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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended: May 3, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission file number 0-21296
 PACIFIC SUNWEAR OF CALIFORNIA, INC.
  California
(State of incorporation)
    
    95-3759463
(I.R.S. Employer Identification No.)
 
 
 
    
    Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes þ No o
    
    Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes o No þ
    
    Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes þ No o
    
    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
 Large accelerated filer
þ
    
    Accelerated filer
o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 
    
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes o No þ




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##### 



PACIFIC SUNWEAR OF CALIFORNIA, INC.
FORM 10-Q
For the Quarter Ended May 3, 2008
 Index
 Page #PART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (unaudited):Condensed Consolidated Balance Sheets May 3, 2008 and February 2, 2008
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Operations First quarter (13 weeks) ended May 3, 2008 and May 5, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows First quarter (13 weeks) ended May 3, 2008 and May 5, 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6-12Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13-22Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22-23PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23-26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults upon Senior Securities
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    28SIGNATURE PAGE
    
    
    29EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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PACIFIC SUNWEAR OF CALIFORNIA, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited, all amounts in thousands except share amounts)
 May 3, 2008
    
    
    February 2, 2008ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    42,645
    
    
    $
    97,587Merchandise inventories
    
    
    167,508
    
    
    
    170,182Other current assets
    
    
    87,808
    
    
    
    52,818Total current assets
    
    
    297,961
    
    
    
    320,587PROPERTY AND EQUIPMENT, NET:Gross property and equipment
    
    
    656,844
    
    
    
    688,241Less accumulated depreciation and amortization
    
    
    (291,283
    )
    
    
    (311,998
    )Total property and equipment, net
    
    
    365,561
    
    
    
    376,243Other Assets
    
    
    39,653
    
    
    
    55,313TOTAL ASSETS
    
    $
    703,175
    
    
    $
    752,143LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    72,711
    
    
    $
    62,349Other current liabilities
    
    
    70,820
    
    
    
    71,107Total current liabilities
    
    
    143,531
    
    
    
    133,456LONG-TERM LIABILITIES:Deferred lease incentives
    
    
    61,375
    
    
    
    74,012Deferred rent
    
    
    25,261
    
    
    
    27,669Other long-term liabilities
    
    
    35,190
    
    
    
    33,661Total long-term liabilities
    
    
    121,826
    
    
    
    135,342Commitments and contingencies (Note 11)SHAREHOLDERS EQUITY:Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock, $.01 par value; 170,859,375 shares authorized; 69,383,360
and 70,026,510 shares issued and outstanding, respectively
    
    
    694
    
    
    
    700Additional paid-in capital
    
    
    8,342
    
    
    
    16,761Retained earnings
    
    
    428,782
    
    
    
    465,884Total shareholders equity
    
    
    437,818
    
    
    
    483,345TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    703,175
    
    
    $
    752,143
  3




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PACIFIC SUNWEAR OF CALIFORNIA, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 AND COMPREHENSIVE OPERATIONS
 (unaudited, in thousands except share and per share amounts)
 First Quarter EndedMay 3, 2008
    
    
    May 5, 2007Net sales
    
    $
    266,867
    
    
    $
    268,106Cost of goods sold, including buying, distribution and occupancy costs
    
    
    191,402
    
    
    
    192,908Gross margin
    
    
    75,465
    
    
    
    75,198Selling, general and administrative expenses
    
    
    95,812
    
    
    
    76,705Operating loss from continuing operations
    
    
    (20,347
    )
    
    
    (1,507
    )Interest income, net
    
    
    758
    
    
    
    969Loss from continuing operations before income tax benefit
    
    
    (19,589
    )
    
    
    (538
    )Income tax benefit
    
    
    (7,620
    )
    
    
    (200
    )Loss from continuing operations
    
    
    (11,969
    )
    
    
    (338
    )Loss from discontinued operations, net of tax effects
    
    
    (25,133
    )
    
    
    (4,720
    )Net loss
    
    $
    (37,102
    )
    
    $
    (5,058
    )Comprehensive loss
    
    $
    (37,102
    )
    
    $
    (5,058
    )Loss from continuing operations per share, basic
    
    $
    (0.17
    )
    
    $
    0.00Loss from continuing operations per share, diluted
    
    $
    (0.17
    )
    
    $
    0.00Net loss per share, basic
    
    $
    (0.53
    )
    
    $
    (0.07
    )Net loss per share, diluted
    
    $
    (0.53
    )
    
    $
    (0.07
    )Weighted average shares outstanding, basic
    
    
    69,915,802
    
    
    
    69,578,259Weighted average shares outstanding, diluted
    
    
    69,915,802
    
    
    
    69,578,259
  4




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PACIFIC SUNWEAR OF CALIFORNIA, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited, in thousands)
 First Quarter EndedMay 3, 2008
    
    
    May 5, 2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (37,102
    )
    
    $
    (5,058
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    21,647
    
    
    
    18,736Asset impairment
    
    
    8,503
    
    
    
    Loss on disposal of property and equipment
    
    
    687
    
    
    
    464Stock-based compensation
    
    
    1,289
    
    
    
    1,536Tax (deficiencies) / benefits related to stock-based compensation
    
    
    (388
    )
    
    
    98Excess tax benefits related to stock-based compensation
    
    
    
    
    
    
    (81
    )Change in operating assets and liabilities:Merchandise inventories
    
    
    2,674
    
    
    
    (5,016
    )Other current assets
    
    
    (34,990
    )
    
    
    (2,527
    )Other assets
    
    
    15,660
    
    
    
    (1,036
    )Accounts payable
    
    
    10,362
    
    
    
    1,934Other current liabilities
    
    
    555
    
    
    
    (16,123
    )Deferred lease incentives
    
    
    (12,637
    )
    
    
    (2,969
    )Deferred rent
    
    
    (2,408
    )
    
    
    (512
    )Other long-term liabilities
    
    
    1,519
    
    
    
    1,198Net cash used in operating activities
    
    
    (24,629
    )
    
    
    (9,356
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (21,006
    )
    
    
    (32,358
    )Purchases of available-for-sale marketable securities
    
    
    
    
    
    
    (78,400
    )Sales of available-for-sale marketable securities
    
    
    
    
    
    
    90,300Net cash used in investing activities
    
    
    (21,006
    )
    
    
    (20,458
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repurchase and retirement of common stock
    
    
    (10,248
    )
    
    
    Proceeds from exercise of stock options
    
    
    944
    
    
    
    579Excess tax benefits related to stock-based compensation
    
    
    
    
    
    
    81Principal payments under capital lease obligations
    
    
    (3
    )
    
    
    (24
    )Net cash (used in)/provided by financing activities
    
    
    (9,307
    )
    
    
    636NET DECREASE IN CASH AND CASH EQUIVALENTS:
    
    
    (54,942
    )
    
    
    (29,178
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    97,587
    
    
    
    52,267CASH AND CASH EQUIVALENTS, end of period
    
    $
    42,645
    
    
    $
    23,089SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    
    
    
    $
    1Cash paid for income taxes
    
    $
    271
    
    
    $
    10,882SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:(Decrease)/increase in non-cash property and equipment accruals
    
    $
    (869
    )
    
    $
    4,717
  5




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PACIFIC SUNWEAR OF CALIFORNIA, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 For the quarterly period ended May 3, 2008
 (unaudited, all amounts in thousands except share and per share amounts unless otherwise indicated)
 1. NATURE OF BUSINESS
 www.pacsun.com
 2. BASIS OF PRESENTATION
   3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  New Accounting Pronouncements
 6




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4. DISCONTINUED OPERATIONS
  For the First Quarter Ended:May 3, 2008
    
    May 5, 2007Net sales
    
    $
    27,051
    
    
    $
    52,479Loss before income tax benefit
    
    
    (40,447
    )
    
    
    (7,660
    )Income tax benefit
    
    
    (15,314
    )
    
    
    (2,940
    )Net loss
    
    
    (25,133
    )
    
    
    (4,720
    )Net loss per share, diluted
    
    $
    (0.36
    )
    
    $
    (0.07
    )
  5. SEGMENT REPORTING
  7




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6. STOCK-BASED COMPENSATION
  First Quarter2008
    
    2007Stock Awards
    
    ESPP
    
    Stock Awards
    
    ESPPExpected Life
    
    4
    years
    
    
    0.5
    years
    
    
    4
    years
    
    
    0.5
    yearsStock Volatility
    
    
    40.3
    %
    
    
    45.4
    %
    
    
    35.6
    %
    
    
    31.9
    %Risk-free Interest Rates
    
    
    2.3
    %
    
    
    3.2
    %
    
    
    4.5
    %
    
    
    5.0
    %Expected Dividends
    
    
    None
    
    
    
    None
    
    
    
    None
    
    
    
    None
   Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicExercise
    
    
    Contractual
    
    
    ValueStock Options/SARs
    
    Shares
    
    
    Price
    
    
    Term (Yrs.)
    
    
    ($000s)Outstanding at February 2, 2008
    
    
    2,821,794
    
    
    $
    19.96Granted
    
    
    484,080
    
    
    
    13.19Exercised
    
    
    (98,764
    )
    
    
    9.55Forfeited or expired
    
    
    (391,652
    )
    
    
    20.98Outstanding at May 3, 2008
    
    
    2,815,458
    
    
    $
    19.02
    
    
    
    4.92
    
    
    $
    958Vested and expected to vest at
May 3, 2008
    
    
    2,249,480
    
    
    $
    19.61
    
    
    
    4.57
    
    
    $
    925Exercisable at May 3, 2008
    
    
    1,621,448
    
    
    $
    20.02
    
    
    
    4.06
    
    
    $
    900
 8




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Weighted-Average Grant-Non-vested Shares
    
    Shares
    
    Date Fair ValueOutstanding at February 2, 2008
    
    
    769,075
    
    
    
    $
    19.01Granted
    
    
    276,120
    
    
    
    
    13.19Vested
    
    
    (58,690
    )
    
    
    
    21.00Forfeited
    
    
    (169,018
    )
    
    
    
    19.16Outstanding at May 3, 2008
    
    
    817,487
    
    
    
    $
    16.86
  7. NET LOSS PER SHARE, BASIC AND DILUTED
   8. OTHER CURRENT ASSETS
  May 3,
    
    
    February 2,2008
    
    
    2008Income taxes receivable
    
    $
    48,161
    
    
    $
    5,200Prepaid expenses
    
    
    23,799
    
    
    
    25,228Deferred income taxes
    
    
    9,547
    
    
    
    12,179Non-trade accounts receivable
    
    
    6,301
    
    
    
    10,211Total other current assets
    
    $
    87,808
    
    
    $
    52,818
 9




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9. OTHER CURRENT LIABILITIES
  May 3,
    
    
    February 2,2008
    
    
    2008Accrued compensation and benefits
    
    $
    11,393
    
    
    $
    21,619Accrued gift cards
    
    
    11,184
    
    
    
    15,493Accrued lease terminations
    
    
    7,290
    
    
    
    3,958Accrued capital expenditures
    
    
    6,575
    
    
    
    7,444Sales taxes payable
    
    
    4,136
    
    
    
    3,024Other
    
    
    30,242
    
    
    
    19,569Total other current liabilities
    
    $
    70,820
    
    
    $
    71,107
 10. CREDIT FACILITY
   11. COMMITMENTS AND CONTINGENCIES
 Litigation
 Letters of Credit
 10




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12. COMMON STOCK REPURCHASE AND RETIREMENT
  MaximumValue of# of Shares
    
    
    
    
    
    
    Shares thatPurchased
    
    
    
    
    
    
    May Yet beAverage
    
    
    as Part of
    
    
    Value of
    
    
    PurchasedPrice
    
    
    Publicly
    
    
    Shares
    
    
    Under the# of Shares
    
    
    Paid Per
    
    
    Announced
    
    
    Purchased
    
    
    PlanPeriod
    
    Purchased
    
    
    Share
    
    
    Plan
    
    
    ($000s)
    
    
    ($000s)$
    50,508April 2008
    
    
    799,010
    
    
    $
    12.83
    
    
    
    799,010
    
    
    $
    10,248
    
    
    $
    40,260May 2008
    
    
    1,280,000
    
    
    
    9.26
    
    
    
    1,280,000
    
    
    
    11,853
    
    
    $
    28,407Total
    
    
    2,079,010
    
    
    $
    10.63
    
    
    
    2,079,010
    
    
    $
    22,101
 13. FAIR VALUE MEASUREMENTS
   
    
    Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that
are accessible at the measurement date for identical, unrestricted assets or liabilities.
    
    Level 2: Inputs other than quoted prices that are observable for the asset or
liability, either directly or indirectly. These include quoted prices for similar assets
or liabilities in active markets and quoted prices for identical or similar assets or
liabilities in markets that are not active.
    
    Level 3: Unobservable inputs that reflect the reporting entitys own assumptions.
  11




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Fair Value Measurements at May 3, 2008Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Cash equivalents
    
    $
    39,175
    
    
    $
    39,175
    
    
    
    
    
    
    
    Deferred compensation assets
    
    
    7,318
    
    
    
    7,318
    
    
    
    
    
    
    
    Total Assets
    
    $
    46,493
    
    
    $
    46,493
    
    
    
    
    
    
    
    Liabilities:Deferred compensation liabilities
    
    $
    4,915
    
    
    $
    4,915
    
    
    
    
    
    
    
    Total Liabilities
    
    $
    4,915
    
    
    $
    4,915
    
    
    
    
    
    
    
    
 12




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ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF CONSOLIDATED
OPERATIONS
  Cautionary Note Regarding Forward-Looking Statements
  
    
    forecasts of future store closures, including planned fiscal 2008 closures
    
    estimates of remaining lease termination charges associated with the recent closure of
demo stores
    
    the sufficiency of working capital and operating cash flows to meet our operating and
capital expenditure requirements
    
    expectations regarding our capital expenditure plans for fiscal 2008
    
    the outcome of litigation matters
    
    expectations regarding future increases in CAM expenses
  Executive Overview
  Comparable (or same store) sales
 Net merchandise margins
 13




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




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Store Operating Lease Accounting
 Evaluation of Long-Lived Assets
  Evaluation of Insurance Reserves
 Evaluation of Income Taxes
 15




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Evaluation of Litigation Matters
 Results of Operations
  First Quarter EndedMay 3,
    
    May 5,2008
    
    2007Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold, including buying, distribution
and occupancy costs
    
    
    71.7
    
    
    
    72.0Gross margin
    
    
    28.3
    
    
    
    28.0Selling, general and administrative expenses
    
    
    35.9
    
    
    
    28.6Operating loss from continuing operations
    
    
    (7.6
    )
    
    
    (0.6
    )Interest income, net
    
    
    0.3
    
    
    
    0.4Loss from continuing operations before income taxes
    
    
    (7.3
    )
    
    
    (0.2
    )Income tax benefit
    
    
    (2.8
    )
    
    
    (0.1
    )Net loss from continuing operations
    
    
    (4.5
    )%
    
    
    (0.1
    )%
  May 3, 2008
    
    May 5, 2007PacSun stores
    
    
    820
    
    
    
    845Outlet stores
    
    
    122
    
    
    
    117Total stores
    
    
    942
    
    
    
    963Square footage (in 000s)
    
    
    3,596
    
    
    
    3,650
  16




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The first quarter (thirteen weeks) ended May 3, 2008 as compared to the first quarter (thirteen
weeks) ended May 5, 2007
 Net Sales
  $millions
    
    Attributable to$8
    
    Other non-comparable sales (net sales from expanded or relocated
stores not yet included in the comparable store base and internet
net sales).(7)
    
    15 closed stores in fiscal 2008 and 25 closed stores in fiscal 2007.(2)
    
    (1.0%) decrease in comparable store net sales in the first quarter
of fiscal 2008 compared to the first quarter of fiscal 2007.$(1)
    
    Total
   Gross Margin
  %
    
    Attributable to2.5
    
    Improvement in merchandise margin due to reduced markdowns and
improved initial markups associated with our increased emphasis on
apparel and disciplined inventory management.(1.3)
    
    Deleverage of occupancy costs as a result of the negative one
percent same-store sales result for the first quarter of fiscal
2008.(0.5)
    
    Deleverage of distribution expenses primarily due to $1.2 million in
transition costs associated with the consolidation of our
distribution activities within our Olathe, Kansas distribution
center.(0.4)
    
    Deleverage of buying costs as a result of the negative one percent
same-store sales result for the first quarter of fiscal 2008.0.3
    
    Total
 17




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##### Table of Contents



Selling, General and Administrative Expenses
  %
    
    Attributable to3.2
    
    $9 million increase in asset impairment charges primarily due to an impairment
charge associated with the materials handling equipment in our closed Anaheim
distribution center.1.1
    
    $3 million increase in G&A payroll expense primarily due to the carryover impact
of prior year hires and inclusive of $0.3 million in severance charges.0.9
    
    $2 million increase in depreciation expense, primarily due to the impact of
accelerated depreciation associated with store closures and store relocations.0.6
    
    $2 million increase in legal and related dispute settlement expenses.0.5
    
    $1 million increase in store payroll primarily due to the impact of minimum wage
increases enacted during fiscal 2007.1.0
    
    $2 million net increase in all other selling, general and administrative expenses.7.3
    
    Total
 Net Interest Income
  Income Tax Benefit
  Liquidity and Capital Resources
  18




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Operating Cash Flows
  $millions
    
    Attributable to$(32)
    
    Higher net loss due to the discontinued demo concept and losses
from continuing operations.(32)
    
    Decrease in cash flows related to other current assets,
primarily due to increased income tax receivables attributable
to the discontinued demo concept and losses from continuing
operations.(10)
    
    Decrease in cash flows from deferred lease incentives primarily
due to repayments of unamortized lease incentive balances to
landlords in conjunction with lease terminations associated with
our discontinued demo concept.17
    
    Increase in cash flows related to other assets, primarily due to
a decrease in deferred tax assets associated with the
discontinued demo concept.17
    
    Increase in cash flows from other current liabilities due to
lower cash disbursements for income taxes and increased demo
lease termination accruals in the first quarter of fiscal 2008.16
    
    Increase in cash flows from accounts payable, net of inventory,
due to timing of payments and reductions in overall inventory
levels versus the first quarter of last year.9
    
    Increase in cash flows due to non-cash impairment charges
primarily associated with the materials handling equipment in
our closed Anaheim distribution center.$(15)
    
    Total
 Working Capital
  $millions
    
    Description$187
    
    Working capital at February 2, 2008(55)
    
    Decrease in cash and cash equivalents, primarily due to the payment of demo lease
terminations, stock repurchases and the net loss incurred in the first quarter of fiscal
2008, among other items (see cash flow statement).(13)
    
    Increase in accounts payable, net of inventories, due to timing of payments and reduced
inventory levels primarily due to the closing of the demo concept.(8)
    
    Net increase in working capital attributable to all other current assets and liabilities.43
    
    Increase in income taxes receivable due to the net losses sustained by us as a result of
discontinuing the demo concept and higher net losses from continuing operations during
the first quarter of fiscal 2008.$154
    
    Working capital at May 3, 2008
 Investing Cash Flows
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##### Table of Contents



Financing Cash Flows
  Credit Facility
    Contractual Obligations
  Payments Due by Period (in $millions)Less
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    1-3
    
    3-5
    
    than 5Contractual Obligations
    
    Total
    
    year
    
    years
    
    years
    
    yearsOperating lease obligations
    
    $
    549
    
    
    $
    95
    
    
    $
    175
    
    
    $
    130
    
    
    $
    149Capital lease obligations
    
    
    <0.1
    
    
    
    <0.1
    
    
    
    
    
    
    
    
    
    
    
    FIN 48 obligations including interest and penalties
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Letters of credit
    
    
    22
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    573
    
    
    $
    117
    
    
    $
    177
    
    
    $
    130
    
    
    $
    149
  20




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##### Table of Contents



Operating Leases
  Indemnifications
   New Accounting Pronouncements
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##### Table of Contents



Inflation
  Seasonality and Quarterly Results
  
 ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4  CONTROLS AND PROCEDURES
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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1  Legal Proceedings
  
 Item 1A  Risk Factors
  Our comparable store net sales results will fluctuate significantly, which can cause volatility in
our operating performance and stock price.
 Our failure to identify and respond appropriately to changing consumer preferences and fashion
trends in a timely manner could have a material adverse impact on our business and profitability.
 We have stated our intention to place a greater emphasis on apparel, juniors merchandise, and the
proprietary brand penetration within the juniors category in our merchandising assortments than we
have in the past, which may not be successful in improving our store productivity or profitability.
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##### Table of Contents



We continue to reinvest in our existing store fleet, which may not result in improved operating
performance.
 Our continued growth depends, in part, on our ability to develop new store concepts and/or open new
stores that achieve acceptable levels of profitability. Any failure to do so may negatively impact
our stock price and operational performance.
 Any deterioration in consumer spending due to macro-economic issues that are beyond our control can
have a material adverse impact on our results of operations, liquidity and stock price.
 We face significant competition from both vertically-integrated and brand-based competitors that
are growing rapidly, which could have a material adverse effect on our business.
 Our customers may not prefer our proprietary brand merchandise, which may negatively impact our
profitability.
 Our current or prospective vendors may be unable or unwilling to supply us with adequate quantities
of their merchandise in a timely manner or at acceptable prices, which could have a material
adverse impact on our business.
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##### Table of Contents



Our foreign sources of production may not always be reliable, which may result in a disruption in
the flow of new merchandise to our stores.
 The loss of key personnel could have a material adverse effect on our business at any time.
 Our information systems may not be adequate to support future growth, which could disrupt business
operations.
 Adverse outcomes of litigation matters could significantly affect our operational results.
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##### Table of Contents



Our dependence on a single distribution facility exposes us to significant operational risks.
 Selling merchandise over the internet carries particular risks that can have a negative impact on
our business.
 The effects of terrorism or war could significantly impact consumer spending and our operational
performance.
 Our stock price can fluctuate significantly due to a variety of factors, which can negatively
impact our total market value.
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##### Table of Contents



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
     DIRECTOR
    
    VOTES
    
    VOTESDIRECTOR NAME
    
    CLASS
    
    CAST FOR
    
    WITHHELDGeorge R. Mrkonic
    
    I
    
    
    65,298,012
    
    
    
    1,957,060Sally Frame Kasaks
    
    II
    
    
    64,873,083
    
    
    
    2,381,989Thomas M. Murnane
    
    II
    
    
    59,932,690
    
    
    
    7,322,382Grace Nichols
    
    II
    
    
    65,186,355
    
    
    
    2,068,717Peter Starrett
    
    II
    
    
    63,059,016
    
    
    
    4,196,056
  
 Item 5  Other Information
  27




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##### Table of Contents



Item 6  Exhibits
 Exhibit 3.1
    
    Third Amended and Restated Articles of Incorporation of the Company (1)Exhibit 3.2
    
    Certificate of Determination of Preferences of Series A Junior Participating Preferred Stock of the Company (2)Exhibit 3.3
    
    Third Amended and Restated Bylaws of the Company, as amended (3)Exhibit 10.1
    
    Amendment No. 5 to Credit Agreement, dated as of February 1, 2008, with JPMorgan Chase Bank, N.A., as
Administrative Agent, and a syndicate of other lenders (4)Exhibit 10.2
    
    Credit Agreement, dated as of April 29, 2008, with JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of
America, N.A., as Syndication Agent, BB&T Company, U.S. Bank National Association and Wells Fargo Foothill, Inc.,
as Co-Documentation Agents, and J.P. Morgan Securities Inc. and Banc of America Securities LLC, as Joint
Bookrunners and Joint Lead Arrangers, and a syndicate of other lenders (5)Exhibit 10.3
    
    Security Agreement, dated as of April 29, 2008, by the Company, Pacific Sunwear Stores Corp., Miraloma Corp., and
certain future subsidiaries of the Company, and JPMorgan Chase Bank, N.A., as Administrative Agent (5)Exhibit 31
    
    Written statements of Sally Frame Kasaks and Michael L. Henry pursuant to section 302 of the Sarbanes-Oxley Act of
2002Exhibit 32
    
    Written statement of Sally Frame Kasaks and Michael L. Henry pursuant to section 906 of the Sarbanes-Oxley Act of
2002
 
 Note Reference:(1)
    
    Incorporated by reference from the Companys Quarterly Report on Form 10-Q, as filed with the
Securities and Exchange Commission on August 31, 2004(2)
    
    Incorporated by reference from the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on December 24, 1998(3)
    
    Incorporated by reference from the Companys Quarterly Report on Form 10-Q, as filed with the
Securities and Exchange Commission on December 3, 2007(4)
    
    Incorporated by reference from the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on February 7, 2008(5)
    
    Incorporated by reference from the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on May 2, 2008 28




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##### Table of Contents



SIGNATURES
  PACIFIC SUNWEAR OF CALIFORNIA, INC.(Registrant)Date: June 4, 2008
    
    /s/ SALLY FRAME KASAKS

Sally Frame KasaksChairman and Chief Executive Officer(Principal Executive Officer)Date: June 4, 2008
    
    /s/ MICHAEL L. HENRYMichael L. HenrySenior Vice President,Chief Financial Officer and Secretary(Principal Financial and Accounting Officer)
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##### Table of Contents



EXHIBIT INDEX
 Exhibit 3.1
    
    Third Amended and Restated Articles of Incorporation of the Company (1)Exhibit 3.2
    
    Certificate of Determination of Preferences of Series A Junior Participating Preferred Stock of the Company (2)Exhibit 3.3
    
    Third Amended and Restated Bylaws of the Company, as amended (3)Exhibit 10.1
    
    Amendment No. 5 to Credit Agreement, dated as of February 1, 2008, with JPMorgan Chase Bank, N.A., as
Administrative Agent, and a syndicate of other lenders (4)Exhibit 10.2
    
    Credit Agreement, dated as of April 29, 2008, with JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of
America, N.A., as Syndication Agent, BB&T Company, U.S. Bank National Association and Wells Fargo Foothill, Inc.,
as Co-Documentation Agents, and J.P. Morgan Securities Inc. and Banc of America Securities LLC, as Joint
Bookrunners and Joint Lead Arrangers, and a syndicate of other lenders (5)Exhibit 10.3
    
    Security Agreement, dated as of April 29, 2008, by the Company, Pacific Sunwear Stores Corp., Miraloma Corp., and
certain future subsidiaries of the Company, and JPMorgan Chase Bank, N.A., as Administrative Agent (5)Exhibit 31
    
    Written statements of Sally Frame Kasaks and Michael L. Henry pursuant to section 302 of the Sarbanes-Oxley Act of
2002Exhibit 32
    
    Written statement of Sally Frame Kasaks and Michael L. Henry pursuant to section 906 of the Sarbanes-Oxley Act of
2002
 
 Note Reference:(1)
    
    Incorporated by reference from the Companys Quarterly Report on Form 10-Q, as filed with the
Securities and Exchange Commission on August 31, 2004(2)
    
    Incorporated by reference from the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on December 24, 1998(3)
    
    Incorporated by reference from the Companys Quarterly Report on Form 10-Q, as filed with the
Securities and Exchange Commission on December 3, 2007(4)
    
    Incorporated by reference from the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on February 7, 2008(5)
    
    Incorporated by reference from the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on May 2, 2008