##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington D.C 20549
 FORM
10-Q/A
 (Amendment No. 1)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended October 30, 2004
 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
 Yes þ No o
 Yes þ No o
 Yes o No þ




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EXPLANATORY NOTE
    2




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PACIFIC SUNWEAR OF CALIFORNIA, INC.
 FORM 10-Q/A
For the Quarter Ended October 30, 2004
 Index
 PagePART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (unaudited):Condensed Consolidated Balance Sheets as of October 30, 2004 (as restated) and
January 31, 2004
    
    
    4Condensed Consolidated Statements of Income and Comprehensive Income for the
third quarter and nine months ended October 30, 2004 and November 1, 2003
(as restated)
    
    
    5Condensed Consolidated Statements of Cash Flows for the nine months ended
October 30, 2004 and November 1, 2003 (as restated)
    
    
    6Notes to Condensed Consolidated Financial Statements (as restated)
    
    
    7-16Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    17-30Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30-31PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31SIGNATURE PAGE
    
    
    32EXHIBIT 31EXHIBIT 32
  3




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PACIFIC SUNWEAR OF CALIFORNIA, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands except share amounts)
 ASSETS
 October 30,2004(as restated, see
    
    
    January 31,Note 3)
    
    
    2004CURRENT ASSETS:Cash and cash equivalents
    
    $
    27,951
    
    
    $
    109,640Marketable securities
    
    
    56,573
    
    
    
    66,235Accounts receivable
    
    
    9,187
    
    
    
    5,194Merchandise inventories
    
    
    201,010
    
    
    
    147,751Prepaid expenses, includes $11,810 and $10,711 of prepaid rent, respectively
    
    
    20,818
    
    
    
    16,492Deferred income taxes
    
    
    8,225
    
    
    
    8,225Total current assets
    
    
    323,764
    
    
    
    353,537PROPERTY AND EQUIPMENT:Land
    
    
    12,156
    
    
    
    12,156Buildings and building improvements
    
    
    26,691
    
    
    
    26,686Leasehold improvements
    
    
    251,716
    
    
    
    217,251Furniture, fixtures and equipment
    
    
    199,361
    
    
    
    173,550Total property and equipment
    
    
    489,924
    
    
    
    429,643Less accumulated depreciation and amortization
    
    
    (187,362
    )
    
    
    (156,774
    )Net property and equipment
    
    
    302,562
    
    
    
    272,869OTHER ASSETS:Goodwill
    
    
    6,492
    
    
    
    6,492Deferred compensation and other assets
    
    
    12,730
    
    
    
    11,589Total other assets
    
    
    19,222
    
    
    
    18,081Total assets
    
    $
    645,548
    
    
    $
    644,487LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    59,709
    
    
    $
    38,668Accrued liabilities
    
    
    47,225
    
    
    
    54,966Current portion of capital lease obligations
    
    
    1,309
    
    
    
    1,008Current portion of long-term debt
    
    
    453
    
    
    
    878Income taxes payable
    
    
    11,993
    
    
    
    15,019Total current liabilities
    
    
    120,689
    
    
    
    110,539LONG-TERM LIABILITIES:Long-term debt, net of current portion
    
    
    
    
    
    
    228Long-term capital lease obligations, net of current portion
    
    
    736
    
    
    
    1,227Deferred lease incentives
    
    
    67,447
    
    
    
    56,996Deferred rent
    
    
    26,696
    
    
    
    24,325Deferred compensation
    
    
    12,289
    
    
    
    10,925Deferred income taxes
    
    
    11,515
    
    
    
    11,515Other long-term liabilities
    
    
    92
    
    
    
    Total long-term liabilities
    
    
    118,775
    
    
    
    105,216Commitments and contingencies (Note 9)SHAREHOLDERS EQUITY:Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued and
outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 170,859,375 shares authorized; 74,156,155 and
78,351,302 shares issued and outstanding, respectively
    
    
    742
    
    
    
    784Additional paid-in capital
    
    
    50,096
    
    
    
    138,877Retained earnings
    
    
    355,246
    
    
    
    289,071Total shareholders equity
    
    
    406,084
    
    
    
    428,732Total liabilities and shareholders equity
    
    $
    645,548
    
    
    $
    644,487
  4




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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 EndedOctober 30,
    
    
    November 1,
    
    
    October 30,
    
    
    November 1,2004
    
    
    2003
    
    
    2004
    
    
    2003(as restated, see
    
    
    (as restated, see
    
    
    (as restated, see
    
    
    (as restated, seeNote 3)
    
    
    Note 3)
    
    
    Note 3)
    
    
    Note 3)Net sales
    
    $
    332,422
    
    
    $
    282,676
    
    
    $
    850,086
    
    
    $
    714,672Cost of goods sold, including
buying, distribution and
occupancy costs
    
    
    207,888
    
    
    
    178,467
    
    
    
    544,709
    
    
    
    463,384Gross margin
    
    
    124,534
    
    
    
    104,209
    
    
    
    305,377
    
    
    
    251,288Selling, general and
administrative expenses
    
    
    70,684
    
    
    
    63,820
    
    
    
    200,140
    
    
    
    177,496Operating income
    
    
    53,850
    
    
    
    40,389
    
    
    
    105,237
    
    
    
    73,792Interest income, net
    
    
    404
    
    
    
    213
    
    
    
    1,176
    
    
    
    342Income before income tax expense
    
    
    54,254
    
    
    
    40,602
    
    
    
    106,413
    
    
    
    74,134Income tax expense
    
    
    20,515
    
    
    
    15,392
    
    
    
    40,238
    
    
    
    28,275Net income
    
    $
    33,739
    
    
    $
    25,210
    
    
    $
    66,175
    
    
    $
    45,859Comprehensive income
    
    $
    33,739
    
    
    $
    25,210
    
    
    $
    66,175
    
    
    $
    45,859Net income per share, basic
    
    $
    0.45
    
    
    $
    0.32
    
    
    $
    0.87
    
    
    $
    0.60Net income per share, diluted
    
    $
    0.44
    
    
    $
    0.32
    
    
    $
    0.85
    
    
    $
    0.59Weighted average shares
outstanding, basic
    
    
    74,415,403
    
    
    
    77,685,516
    
    
    
    76,298,445
    
    
    
    76,031,944Weighted average shares
outstanding, diluted
    
    
    75,919,451
    
    
    
    79,876,426
    
    
    
    77,996,056
    
    
    
    78,322,218
  5




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PACIFIC SUNWEAR OF CALIFORNIA, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 For the Nine Months EndedOctober 30,
    
    
    November 1,2004
    
    
    2003(as restated, see
    
    
    (as restated, seeNote 3)
    
    
    Note 3)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    66,175
    
    
    $
    45,859Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    37,413
    
    
    
    33,295Loss on disposal of equipment
    
    
    3,257
    
    
    
    1,801Tax benefits related to exercise of stock options
    
    
    4,429
    
    
    
    14,449Change in operating assets and liabilities:Accounts receivable
    
    
    (3,993
    )
    
    
    (972
    )Merchandise inventories
    
    
    (53,259
    )
    
    
    (45,751
    )Prepaid expenses
    
    
    (4,326
    )
    
    
    (1,661
    )Deferred compensation and other assets
    
    
    223
    
    
    
    5,959Accounts payable
    
    
    21,041
    
    
    
    9,108Accrued liabilities
    
    
    (5,677
    )
    
    
    3,796Income taxes payable and deferred income taxes
    
    
    (3,026
    )
    
    
    (556
    )Deferred lease incentives
    
    
    10,451
    
    
    
    3,331Deferred rent
    
    
    (994
    )
    
    
    114Other long-term liabilities
    
    
    92
    
    
    
    Net cash provided by operating activities
    
    
    71,806
    
    
    
    68,772CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (62,949
    )
    
    
    (36,583
    )Purchases of available-for-sale marketable securities
    
    
    (911,075
    )
    
    
    (59,100
    )Sales of available-for-sale marketable securities
    
    
    926,275
    
    
    
    46,675Purchases of held-to-maturity marketable securities
    
    
    (23,374
    )
    
    
    (10,410
    )Maturities of held-to-maturity marketable securities
    
    
    17,836
    
    
    
    Net cash used in investing activities
    
    
    (53,287
    )
    
    
    (59,418
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repurchases of common stock
    
    
    (109,502
    )
    
    
    Proceeds from exercise of stock options
    
    
    10,779
    
    
    
    27,111Principal payments under capital lease obligations
    
    
    (832
    )
    
    
    (1,186
    )Principal payments under long-term debt obligations
    
    
    (653
    )
    
    
    (614
    )Cash paid in-lieu of fractional shares due to 3-for-2 stock split
    
    
    
    
    
    
    (33
    )Net cash (used in)/provided by financing activities
    
    
    (100,208
    )
    
    
    25,278NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS:
    
    
    (81,689
    )
    
    
    34,632CASH AND CASH EQUIVALENTS, beginning of period
    
    
    109,640
    
    
    
    36,438CASH AND CASH EQUIVALENTS, end of period
    
    $
    27,951
    
    
    $
    71,070SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    105
    
    
    $
    185Cash paid for income taxes
    
    $
    38,836
    
    
    $
    14,382SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:Issuance of restricted stock to satisfy certain deferred compensation liabilities
    
    $
    5,471
    
    
    $
    Increase in accrued non-cash property and equipment
    
    $
    6,772
    
    
    $
    5,009
  6




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PACIFIC SUNWEAR OF CALIFORNIA, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  BASIS OF PRESENTATION
    NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Marketable Securities
   7




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Property and Equipment
 Deferred Lease Incentives
 Revenue Recognition
 Shipping and Handling Revenues and Expenses
 For the Third Quarter Ended
    
    
    For the Nine Months EndedOctober 30,
    
    
    November 1,
    
    
    October 30,
    
    
    November 1,2004
    
    
    2003
    
    
    2004
    
    
    2003Net sales per 8-K
    
    $
    329,083
    
    
    $
    281,253
    
    
    $
    849,011
    
    
    $
    713,976E-commerce shipping revenues
    
    
    364
    
    
    
    288
    
    
    
    1,075
    
    
    
    696Net sales as reported
    
    $
    329,447
    
    
    $
    281,541
    
    
    $
    850,086
    
    
    $
    714,672Gross margins per 8-K
    
    $
    118,880
    
    
    $
    100,617
    
    
    $
    297,272
    
    
    $
    244,305E-commerce net shipping costs
    
    
    (260
    )
    
    
    (117
    )
    
    
    (383
    )
    
    
    (220
    )Gross margins as reported
    
    $
    118,620
    
    
    $
    100,500
    
    
    $
    296,889
    
    
    $
    244,085SG&A per 8-K
    
    $
    67,993
    
    
    $
    61,358
    
    
    $
    192,004
    
    
    $
    170,499E-commerce net shipping costs
    
    
    (260
    )
    
    
    (117
    )
    
    
    (383
    )
    
    
    (220
    )SG&A as reported
    
    $
    67,733
    
    
    $
    61,241
    
    
    $
    191,621
    
    
    $
    170,279
 Customer Loyalty Programs 
 8




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Cost of Goods Sold, including Buying, Distribution and Occupancy Costs
 Straight-Line Rent
 Selling, General and Administrative Expenses
 Stock-Based Compensation
  9




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For the Third Quarter Ended
    
    
    For the Nine Months EndedOctober 30,
    
    
    November 1,
    
    
    October 30,
    
    
    November 1,2004
    
    
    2003
    
    
    2004
    
    
    2003Net income, as reported
    
    $
    33,739
    
    
    $
    25,210
    
    
    $
    66,175
    
    
    $
    45,859Deduct: Total
stock-based employee
compensation expense
determined under fair
value based method for
all awards, net of
related tax effects
    
    
    (1,530
    )
    
    
    (1,437
    )
    
    
    (4,758
    )
    
    
    (4,515
    )Pro forma net income
    
    $
    32,209
    
    
    $
    23,773
    
    
    $
    61,417
    
    
    $
    41,344Earnings Per ShareBasic, as reported
    
    $
    0.45
    
    
    $
    0.32
    
    
    $
    0.87
    
    
    $
    0.60Basic, pro forma
    
    $
    0.43
    
    
    $
    0.30
    
    
    $
    0.81
    
    
    $
    0.54Diluted, as reported
    
    $
    0.44
    
    
    $
    0.32
    
    
    $
    0.85
    
    
    $
    0.59Diluted, pro forma
    
    $
    0.42
    
    
    $
    0.30
    
    
    $
    0.79
    
    
    $
    0.53
 Segment Reporting
 New Accounting Pronouncements
  10




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NOTE 3  RESTATEMENT OF PRIOR PERIOD FINANCIAL STATEMENTS
    Third Quarter Ended October 30, 2004AsPreviously
    
    
    Lease
    
    
    PacBucks
    
    
    AsConsolidated Income Statement
    
    Reported
    
    
    Corrections
    
    
    Corrections
    
    
    RestatedNet Sales
    
    $
    329,447
    
    
    $
    
    
    
    $
    2,975
    
    
    $
    332,422Cost of Sales
    
    
    210,827
    
    
    
    (2,939
    )
    
    
    
    
    
    
    207,888Gross Margin
    
    
    118,620
    
    
    
    2,939
    
    
    
    2,975
    
    
    
    124,534SG&A Expenses
    
    
    67,733
    
    
    
    2,951
    
    
    
    
    
    
    
    70,684Operating Income
    
    
    50,887
    
    
    
    (12
    )
    
    
    2,975
    
    
    
    53,850Income Tax Provision
    
    
    19,394
    
    
    
    (4
    )
    
    
    1,125
    
    
    
    20,515Net Income
    
    
    31,897
    
    
    
    (8
    )
    
    
    1,850
    
    
    
    33,739Earnings Per Share, diluted
    
    
    0.42
    
    
    
    
    
    
    
    0.02
    
    
    
    0.44
 11




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First Nine Months Ended October 30, 2004AsPreviously
    
    
    Lease
    
    
    PacBucks
    
    
    AsConsolidated Income Statement
    
    Reported
    
    
    Corrections
    
    
    Corrections
    
    
    RestatedNet Sales
    
    $
    850,086
    
    
    $
    
    
    
    $
    
    
    
    $
    850,086Cost of Sales
    
    
    553,197
    
    
    
    (8,488
    )
    
    
    
    
    
    
    544,709Gross Margin
    
    
    296,889
    
    
    
    8,488
    
    
    
    
    
    
    
    305,377SG&A Expenses
    
    
    191,621
    
    
    
    8,519
    
    
    
    
    
    
    
    200,140Operating Income
    
    
    105,268
    
    
    
    (31
    )
    
    
    
    
    
    
    105,237Income Tax Provision
    
    
    40,248
    
    
    
    (10
    )
    
    
    
    
    
    
    40,238Net Income
    
    
    66,196
    
    
    
    (21
    )
    
    
    
    
    
    
    66,175Earnings Per Share, diluted
    
    
    0.85
    
    
    
    
    
    
    
    
    
    
    
    0.85
 First Nine Months Ended October 30, 2004As
    
    
    Lease andPreviously
    
    
    ARS
    
    
    AsConsolidated Cash Flow Statement
    
    Reported
    
    
    Corrections
    
    
    RestatedNet Cash Provided by Operating Activities
    
    $
    54,143
    
    
    $
    17,663
    
    
    $
    71,806Net Cash Used in Investing Activities
    
    
    (50,824
    )
    
    
    (2,463
    )
    
    
    (53,287
    )Net Cash Used in Financing Activities
    
    
    (100,208
    )
    
    
    
    
    
    
    (100,208
    )Net Decrease in Cash and Cash Equivalents
    
    
    (96,889
    )
    
    
    15,200
    
    
    
    (81,689
    )Cash and Cash Equivalents, Beginning
    
    
    142,840
    
    
    
    (33,200
    )
    
    
    109,640Cash and Cash Equivalents, Ending
    
    
    45,951
    
    
    
    (18,000
    )
    
    
    27,951
 Third Quarter Ended November 1, 2003AsPreviously
    
    
    Lease
    
    
    PacBucks
    
    
    AsConsolidated Income Statement
    
    Reported
    
    
    Corrections
    
    
    Corrections
    
    
    RestatedNet Sales
    
    $
    281,541
    
    
    $
    
    
    
    $
    1,135
    
    
    $
    282,676Cost of Sales
    
    
    181,041
    
    
    
    (2,574
    )
    
    
    
    
    
    
    178,467Gross Margin
    
    
    100,500
    
    
    
    2,574
    
    
    
    1,135
    
    
    
    104,209SG&A Expenses
    
    
    61,241
    
    
    
    2,579
    
    
    
    
    
    
    
    63,820Operating Income
    
    
    39,259
    
    
    
    (5
    )
    
    
    1,135
    
    
    
    40,389Income Tax Provision
    
    
    14,963
    
    
    
    (1
    )
    
    
    430
    
    
    
    15,392Net Income
    
    
    24,509
    
    
    
    (4
    )
    
    
    705
    
    
    
    25,210Earnings Per Share, diluted
    
    
    0.31
    
    
    
    (0.00
    )
    
    
    0.01
    
    
    
    0.32
 First Nine Months Ended November 1, 2003AsPreviously
    
    
    Lease
    
    
    PacBucks
    
    
    AsConsolidated Income Statement
    
    Reported
    
    
    Corrections
    
    
    Corrections
    
    
    RestatedNet Sales
    
    $
    714,672
    
    
    $
    
    
    
    $
    
    
    
    $
    714,672Cost of Sales
    
    
    470,587
    
    
    
    (7,203
    )
    
    
    
    
    
    
    463,384Gross Margin
    
    
    244,085
    
    
    
    7,203
    
    
    
    
    
    
    
    251,288SG&A Expenses
    
    
    170,279
    
    
    
    7,217
    
    
    
    
    
    
    
    177,496Operating Income
    
    
    73,806
    
    
    
    (14
    )
    
    
    
    
    
    
    73,792Income Tax Provision
    
    
    28,281
    
    
    
    (6
    )
    
    
    
    
    
    
    28,275Net Income
    
    
    45,867
    
    
    
    (8
    )
    
    
    
    
    
    
    45,859Earnings Per Share, diluted
    
    
    0.59
    
    
    
    
    
    
    
    
    
    
    
    0.59
 12




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First Nine Months Ended November 1, 2003As
    
    
    Lease andPreviously
    
    
    ARSConsolidated Cash Flow Statement
    
    Reported
    
    
    Corrections
    
    
    As RestatedNet Cash Provided by Operating Activities
    
    $
    59,910
    
    
    $
    8,862
    
    
    $
    68,772Net Cash Used in Investing Activities
    
    
    (38,131
    )
    
    
    (21,287
    )
    
    
    (59,418
    )Net Cash Used in Financing Activities
    
    
    25,278
    
    
    
    
    
    
    
    25,278Net Decrease in Cash and Cash Equivalents
    
    
    47,057
    
    
    
    (12,425
    )
    
    
    34,632Cash and Cash Equivalents, Beginning
    
    
    36,438
    
    
    
    
    
    
    
    36,438Cash and Cash Equivalents, Ending
    
    
    83,495
    
    
    
    (12,425
    )
    
    
    71,070
 NOTE 4 DEFERRED COMPENSATION AND OTHER ASSETS
  October 30,
    
    
    January 31,2004
    
    
    2004Deferred compensation
    
    $
    12,471
    
    
    $
    10,919Long-term computer maintenance contracts
    
    
    128
    
    
    
    502Other assets
    
    
    131
    
    
    
    168$
    12,730
    
    
    $
    11,589
 NOTE 5  ACCRUED LIABILITIES
  October 30,
    
    
    January 31,2004
    
    
    2004Accrued compensation and benefits
    
    $
    13,917
    
    
    $
    17,578Accrued capital expenditures
    
    
    9,245
    
    
    
    5,838Accrued sales tax payable
    
    
    5,608
    
    
    
    6,189Accrued gift cards and store merchandise credits
    
    
    2,703
    
    
    
    4,618Accrued medical expenses
    
    
    2,196
    
    
    
    1,260Accrued sublease loss charges (Note 9)
    
    
    1,700
    
    
    
    5,543Accrued restricted stock compensation (Note 7)
    
    
    659
    
    
    
    5,118Other
    
    
    11,197
    
    
    
    8,822$
    47,225
    
    
    $
    54,966
 NOTE 6  COMMON STOCK REPURCHASE AND RETIREMENT
  13




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##### Table of Contents



Maximum# of Shares
    
    
    
    
    
    
    Value ofPurchased
    
    
    
    
    
    
    Shares thatAverage
    
    
    as Part of
    
    
    
    
    
    
    May Yet bePrice
    
    
    Publicly
    
    
    Value of
    
    
    Purchased# of Shares
    
    
    Paid Per
    
    
    Announced
    
    
    Shares
    
    
    Under thePeriod
    
    Purchased
    
    
    Share
    
    
    Plan
    
    
    Purchased
    
    
    PlanAuthorization #1 (1)February 2004
    
    
    75.0
    
    
    $
    23.99
    
    
    
    75.0
    
    
    $
    1,799.3
    
    
    $
    48,200.7April 2004
    
    
    2,148.7
    
    
    $
    22.43
    
    
    
    2,148.7
    
    
    $
    48,195.4
    
    
    $
    5.3Total
    
    
    2,223.7
    
    
    $
    22.48
    
    
    
    2,223.7
    
    
    $
    49,994.7Authorization #2 (2)June 2004
    
    
    482.1
    
    
    $
    19.70
    
    
    
    482.1
    
    
    $
    9,495.3
    
    
    $
    15,504.7July 2004
    
    
    812.4
    
    
    $
    19.01
    
    
    
    812.4
    
    
    $
    15,440.6
    
    
    $
    64.1Total
    
    
    1,294.5
    
    
    $
    19.26
    
    
    
    1,294.5
    
    
    $
    24,935.9Authorization #3 (3)August 2004
    
    
    1,746.0
    
    
    $
    19.80
    
    
    
    1,746.0
    
    
    $
    34,570.8
    
    
    $
    15,429.2Grand Total
    
    
    5,264.2
    
    
    $
    20.80
    
    
    
    5,264.2
    
    
    $
    109,501.4
    
    
    $
    15,498.6
 
    NOTE 7  RESTRICTED STOCK
   14




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##### Table of Contents



NOTE 8  NET INCOME PER SHARE, BASIC AND DILUTED
  October 30, 2004
    
    
    November 1, 2003Per Share
    
    
    
    
    
    
    
    
    
    
    Per ShareThird Quarter Ended:
    
    Net Income
    
    
    Shares
    
    
    Amount
    
    
    Net Income
    
    
    Shares
    
    
    AmountBasic EPS:
    
    $
    33,739
    
    
    
    74,415,403
    
    
    $
    0.45
    
    
    $
    25,210
    
    
    
    77,685,516
    
    
    $
    0.32Diluted EPS:Effect of dilutive stock options
    
    
    
    
    
    
    1,504,048
    
    
    
    (0.01
    )
    
    
    
    
    
    
    2,190,910
    
    
    
    (0.00
    )$
    33,739
    
    
    
    75,919,451
    
    
    $
    0.44
    
    
    $
    25,210
    
    
    
    79,876,426
    
    
    $
    0.32
 October 30, 2004
    
    
    November 1, 2003Per Share
    
    
    
    
    
    
    
    
    
    
    Per ShareNine Months Ended:
    
    Net Income
    
    
    Shares
    
    
    Amount
    
    
    Net Income
    
    
    Shares
    
    
    AmountBasic EPS:
    
    $
    66,175
    
    
    
    76,298,445
    
    
    $
    0.87
    
    
    $
    45,859
    
    
    
    76,031,944
    
    
    $
    0.60Diluted EPS:Effect of dilutive stock options
    
    
    
    
    
    
    1,697,611
    
    
    
    (0.02
    )
    
    
    
    
    
    
    2,290,274
    
    
    
    (0.01
    )$
    66,175
    
    
    
    77,996,056
    
    
    $
    0.85
    
    
    $
    45,859
    
    
    
    78,322,218
    
    
    $
    0.59
  NOTE 9  COMMITMENTS AND CONTINGENCIES
 Litigation
 15




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##### Table of Contents



Indemnities, Commitments, and Guarantees
  Sublease Loss Charges
  16




---



##### Table of Contents



ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF CONSOLIDATED
OPERATIONS
  Cautionary Note Regarding Forward-Looking Statements and Risk Factors
  Executive Overview
  Comparable (or same store) sales
 Net merchandise margins
 Operating margin
 Store sales trends
 17




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##### Table of Contents



Cash flow and liquidity (working capital)
 Critical Accounting Policies
  Revenue Recognition
 Inventory Valuation
 Evaluation of Long-Lived Assets
 Evaluation of Insurance Reserves
 Accrued Sublease Loss Charges
 18




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##### Table of Contents



Income Taxes
 Litigation
 Results of Operations
  Third Quarter Ended
    
    Nine Months EndedOctober 30,
    
    November 1,
    
    October 30,
    
    November 1,2004
    
    2003
    
    2004
    
    2003Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold, including
buying, distribution and
occupancy costs
    
    
    62.5
    %
    
    
    63.1
    %
    
    
    64.1
    %
    
    
    64.8
    %Gross margin
    
    
    37.5
    %
    
    
    36.9
    %
    
    
    35.9
    %
    
    
    35.2
    %Selling, general and
administrative expenses
    
    
    21.3
    %
    
    
    22.6
    %
    
    
    23.5
    %
    
    
    24.9
    %Operating income
    
    
    16.2
    %
    
    
    14.3
    %
    
    
    12.4
    %
    
    
    10.3
    %Interest income, net
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    0.1
    %Income before income tax expense
    
    
    16.3
    %
    
    
    14.4
    %
    
    
    12.5
    %
    
    
    10.4
    %Income tax expense
    
    
    6.2
    %
    
    
    5.5
    %
    
    
    4.7
    %
    
    
    4.0
    %Net income
    
    
    10.1
    %
    
    
    8.9
    %
    
    
    7.8
    %
    
    
    6.4
    %
 19




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##### Table of Contents



October 30,
    
    November 1,2004
    
    2003PacSun stores
    
    
    734
    
    
    
    664Outlet stores
    
    
    84
    
    
    
    78d.e.m.o. stores
    
    
    159
    
    
    
    121Total stores
    
    
    977
    
    
    
    863Total square footage (in 000s)
    
    
    3,391
    
    
    
    2,937
 The third quarter (13 weeks) ended October 30, 2004 as compared to the third quarter (13 weeks)
ended November 1, 2003
 Net Sales
  Amount($million)
    
    
    Attributable to$20.8
    
    
    Net sales from 105 new stores opened in fiscal 2004 not yet included in the comparable store base16.9
    
    
    6.6% increase in comparable store net sales in the third quarter of fiscal 2004 compared to the third quarter of fiscal 20036.9
    
    
    Net sales from stores opened in fiscal 2003 not yet included in the comparable store base6.0
    
    
    Other non-comparable sales (net sales from expanded or relocated stores not yet included in the comparable store base and internet net sales, including shipping and handling revenues)(0.9
    )
    
    5 closed stores in fiscal 2004 and 4 closed stores in fiscal 2003$49.7
    
    
    Total
    Gross Margin
  20




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##### Table of Contents



Selling, General and Administrative Expenses
  %
    
    
    Attributable to(0.9) %
    
    
    Decrease in restricted stock expense to $0.4 million (0.1% of
net sales) for the third quarter of fiscal 2004 from $2.7
million (1.0% of net sales) for the third quarter of fiscal
2003. During the third quarter of fiscal 2003, a grant of
restricted stock to the Chief Executive Officer was
reinstated in the amount of $2.1 million upon the Companys
determination that the fiscal 2003 cumulative earnings per
share growth target would be met (see Note 7 to the condensed
consolidated financial statements). The Company adjusts the
amount of restricted stock expense quarterly based on
additional vesting of the restricted stock and changes in the
Companys stock price.(0.3) %
    
    
    Decrease in store closing expenses to $0.5 million (0.2% of
net sales) for the third quarter of fiscal 2004 from $1.4
million (0.5% of net sales) for the third quarter of fiscal
2003, primarily due to executing fewer store
relocations/expansions/closures in the third quarter of
fiscal 2004 (3) versus the third quarter of fiscal 2003 (18)(0.1) %
    
    
    Decrease in other selling, general and administrative
expenses as a percentage of net sales to 21.0% for the third
quarter of fiscal 2004 from 21.1% for the third quarter of
fiscal 2003. Other selling, general and administrative
expenses increased in absolute dollars to $69.8 million for
the third quarter of fiscal 2004 compared to $59.7 million
for the third quarter of fiscal 2003, primarily due to the
addition of 105 new stores in fiscal 2004 as well as
increased sales volume.(1.3)%
    
    
    Total
 Net Interest Income
  Income Tax Expense
  The nine months (39 weeks) ended October 30, 2004 as compared to the nine months (39 weeks)
ended November 1, 2003
 Net Sales
  21




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##### Table of Contents



Amount($million)
    
    
    Attributable to$  55.1
    
    
    8.4% increase in comparable store net sales in the first nine months of fiscal 2004
compared to the first nine months of fiscal 200336.2
    
    
    Net sales from stores opened in fiscal 2003 not yet included in the comparable store base33.7
    
    
    Net sales from 105 new stores opened in fiscal 2004 not yet included in the comparable
store base12.3
    
    
    Other non-comparable sales (net sales from expanded or relocated stores not yet included
in the comparable store base and internet net sales, including shipping and handling
revenues)(1.9
    )
    
    5 closed stores in fiscal 2004 and 4 closed stores in fiscal 2003$135.4
    
    
    Total
    Gross Margin
  Selling, General and Administrative Expenses
  22




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##### Table of Contents



%
    
    
    Attributable to(0.6) %
    
    
    Decrease in restricted stock expense to $1.0 million (0.1% of
net sales) for the first nine months of fiscal 2004 from $4.8
million (0.7% of net sales) for the first nine months of
fiscal 2003. During fiscal 2003, two grants of restricted
stock to the Chief Executive Officer were reinstated upon the
Companys determination that the fiscal 2003 cumulative
earnings per share growth targets would be met (see Note 7 to
the condensed consolidated financial statements)(0.2) %
    
    
    Decrease in store closing expenses to $1.6 million (0.2% of
net sales) for the first nine months of fiscal 2004 from $3.2
million (0.4% of net sales) for the first nine months of
fiscal 2003, primarily due to the lease termination agreement
related to the Companys former corporate offices and
distribution center; the lease termination resulted in the
Company reversing $0.9 million in previously accrued
liabilities (see Note 9 to the condensed consolidated
financial statements)(0.5) %
    
    
    Decrease in other selling, general and administrative
expenses as a percentage of net sales to 22.2% for the first
nine months of fiscal 2004 from 22.7% for the first nine
months of fiscal 2003, primarily due to leveraging these
expenses over higher total sales. Other selling, general and
administrative expenses increased in absolute dollars to
$189.0 million for the first nine months of fiscal 2004
compared to $162.3 million for the first nine months of
fiscal 2003, primarily due to the addition of 105 new stores
in fiscal 2004 as well as increased sales volume.(1.3)%
    
    
    Total
 Net Interest Income
  Income Tax Expense
  Liquidity and Capital Resources
  Operating Cash Flows
  23




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##### Table of Contents



Amount($million)
    
    
    Attributable to$ 20.3
    
    
    Increase in net income7.1
    
    
    Increase in deferred lease incentives due to receipt of increased landlord allowances(10.0
    )
    
    Decrease in tax benefits from stock option exercises, primarily due to fewer stock
option exercises(9.5
    )
    
    Decrease in accrued liabilities, primarily due to the payment of the Auden and Adams
settlements of $4.0 million (see Note 9 to the condensed consolidated financial
statements), the payment of fiscal 2003 bonuses ($7.6 million) partially offset by
fiscal 2004 bonus accruals ($4.4 million), the lease termination covering the
Companys former corporate offices and distribution center which resulted in the
reversal of $0.9 million in previously recognized expenses (see Note 9 to the
condensed consolidated financial statements), and other items netting to a $1.4
million reduction in accrued expenses(4.9
    )
    
    Other items netting to a cash flow decrease$   3.0
    
    
    Total
 Working Capital
  Amount($million)
    
    
    Attributable to$(91.4
    )
    
    Decrease in cash and short-term investments, primarily
due to $109.5 million in common stock repurchases made
in the first nine months of fiscal 200433.3
    
    
    Increase in inventories, net of accounts payable,
primarily due to 15% square footage growth7.7
    
    
    Decrease in accrued liabilities, primarily due to the
payment of the Auden and Adams settlements of $4.0
million (see Note 9 to the condensed consolidated
financial statements), the payment of fiscal 2003
bonuses ($7.6 million) partially offset by fiscal 2004
bonus accruals ($4.4 million), the lease termination
covering the Companys former corporate offices and
distribution center which resulted in the reversal of
$0.9 million in previously recognized expenses (see Note
9 to the condensed consolidated financial statements),
and other items netting to a $0.4 million increase in
accrued expenses3.0
    
    
    Decrease in accrued income taxes due to payment of
fiscal 2003 and 2004 income taxes and accrual of tax
benefits related to stock option exercises, partially
offset by fiscal 2004 income tax accruals7.5
    
    
    Other items netting to a working capital increase$(39.9
    )
    
    Total
 Investing Cash Flows
  24




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##### Table of Contents



Amount($million)
    
    
    Attributable to$   (53.4
    )
    
    Construction costs of new, expanded and relocated stores(5.0
    )
    
    Other capital expenditures, including computer hardware and software(4.5
    )
    
    Maintenance capital expenditures on existing stores(911.1
    )
    
    Purchases of available-for-sale marketable securities926.3
    
    
    Sales of available-for-sale marketable securities(23.4
    )
    
    Purchases of held-to-maturity marketable securities17.8
    
    
    Maturities of held-to-maturity marketable securities$   (53.3
    )
    
    Total
    2005
    
    2006
    
    2007
    
    TotalNumber of new and relocated
stores
    
    
    155
    
    
    
    175
    
    
    
    185
    
    
    
    515Estimated capital expenditures
(in 000s)
    
    $
    52,000
    
    
    $
    62,000
    
    
    $
    69,000
    
    
    $
    183,000
   Financing Cash Flows
  25




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##### Table of Contents



Amount($million)
    
    
    Attributable to$(109.5
    )
    
    Repurchases of common stock(16.3
    )
    
    Decrease in proceeds received from stock option exercises0.3
    
    
    Decrease in principal payments under long-term debt and capital lease obligations$(125.5
    )
    
    Total
 Common Stock Repurchase and Retirement
  Credit Facility
   Contractual Obligations
  26




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##### Table of Contents



Payments Due by PeriodContractual Obligations
    
    
    
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More than(in millions)
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsOperating lease obligations
    
    $
    635.0
    
    
    $
    89.8
    
    
    $
    177.8
    
    
    $
    167.0
    
    
    $
    200.4Capital lease obligations
    
    
    2.0
    
    
    
    1.3
    
    
    
    0.7
    
    
    
    
    
    
    
    Long-term debt obligations
    
    
    0.5
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    Letters of credit
    
    
    32.7
    
    
    
    32.7
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    670.2
    
    
    $
    124.3
    
    
    $
    178.5
    
    
    $
    167.0
    
    
    $
    200.4
  Operating Leases
  New Accounting Pronouncements
  Inflation
  Seasonality and Quarterly Results
  27




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##### Table of Contents



Risk Factors
 The products we sell are subject to significant merchandising/fashion sensitivity.
 Our customers may not accept our proprietary brand merchandise.
 Our comparable store net sales results can fluctuate significantly.
 We may not be able to manage our planned expansion effectively.
 We could lose key personnel at any time.
 Our dependence on a single distribution facility exposes us to significant operational risks.
 28




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##### Table of Contents



Selling merchandise over the internet carries particular risks that can distract attention from our
core business
 Any
terrorist attacks or war/threat of war could significantly affect consumer spending.
 Our foreign sources of production may not always be reliable.
 Any failure by us to maintain credit facility financial covenants could have a material adverse
impact on our business.
 The expensing of stock options will reduce our future reported earnings.
 29




---



##### Table of Contents



Adverse outcomes of litigation matters could significantly affect our operational results.
 Our stock price can fluctuate significantly.
   
 ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4  CONTROLS AND PROCEDURES
  30




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1  Legal Proceedings
  
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3  Defaults Upon Senior Securities
 
 Item 4  Submission of Matters to a Vote of Security Holders
 
 Item 5  Other Information
 
 Item 6  Exhibits
 Exhibit 10.1
    
    Amended and Restated Pacific Sunwear of California, Inc.
Employee Stock Purchase Plan dated November 17, 2004 +Exhibit 10.2
    
    Form of Performance-Based Bonus Award Agreement +Exhibit 10.3
    
    Description of 2004 cash bonus arrangements +Exhibit 31
    
    Written statements of Seth R. Johnson and Gerald M. Chaney
pursuant to section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 32
    
    Written statement of Seth R. Johnson and Gerald M. Chaney
pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
 
 +
    
    Previously filed 31




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##### Table of Contents



SIGNATURES
  Pacific Sunwear of California, Inc.(Registrant)Date: August 31, 2005
    
    /s/ SETH R. JOHNSONSeth R. JohnsonChief Executive Officer(Principal Executive Officer)Date: August 31, 2005
    
    /s/ GERALD M. CHANEYGerald M. ChaneySenior Vice President, Chief Financial Officer(Principal Financial and Accounting Officer)
 32




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##### Table of Contents



EXHIBIT INDEX
 Exhibits
    
    DescriptionExhibit 10.1
    
    Amended and Restated Pacific Sunwear of California, Inc.
Employee Stock Purchase Plan dated November 17, 2004 +Exhibit 10.2
    
    Form of Performance-Based Bonus Award Agreement +Exhibit 10.3
    
    Description of 2004 cash bonus arrangements +Exhibit 31
    
    Written statements of Seth R. Johnson and Gerald M. Chaney
pursuant to section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 32
    
    Written statement of Seth R. Johnson and Gerald M. Chaney
pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
 
 +
    
    Previously filed