributable to a 13.7% increase in comparable store net sales in the first
nine months of fiscal 2003 compared to the first nine months of fiscal 2002,
$25.0 million was attributable to net sales generated by 75 new stores opened
in fiscal 2003 and not yet included in the comparable store base, $24.9 million
was attributable to net sales generated by new stores opened in fiscal 2002 not
yet included in the comparable store base, and $12.7 million was attributable
to other non-comparable store net sales. Offsetting these increases was a $3.7
million decrease attributable to the closing of three and twelve stores during
fiscal 2003 and fiscal 2002, respectively. Other non-comparable store net
sales consist primarily of sales from stores that have been expanded or
relocated and not yet included in the comparable store base as well as
merchandise sold over the internet. Of the 13.7% increase in comparable store
net sales in the first nine months of fiscal 2003, PacSun and PacSun Outlet
comparable store net sales increased 12.4% and d.e.m.o. comparable store net
sales increased 25.5%. The increase in comparable store net sales within
PacSun and PacSun Outlet was primarily attributable to increases in comparable
store net sales of footwear, accessories, juniors and, to a lesser extent,
young mens merchandise. The increase in comparable store net sales within
d.e.m.o. was attributable to increases in comparable store net sales of
juniors, accessories and young mens merchandise. 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 nine months of fiscal
2003 compared to the first nine months of fiscal 2002 and had no significant
impact on the net sales increase for the nine months of fiscal 2003.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, increased to
$244.3 million for the first nine months of fiscal 2003 from $188.7 million for
the first nine months of fiscal 2002, an increase of $55.6 million, or 29.5%.
As a percentage of net sales, gross margin was 34.2% for the first nine months
of fiscal 2003 compared to 32.5% for the first nine months of fiscal 2002. Of
this 1.7% increase as a percentage of net sales, 1.5% was due to a decrease in
occupancy costs as a percentage of net sales, primarily due to the 13.7%
comparable store net sales increase which leveraged these costs over higher
total sales, and .2% was due to an increase in net merchandise margins as a
percentage of net sales due to a higher initial markup partially offset by a
higher markdown rate.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $170.5 million for
the first nine months of fiscal 2003 from $145.1 million for the first nine
months of fiscal 2002, an increase of $25.4 million, or 17.5%. These expenses
decreased to 23.9% as a percentage of net sales in the first nine months of
fiscal 2003 from 25.0% in the first nine months of fiscal 2002. Of this 1.1%
net decrease as a percentage of net sales, 1.0% was due to a decrease in store
payroll expenses as a percentage of net sales and .8% was due to a decrease in
depreciation and other store selling expenses, primarily due to the 13.7%
comparable store net sales increase which leveraged these costs over higher
total sales. In addition, .1% was due to a decrease in store
relocation/expansion and closing expenses as a percentage of net sales.
Offsetting these decreases was a .8% increase in general and administrative
expenses, primarily due to recording $4.8 million in restricted stock expense
in the first nine months of fiscal 2003 related to the Companys determination
that it is probable that the cumulative annual earnings per share growth
targets for the year ending January 31, 2004 of two restricted stock awards
made to the Chief Executive Officer will be met (see Note 8 to the condensed
consolidated financial statements).

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Income Tax Expense

Income tax expense was $28.3 million for the first nine months of fiscal 2003
compared to $16.5 million for the first nine months of fiscal 2002. The
effective income tax rate was 38.1% in the first nine months of fiscal 2003
compared to 38.4% in the first nine months of fiscal 2002. The lower effective
income tax rate for fiscal 2003 was primarily attributable to a lower weighted
effective state income tax rate for the Company. The weighted effective state
income tax rate of the Company will vary depending on a number of factors, such
as differing income tax rates and net sales by state.

Liquidity and Capital Resources

The Company has historically 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, and financing
of inventories.

Net cash provided by operating activities for the first nine months of fiscal
2003 was $62.9 million compared to $22.3 million for the first nine months of
fiscal 2002. This $40.6 million increase in cash provided was attributable to
an increase in net income of $19.4 million, an increase in accrued income taxes
and deferred income taxes of $12.5 million, an increase in accounts payable net
of inventory increases of $7.8 million, primarily due to timing of payments,
and an increase in accrued deferred compensation and other assets of $5.3
million. These increases were partially offset by a $3.1 million decrease in
cash provided from accrued liabilities and other items netting to a decrease in
cash provided of $1.3 million. Working capital at November 1, 2003, was $200.2
million compared to $109.3 million at February 1, 2003, an increase of $90.9
million. The increase in working capital at November 1, 2003, as compared to
February 1, 2003, was attributable to an increase in cash of $47.1 million, an
increase in inventories, net of accounts payable, of $36.6 million, an increase
in short-term investments of $10.4 million, and other items netting to a
decrease of $3.2 million. The increase in inventories was related to increases
in inventories in comparable stores which generated a 13.7% increase in
comparable store net sales during the first nine months of fiscal 2003 as well
as opening 72 net new stores and expanding/relocating 20 stores with over 50%
larger average square footage than their previous locations. The Companys
average store inventories vary throughout the year and increase in advance of
the peak selling periods of spring break, back-to-school and Christmas.

Net cash used in investing activities was $41.1 million for the first nine
months of fiscal 2003 compared to $30.1 million for property and equipment for
the first nine months of fiscal 2002. Of the $11.0 million increase in cash
used, $10.4 million was due to purchases of short-term investments and $.6
million was due to an increase in purchases of property and equipment in the
first nine months of fiscal 2003 as compared to the first nine months of fiscal
2002. Of the $30.7 million of net cash used for investment in property and
equipment in the first nine months of fiscal 2003, $28.4 million was used for
new and existing stores and $2.3 million was used for other capital
expenditures, including computer hardware and software.

Net cash provided by financing activities for the first nine months of fiscal
2003 was $25.3 million compared to net cash used of $15.3 million for the first
nine months of fiscal 2002. Of the $25.3 million of net cash provided by
financing activities in the first nine months of fiscal 2003, $27.1 million was
due to proceeds received from the exercise of stock options, offset by $1.8
million of payments under capital lease and long-term debt obligations. Of the
$15.3 million of net cash used by financing activities in the first nine months
of fiscal 2002, $25.9 million was due to the repayment of the Companys $25.0
million construction loan, used to build the Companys new corporate offices
and distribution center in fiscal 2001, and principal payments under other
capital lease and long-term debt obligations of $.9 million, offset by
short-term borrowings under the Companys line of credit of $9.0 million and
proceeds received from the exercise of stock options of $1.6 million.

The Company has a credit facility with a bank, which expires on March 31, 2004.
The credit facility provides for a $45.0 million line of credit (the Credit
Line) to be used for cash advances, commercial

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letters of credit and shipside bonds. Interest on the Credit Line is payable
monthly at the banks prime rate (4.25% at November 1, 2003) or at optional
interest rates that are primarily dependent upon the London Inter-bank Offered
Rates for the time period chosen. The Company did not borrow under the Credit
Line at any time during the nine months ended November 1, 2003. The Company
had $23.5 million outstanding in letters of credit at November 1, 2003. The
credit facility subjects the Company to various restrictive covenants,
including maintenance of certain financial ratios, and prohibits payment of
cash dividends on common stock. At November 1, 2003, the Company was in
compliance with all of the covenants.

The Company has minimum annual rental commitments under existing store leases,
the lease for its former corporate offices and distribution center, capital
leases for computer equipment, and other long-term debt obligations for
multi-year computer maintenance contracts. The Company leases all of its
retail store locations under operating leases. The Company leases equipment,
from time to time, under capital leases. In addition, at any time, the Company
is contingently liable for open letters of credit with foreign suppliers of
merchandise. As of November 1, 2003, the Companys future financial
commitments under these arrangements are as follows:

Contractual Obligations
    
    Payments Due by Period(in millions)Total
    
    Less than
    
    1-3
    
    3-5
    
    More than1 year
    
    years
    
    years
    
    5 yearsOperating lease obligations
    
    $
    587.0
    
    
    $
    79.1
    
    
    $
    158.0
    
    
    $
    153.0
    
    
    $
    196.9Capital lease obligations
    
    
    2.6
    
    
    
    1.1
    
    
    
    1.5
    
    
    
    
    
    
    
    Long-term debt obligations
    
    
    1.3
    
    
    
    0.9
    
    
    
    0.4
    
    
    
    
    
    
    
    Letters of credit
    
    
    23.5
    
    
    
    23.5
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    614.4
    
    
    $
    104.6
    
    
    $
    159.9
    
    
    $
    153.0
    
    
    $
    196.9


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

During the remainder of fiscal 2003, the Company plans to open approximately 14
net new stores, of which approximately 13 will be PacSun stores and one will be
a PacSun Outlet store. The Company also plans to expand or relocate
approximately six additional existing smaller stores during the remainder of
fiscal 2003. The Company estimates that capital expenditures during the
remainder of fiscal 2003 will be approximately $11 million, of which
approximately $10 million will be for opening, expanding or relocating stores
and approximately $1 million will be used for other capital expenditures,
including computer hardware and software. During the year ending January 29,
2005 (fiscal 2004), the Company plans to open approximately 100 net new
stores, of which approximately 65 will be PacSun stores, approximately five
will be PacSun Outlet stores and approximately 30 will be d.e.m.o. stores.

The Company 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

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total liabilities to tangible net worth ratio, limitations on capital
expenditures and achievement of certain rolling four-quarter EBITDA
requirements. If these financial ratios are not maintained, the bank will have
the option to require immediate repayment of all amounts outstanding under the
credit facility. The most likely result would require the Company to
renegotiate certain terms of the credit agreement, obtain a waiver from the
bank, or obtain a new credit agreement with another bank, which may contain
different terms. As of November 1, 2003, the Company had no borrowings
outstanding under its credit facility.

New Accounting Pronouncements

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

Inflation

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

Seasonality and Quarterly Results

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

Cautionary Note Regarding Forward-Looking Statements and Risk Factors

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

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

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

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

Expansion and Management of Growth.The Companys continued growth depends to
a significant degree on its ability to open and operate stores on a profitable
basis and on managements ability to manage the Companys planned expansion of
PacSun and d.e.m.o. stores. During the remainder of fiscal 2003, the Company
plans to open approximately 14 net new stores, of which approximately 13 will
be PacSun stores and approximately one will be a PacSun Outlet store. During
fiscal 2004, the Company plans to open approximately 100 net new stores, of
which approximately 65 will be PacSun stores, approximately five will be PacSun
Outlet stores and approximately 30 will be d.e.m.o. stores. The Companys
planned expansion is dependent upon a number of factors, including the ability
of the Company to locate and obtain favorable store sites, negotiate acceptable
lease terms, obtain adequate supplies of merchandise and hire and train
qualified management level and other employees. Factors beyond the Companys
control may also affect the Companys ability to expand, including general
economic and business conditions affecting consumer spending. There can be no
assurance that the Company will achieve its planned expansion or that such
expansion will be profitable or that the Company will be able to manage its
growth effectively. Any failure to effectively 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 distribution facility in Anaheim, California. Any significant
interruption in the operation of the distribution facility due to natural
disasters, accidents, system failures or other unforeseen causes would have a
material adverse effect on the Companys business, financial condition and
results of operations. There can be no assurance that the Companys new
corporate office and distribution center will be adequate to support the
Companys future growth.

Internet Sales. The Companys internet operations are subject to numerous
risks, including unanticipated operating problems, reliance on third party
computer hardware and software providers, system failures and the need to
invest in additional computer systems. There can be no assurance that the
internet operations will achieve sales and profitability levels that justify
the Companys investment therein. The internet operations also involve other
risks that could have a material adverse effect on the Company, including (i)

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difficulties with hiring, retention and training of key personnel to conduct
the Companys internet operations, (ii) diversion of sales from PacSun stores,
(iii) rapid technological change, (iv) liability for online content and (v)
risks related to the failure of the computer systems that operate the website
and its related support systems, including computer viruses, telecommunication
failures and electronic break-ins and similar disruptions. In addition, the
internet operations involve risks which are beyond the Companys control that
could have a material adverse effect on the Company, including (i) price
competition involving the items the Company intends to sell, (ii) the entry of
the Companys vendors into the internet business, in direct competition with
the Company, (iii) the level of merchandise returns experienced by the Company,
(iv) governmental regulation, (v) online security breaches, (vi) credit card
fraud and (vii) competition and general economic conditions and economic
conditions specific to the internet, online commerce and the apparel industry.

Economic Impact of Terrorism.The majority of the Companys stores are located
in regional shopping malls. Any threat of terrorism or actual terrorist
events, particularly in public areas, could lead to lower customer traffic in
regional shopping malls. In addition, local authorities or mall management
could close regional shopping malls in response to any immediate security
concern. Mall closures, as well as lower customer traffic due to security
concerns, could result in decreased sales, which could have a material adverse
effect on the Companys business, financial condition and results of
operations.

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

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

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

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

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

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

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




ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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




ITEM 4  CONTROLS AND PROCEDURES

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

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

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




PART II-OTHER INFORMATION




Item 1  Legal Proceedings

During the first quarter ended May 3, 2003, the Company reached an agreement to
settle all claims related to two lawsuits concerning overtime pay for a total
of $4.0 million. The Company had accrued $3.9 million related to these matters
at February 1, 2003. The suits are Auden v. Pacific Sunwear of California,
Inc., which was filed September 17, 2001, and Adams v. Pacific Sunwear of
California, Inc., which was filed August 2, 2002. The complaints allege that
the Company improperly classified certain California-based employees as
exempt from overtime pay. The court has granted preliminary approval of the
settlement and a final approval is expected to be issued during the fourth
quarter of fiscal 2003. The settlement did not have a material impact on
results of operations for the third quarter or nine months ended November 1,
2003.




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




Item 3  Defaults Upon Senior Securities- Not Applicable




Item 4  Submission of
Matters to a Vote of Security Holders- Not Applicable




Item 5  Other Information- Not Applicable




Item 6  Exhibits and Reports on Form 8-K

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


On August 11, 2003, the Company filed an 8-K furnishing a press release
announcing results of operations for the quarter ended August 2, 2003.

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SIGNATURES

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

Pacific Sunwear of California, Inc.(Registrant)Date: December 4, 2003
    
    /s/ GREG H. WEAVERGreg H. WeaverChairman of the Boardand Chief Executive OfficerDate: December 4, 2003
    
    /s/ CARL W. WOMACKCarl W. WomackSenior Vice President, ChiefFinancial Officer and Secretary


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Exhibit Index

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