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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

|(Mark One) | 
|---------- | 
|[X]        | 
|           | 

For the fiscal year ended: February 1, 2003



|     |  | OR                                                       | 
|---- |  | -------------------------------------------------------- | 
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|     |  | SECURITIES EXCHANGE ACT OF 1934                         

For the transition period from      to

Commission file number 0-21296

PACIFIC SUNWEAR OF CALIFORNIA, INC.

(Exact name of registrant as specified in its charter)


|                                             |  |                    
|-------------------------------------------- |  | -------------------
|California                                   |  | 95-3759463         
|(State or other jurisdiction of              |  | (I.R.S. Employer   
|incorporation or organization)               |  | Identification No.)
|                                             |  |                    
|3450 E. Miraloma Avenue, Anaheim, California |  | 92806              
|(Address of principal executive offices)     |  | (Zip Code)         

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

Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Preferred Stock Purchase Rights
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes 
[X]  No  [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes 
[X]   No  [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [  ].

The aggregate market value of Common Stock held by non-affiliates of the
registrant on August 3, 2002 was approximately $556 million. All outstanding
shares of voting stock, except for shares held by executive officers and
members of the Board of Directors and their affiliates, are deemed to be held
by non-affiliates.

On March 24, 2003 the registrant had 49,545,251 shares of Common Stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference from the definitive Proxy
Statement for the 2002 Annual Meeting of Shareholders, to be filed with the
Commission no later than 120 days after the end of the registrants fiscal year
covered by this Form 10-K.



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TABLE OF CONTENTS



|                  |                                                                                                |  |  |  |  |  |  | 
|----------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I           
|                  | ITEM 1. BUSINESS                                                                              
|                  | ITEM 2. PROPERTIES                                                                            
|                  | ITEM 3. LEGAL PROCEEDINGS                                                                     
|                  | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   
|PART II          
|                  | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                 
|                  | ITEM 6. SELECTED FINANCIAL DATA                                                               
|                  | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
|                  | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                  | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           
|                  | ITEM 9. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|PART III         
|                  | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                   
|                  | ITEM 11. EXECUTIVE COMPENSATION                                                               
|                  | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                       
|                  | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                       
|                  | ITEM 14. CONTROLS AND PROCEDURES                                                              
|PART IV          
|                  | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                     
|SIGNATURES       
|CERTIFICATIONS   
|INDEX TO EXHIBITS
|EXHIBIT 3.2      
|EXHIBIT 3.3      
|EXHIBIT 3.6      
|EXHIBIT 10.4     
|EXHIBIT 10.6     
|EXHIBIT 10.20    
|EXHIBIT 21       
|EXHIBIT 23.1     
|EXHIBIT 99.1     



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PART I




ITEM 1. BUSINESS

Pacific Sunwear of California, Inc. and its wholly owned subsidiaries (the
Company or the Registrant) is a leading specialty retailer of everyday
casual apparel, accessories and footwear designed to meet the needs of active
teens and young adults. The Company operates three nationwide, primarily
mall-based chains of retail stores under the names Pacific Sunwear (also
known as PacSun), Pacific Sunwear (PacSun) Outlet, and d.e.m.o. PacSun
and PacSun Outlet stores specialize in board-sport inspired casual apparel,
footwear and related accessories catering to teenagers and young adults.
d.e.m.o. specializes in hip-hop music inspired casual apparel and related
accessories catering to teenagers and young adults. In addition, the Company
operates a website through a wholly owned subsidiary that sells PacSun
merchandise online, provides content and community for its target customers and
provides information about the Company.

As of the close of the year ended February 1, 2003 (fiscal 2002), the
Company operated 612 PacSun stores, 72 PacSun Outlet stores and 107 d.e.m.o.
stores for a total of 791 stores in 48 states and Puerto Rico. As of March
24, 2003, the Company operated 619 PacSun stores, 73 PacSun Outlet stores and
107 d.e.m.o. stores for a total of 799 stores in 48 states and Puerto Rico.

The Company, a California corporation, was incorporated in August 1982.

The Companys executive offices are located at 3450 East Miraloma Avenue,
Anaheim, California 92806; the telephone number is (714) 414-4000; the
Companys internet address is www.pacsun.com. Through the Companys website,
the Company makes available free of charge, as soon as reasonably practicable
after such information has been filed or furnished to the Securities and
Exchange Commission (the Commission), its annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the Exchange Act).

Store Formats

PacSun stores- The Companys original and primary store format, located
primarily in regional malls, offers a selection of board-sport inspired casual
apparel, footwear and related accessories to satisfy the casual wardrobe needs
of its customers. PacSun targets customers between the ages of 12 and 22.
Within each merchandise classification, PacSun stores offer a broad selection,
with the goal of being viewed by its customers as the dominant retailer in its
niche. PacSun stores average approximately 3,500 square feet in size. The
Company currently seeks locations of approximately 4,000 square feet for its
new PacSun stores. At the end of fiscal 2002, the Company operated 612 PacSun
stores containing a total of 2,102,822 square feet.

PacSun Outlet- These stores average approximately 4,100 square feet and
are located in value-oriented outlet malls, both open-air and enclosed. This
format carries a selection similar to the PacSun mall stores, with an emphasis
on value pricing. The merchandise offerings at PacSun Outlets consist
primarily of off-price branded merchandise, private brand merchandise and a
smaller selection of full-priced branded merchandise. At the end of fiscal
2002, the Company operated 72 PacSun Outlet stores containing a total of
293,511 square feet.

d.e.m.o.- d.e.m.o. stores, located in regional malls, average
approximately 2,400 square feet and offer a broad assortment of hip-hop music
inspired casual apparel and related accessories. d.e.m.o. targets customers
between the ages of 16 and 24. d.e.m.o. stores have no merchandise overlap
with PacSun or PacSun Outlet stores, and many d.e.m.o. stores are located in
the same malls as PacSun stores. At the end of fiscal 2002, the Company
operated 107 d.e.m.o. stores containing a total of 251,010 square feet.

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Strategy

The Companys mission is to be the leading lifestyle retailer of casual
fashion apparel, footwear and accessories for teens. The Companys target
customers are young men and women between the ages of 12 and 24. The Company
believes its customers want to stay current with or ahead of fashion trends and
continually seek newness in their everyday wear. The Company offers a complete
wardrobe selection representing fashion trends considered timely by the
Companys target customers. The key elements of the Companys strategy are as
follows:

Offer Popular Name Brands Supplemented by Private Brands.In each of its
store formats, the Company offers a carefully edited selection of popular name
brands supplemented by private brands, with the goal of being seen by its
teenage and young adult customers as the source for wardrobe choices
appropriate to their lifestyle. The Company believes that its merchandising
strategy differentiates its stores from competitors who may offer 100% private
labels or greater than 80% name brands or seek to serve a wider customer base
and age range. See Merchandising.

Promote the PacSun and d.e.m.o. Brand Images.The Company promotes the
PacSun and d.e.m.o. brands through national print advertising in major
magazines that target teens and young adults. In the past, the Company has
sponsored sporting events consistent with the PacSun brand image and lifestyle
and has conducted PacSun television advertising campaigns. The Companys
current promotional efforts are focused exclusively on national print
advertising, a trend that we expect to continue through the year ending January
31, 2004 (fiscal 2003). The Company also maintains a private label credit
card through a third party to promote the PacSun brand image and lifestyle.

Actively Manage Merchandise Trends.The Company does not attempt to
dictate fashion, but instead devotes considerable effort to identifying
emerging fashion trends and brand names. By using focus groups, listening to
its customers and store employees, monitoring sell-through trends, testing
small quantities of new merchandise in a limited number of stores, and
maintaining domestic and international sourcing relationships, the Company
enhances its ability to identify and respond to emerging fashion trends and
brand names as well as develop new private brand styles in order to capitalize
on existing fashion trends.

Maintain Strong Vendor Relationships.The Company views its vendor
relationships as important to its success, and promotes frequent personal
interaction with its vendors. The Company believes many of its vendors view
PacSun stores, PacSun Outlets and d.e.m.o. stores as important distribution
channels, in many cases as one of their largest customers, which enhance their
own brand image in the eyes of the customer.

Provide Attentive Customer Service.The Company is committed to offering
courteous, professional and non-intrusive customer service. The Company
strives to give its young customers the same level of respect that is generally
given to adult customers at other retail stores, and to provide friendly and
informed customer service for parents. Responding to the expressed preferences
of its customers, the Company trains its employees to greet each customer, to
give prompt and courteous assistance when asked, and to thank customers after
purchases are made, but to refrain from giving extensive unsolicited advice.
PacSun and PacSun Outlet stores display large assortments of name brands and
private brands, merchandised by category. d.e.m.o. merchandise is displayed by
brand together with vendor logo signage. Additionally, the stores provide a
friendly and social atmosphere for teens with appropriate background music,
while also providing a comfortable environment for parents and other adults.
The Company believes the combination of its attentive customer service and its
unique store environments is key to its success.

Store Growth Strategy.The Company intends to continue its store growth
through the opening of new stores under its three formats. During fiscal 2003,
the Company plans to open approximately 75 net new stores among its three
formats. The Company also plans to expand or relocate approximately 30
existing smaller PacSun stores during fiscal 2003. See Expansion.

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Internet Strategy. The Company sells merchandise over the internet at
www.pacsun.com. The website offers a selection of the same merchandise carried
in the PacSun stores. In addition, the website offers content including
videos, contests, advice columns and lifestyle articles. The Company maintains
a substantial database of e-mail names that it uses for marketing purposes.
The Company also advertises its website as a shopping destination on major
internet portals as well as markets its website in its PacSun stores using
in-store signage, merchandise bags and receipts. The Companys internet
strategy benefits from the Companys nationwide retail presence of its stores
and the strong brand recognition of PacSun, a loyal and internet-savvy customer
base, the participation of PacSuns key brands and the ability to return
merchandise to PacSun stores.

Merchandising

Merchandise.PacSun, PacSun Outlet and d.e.m.o. stores offer a broad selection
of casual apparel, related accessories and, within PacSun and PacSun Outlet
stores, footwear for young men (guys) and young women (girls), with the
goal of being viewed by their customers as the dominant retailer for their
lifestyle.

The following table sets forth the Companys merchandise assortment as a
percentage of net sales for the periods shown:

|              |  |                   |     |         |  |         |     |   |  |  |     |  
|------------- |  | ----------------- | --- | ------- |  | ------- | --- | - |  |  | --- | -
|              |  | Fiscal Year Ended
|              |  |                  
|              |  | Feb. 1,           |     | Feb. 2, |  | Feb. 4,
|              |  | 2003              |     | 2002    |  | 2001   
|              |  |                   |     |         |  |        
|Guys apparel  |  |                   | 41  | %       |  |         | 46  | % |  |  | 50  | %
|Girls apparel |  |                   | 31  |         |  |         | 28  |   |  |  | 26  |  
|Accessories   |  |                   | 18  |         |  |         | 17  |   |  |  | 16  |  
|Footwear      |  |                   | 10  |         |  |         | 9   |   |  |  | 8   |  
|              |  |                   |     |         |  |         |     |   |  |  |     |  
|Total         |  |                   | 100 | %       |  |         | 100 | % |  |  | 100 | %
|              |  |                   |     |         |  |         |     |   |  |  |     |  

The Company offers many name brands best known by its target customers. PacSun
offers a wide selection of well-known board-sport inspired name brands, such as
Quiksilver, Hurley and Billabong. d.e.m.o. offers well-known name brands
sought by its target customers, such as Sean John, Enyce, J. Lo and Phat
Farm/Baby Phat. In addition, the Company continuously adds and supports
up-and-coming new brands in both PacSun and d.e.m.o. No vendor accounted for
more than 9% of total net sales during fiscal 2002.

The Company supplements its name brand offerings with private brands. The
Company believes that offering high-quality private brands contributes to its
status as a key fashion resource for the casual lifestyle and differentiates
the Company from its competitors. In addition, private brands provide the
Company an opportunity to broaden its customer base by providing merchandise of
comparable quality to brand name merchandise at lower prices, to capitalize on
emerging fashion trends when branded merchandise is not available in sufficient
quantities, and to exercise a greater degree of control over the flow of its
merchandise. The Companys private brand merchandise is designed internally by
a product design group in collaboration with the Companys buying staff. The
sourcing group oversees the manufacture and delivery of the private brand
merchandise, with manufacturing done on a contract basis domestically, in Asia
and in Mexico. Private brand merchandise sales accounted for 33% and 34% of
the Companys net sales in fiscal 2002 and fiscal 2001, respectively.

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Vendor and Contract Manufacturer Relationships.The Company views its vendor
relationships as important to its success and promotes frequent personal
interaction with its vendors. The Company believes many of its vendors view
PacSun stores, PacSun Outlets and d.e.m.o. stores as important distribution
channels, in many cases as one of their largest customers, which enhance their
own brand image in the eyes of the customer. The Companys vendor base
currently includes more than 100 vendors. The Company maintains strong and
interactive relationships with its vendors, many of whose philosophies of
controlled distribution and merchandise development are consistent with the
Companys strategy. The Company generally purchases merchandise from vendors
who prefer distributing through specialty retailers, small boutiques and, in
some cases, better department stores, rather than distributing their
merchandise through mass-market channels.

To encourage the design and development of new merchandise, the Company
frequently shares ideas regarding fashion trends and merchandise sell-through
information with its vendors. The Company also suggests merchandise design and
fabrication to certain vendors. The Company encourages the development of new
vendor relationships by attending trade shows and through its weekly
Open-house Wednesday program, during which new vendors are encouraged to make
presentations of their merchandise to the Companys buying staff. A number of
the Companys key vendors have been introduced to the Company through this
program.

The Company has cultivated its private brand sources with a view toward
high-quality merchandise, production reliability and consistency of fit. The
Company sources its private brand merchandise both domestically and
internationally in order to benefit from the lower costs associated with
foreign manufacturing and the shorter lead times associated with domestic
manufacturing.

The Companys business is dependent upon its ability to offer current season,
brand name apparel at competitive prices and in adequate quantities. Some of
the Companys vendors have limited resources, production capacities and
operating histories and some have intentionally limited the distribution of
their merchandise. The inability or unwillingness on the part of key vendors to expand their operations to keep
pace with the anticipated growth of PacSun stores, PacSun Outlets and d.e.m.o.
stores, or the loss of one or more key vendors or private brand sources for any
reason, could have a material adverse effect on the Companys business.

Purchasing, Allocation and Distribution.The Companys merchandising
department oversees the purchasing and allocation of the Companys merchandise.
The Companys buyers are responsible for reviewing branded merchandise lines
from new and existing vendors, identifying emerging fashion trends, and
selecting branded and private label merchandise styles in quantities, colors
and sizes to meet inventory levels established by management. The Companys
planning and allocation department is responsible for management of inventory
levels by store and by class, allocation of merchandise to stores and inventory
replenishment based upon information generated by the Companys merchandise
management information systems. These systems provide the planning department
with current inventory levels at each store and for the Company as a whole, as
well as current selling history within each store by merchandise classification
and by style. See Information Systems.

All merchandise is delivered to the Companys distribution facility, where it
is inspected, received into the Companys computer system, allocated to stores,
ticketed when necessary, and boxed for distribution to the Companys stores.
Each store is typically shipped merchandise three to five times a week,
providing it with a steady flow of new merchandise. The Company uses a
national and a regional small package carrier to ship merchandise to its stores
and occasionally uses air freight during peak selling periods.

In January 2002, the Company completed construction of and relocated to its
current corporate offices and distribution center located in Anaheim,
California. The Company believes the current facilities are capable of
servicing at least 1,200 stores.

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Stores

Locations.The Company has expanded from 11 stores in California at the end of
fiscal 1986 to 791 stores in 48 states and Puerto Rico at the end of fiscal
2002. The table below sets forth the number of stores located in each state as
of the end of fiscal 2002:

|              |  |        |    |         |  |         |    |       |  |       |  |        |     |         |  |                |  |       |     |        |  |    |  |     |  |  |     | 
|------------- |  | ------ | -- | ------- |  | ------- | -- | ----- |  | ----- |  | ------ | --- | ------- |  | -------------- |  | ----- | --- | ------ |  | -- |  | --- |  |  | --- | 
|              |  |        |    |         |  | PacSun  |    |       |  |       |  |        |     |         |  |                |  |       |     | PacSun |  |    |  |     |  | 
|State         |  | PacSun |    | Outlets |  | d.e.m.o |    | Total |  | State |  | PacSun |     | Outlets |  | d.e.m.o        |  | Total
|              |  |        |    |         |  |         |    |       |  |       |  |        |     |         |  |                |  |      
|Alabama       |  |        | 9  |         |  |         | 2  |       |  |       |  |        | 11  |         |  | Nebraska       |  |       | 4   |        |  |    |  |     |  |  | 4   | 
|Alaska        |  |        | 3  |         |  |         |    |       |  |       |  |        | 3   |         |  | Nevada         |  |       | 4   |        |  | 1  |  |     |  |  | 5   | 
|Arizona       |  |        | 12 |         |  |         | 2  |       |  | 1     |  |        | 15  |         |  | New Hampshire  |  |       | 4   |        |  | 1  |  |     |  |  | 5   | 
|California    |  |        | 70 |         |  |         | 12 |       |  | 21    |  |        | 103 |         |  | New Jersey     |  |       | 20  |        |  | 2  |  | 6   |  |  | 28  | 
|Colorado      |  |        | 10 |         |  |         | 2  |       |  | 2     |  |        | 14  |         |  | New Mexico     |  |       | 2   |        |  |    |  |     |  |  | 2   | 
|Connecticut   |  |        | 9  |         |  |         |    |       |  | 1     |  |        | 10  |         |  | New York       |  |       | 27  |        |  | 6  |  | 4   |  |  | 37  | 
|Delaware      |  |        | 3  |         |  |         | 1  |       |  |       |  |        | 4   |         |  | North Carolina |  |       | 16  |        |  | 2  |  | 3   |  |  | 21  | 
|Florida       |  |        | 47 |         |  |         | 6  |       |  | 14    |  |        | 67  |         |  | North Dakota   |  |       | 4   |        |  |    |  |     |  |  | 4   | 
|Georgia       |  |        | 17 |         |  |         | 1  |       |  | 5     |  |        | 23  |         |  | Ohio           |  |       | 31  |        |  | 2  |  | 5   |  |  | 38  | 
|Hawaii        |  |        | 5  |         |  |         |    |       |  | 1     |  |        | 6   |         |  | Oklahoma       |  |       | 4   |        |  |    |  |     |  |  | 4   | 
|Idaho         |  |        | 3  |         |  |         |    |       |  |       |  |        | 3   |         |  | Oregon         |  |       | 5   |        |  | 2  |  |     |  |  | 7   | 
|Illinois      |  |        | 19 |         |  |         | 1  |       |  | 4     |  |        | 24  |         |  | Pennsylvania   |  |       | 38  |        |  | 3  |  | 7   |  |  | 48  | 
|Indiana       |  |        | 14 |         |  |         | 2  |       |  | 3     |  |        | 19  |         |  | Rhode Island   |  |       | 2   |        |  |    |  |     |  |  | 2   | 
|Iowa          |  |        | 7  |         |  |         |    |       |  |       |  |        | 7   |         |  | South Carolina |  |       | 6   |        |  | 2  |  | 3   |  |  | 11  | 
|Kansas        |  |        | 5  |         |  |         |    |       |  |       |  |        | 5   |         |  | South Dakota   |  |       | 2   |        |  |    |  |     |  |  | 2   | 
|Kentucky      |  |        | 6  |         |  |         |    |       |  | 1     |  |        | 7   |         |  | Tennessee      |  |       | 8   |        |  | 2  |  |     |  |  | 10  | 
|Louisiana     |  |        | 8  |         |  |         |    |       |  | 4     |  |        | 12  |         |  | Texas          |  |       | 39  |        |  | 3  |  | 5   |  |  | 47  | 
|Maine         |  |        | 2  |         |  |         | 2  |       |  | 1     |  |        | 5   |         |  | Utah           |  |       | 8   |        |  | 1  |  |     |  |  | 9   | 
|Maryland      |  |        | 13 |         |  |         | 2  |       |  | 5     |  |        | 20  |         |  | Vermont        |  |       | 3   |        |  | 1  |  |     |  |  | 4   | 
|Massachusetts |  |        | 19 |         |  |         | 1  |       |  | 3     |  |        | 23  |         |  | Virginia       |  |       | 15  |        |  | 2  |  | 1   |  |  | 18  | 
|Michigan      |  |        | 23 |         |  |         | 3  |       |  | 4     |  |        | 30  |         |  | Washington     |  |       | 13  |        |  | 1  |  |     |  |  | 14  | 
|Minnesota     |  |        | 12 |         |  |         | 1  |       |  | 2     |  |        | 15  |         |  | West Virginia  |  |       | 7   |        |  |    |  |     |  |  | 7   | 
|Mississippi   |  |        | 2  |         |  |         |    |       |  |       |  |        | 2   |         |  | Wisconsin      |  |       | 13  |        |  |    |  |     |  |  | 13  | 
|Missouri      |  |        | 9  |         |  |         | 2  |       |  |       |  |        | 11  |         |  | Puerto Rico    |  |       | 7   |        |  | 1  |  | 1   |  |  | 9   | 
|Montana       |  |        | 3  |         |  |         |    |       |  |       |  |        | 3   |         |  | Total          |  |       | 612 |        |  | 72 |  | 107 |  |  | 791 | 
|              |  |        |    |         |  |         |    |       |  |       |  |        |     |         |  |                |  |       |     |        |  |    |  |     |  |  |     | 

Store Expansion.During fiscal 2002, the Company opened 73 net new stores,
which included 63 PacSun stores, four PacSun Outlet stores and six d.e.m.o.
stores. In addition, the Company expanded or relocated 30 PacSun stores during
fiscal 2002. During fiscal 2003, the Company plans to open approximately 75
net new stores, of which approximately 61 will be PacSun stores, approximately
four will be PacSun Outlet stores and approximately ten will be d.e.m.o.
stores. The Company also plans to expand or relocate approximately 30 existing
smaller PacSun stores during fiscal 2003. The Company has identified regional
malls in major metropolitan areas nationwide and in Puerto Rico for potential
new stores subject to financial return and site selection criteria. As of the
date of this filing, approximately 50% of the leases for the approximately 75
net new stores the Company expects to open in fiscal 2003 have been executed.

The Companys site selection strategy is to locate its stores primarily in
regional malls serving markets that meet its demographic criteria, including
average household income and population density. The Company also considers
mall sales per square foot, the performance of other retail tenants serving
teens and young adult customers, anchor tenants and occupancy costs. The
Company currently seeks PacSun store locations of approximately 4,000 square
feet and d.e.m.o. store locations of approximately 2,200-2,400 square feet

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primarily in high-traffic locations within regional malls. The Company
currently seeks PacSun Outlet store locations of approximately 4,000 square
feet primarily in high-traffic value-oriented outlet malls, both open-air and
enclosed.

The Companys average cost to build a new store in fiscal 2002, including
leasehold improvements, furniture and fixtures, and landlord allowances, was
approximately $285,000 for PacSun stores, approximately $210,000 for
PacSun Outlet stores, and approximately $225,000 for d.e.m.o. stores. The
average cost of expanding or relocating a PacSun store was approximately
$430,000 and approximately $360,000 in fiscal 2002 and fiscal 2001,
respectively. The average total cost to build new stores and relocate or
expand stores will vary in the future depending on various factors, including
square footage, changes in store design, local construction costs and landlord
allowances. The Companys average cost for initial inventory for new stores
opened in fiscal 2002 was approximately $118,000 for PacSun stores,
approximately $150,000 for PacSun Outlet stores, and approximately $77,000 for
d.e.m.o. stores. The Companys initial inventory for new stores will vary in
the future depending on various factors, including store concept and square
footage.

The Companys continued growth depends upon its ability to open and operate
stores on a profitable basis. The Companys ability to expand successfully
will be dependent upon a number of factors, including sufficient demand for the
Companys merchandise in its existing and new markets, the ability of the
Company to locate and obtain favorable store sites, negotiate acceptable lease
terms, obtain adequate merchandise supply, and hire and train qualified
management and other employees.

Store Operations.Each store has a manager, one or more co-managers or
assistant managers, and approximately six to twelve part-time sales associates.
Approximately seven to twelve stores are managed by a district manager and
approximately six to nine district managers report to a regional manager.
Regional, district, store managers and store co-managers participate in a bonus
program based on achieving predetermined levels of sales and inventory
shrinkage. Company stores are open during mall shopping hours. The Company
has well-established store operating policies and procedures and an extensive
four-week in-store training program for new store managers and co-managers.
The Company places great emphasis on its loss prevention program in order to
control inventory shrinkage. This program includes the installation of
electronic article surveillance systems in all stores, education of store
personnel on loss prevention, and monitoring of returns, voids and employee
sales. Since fiscal 1991, the Company has achieved an inventory shrinkage rate
of 1.3% or less of net sales in each fiscal year.

Information Systems

The Companys merchandise, financial and store computer systems are fully
integrated and operate using primarily IBM equipment. The software, which is
primarily provided by one of the largest vendors to the retail trade, is
regularly upgraded or modified as needs arise or change. The Companys
information systems provide management, buyers and planners comprehensive data
that helps them identify emerging trends and manage inventories. The systems
include purchase order management, electronic data interchange, open order
reporting, open-to-buy, receiving, distribution, merchandise allocation, basic
stock replenishment, inter-store transfers, inventory and price management.
Weekly best/worst item sales reports are used by management to enhance the
timeliness and effectiveness of purchasing and markdown decisions. Merchandise
purchases are based on planned sales and inventories and are frequently revised
to reflect changes in demand for a particular item or classification.

All of the Companys stores have a point-of-sale system operating on IBM
in-store computer hardware. The system features bar-coded ticket scanning,
automatic price look-up, dial-out check and credit authorization and automatic
nightly transmittal of data between the store and the Companys corporate
offices. Each of the regional and district managers uses a laptop computer and
can instantly access appropriate or relevant Company-wide information,
including actual and budgeted sales by store, district and region, transaction
information and payroll data. The Company believes its management information
systems are adequate to support its planned expansion at least through fiscal
2003.

7



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Competition

The retail apparel, footwear and accessory business is highly competitive.
PacSun stores, PacSun Outlets and d.e.m.o. stores compete on a national level
with certain leading department stores and national chains that offer the same
or similar brands and styles of merchandise. The Companys stores also compete
with a wide variety of regional and local specialty stores, such as Abercrombie
and Fitch, American Eagle Outfitters, The Gap, Old Navy, Wet Seal and Hot
Topic. Many of the Companys competitors are larger and have significantly
greater resources than the Company. The Company believes the principal
competitive factors in its industry are fashion, merchandise assortment,
quality, price, store location, environment and customer service.

Trademarks and Service Marks

The Company is the owner in the United States of the marks Pacific Sunwear of
California, PacSun, Pacific Sunwear, and d.e.m.o. The Company also uses
and has registered, or has a pending registration on, a number of other marks.
The Company has also registered many of its marks outside of the United States.
The Company believes its rights in its marks are important to its business and
intends to maintain its marks and the related registrations.

Employees

At February 1, 2003, the Company had approximately 9,400 employees, of whom
approximately 6,500 were part-time. Of the total employees, approximately 400
were employed at the Companys corporate headquarters and distribution center.
A significant number of seasonal employees are hired during peak selling
periods. None of the Companys employees is represented by a labor union, and
the Company believes that its relationships with its employees are good.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the names, ages and titles of persons serving as executive
officers of the Company as of March 24, 2003:

|                   |  |     |    |          |  |                                                  
|------------------ |  | --- | -- | -------- |  | -------------------------------------------------
|Executive Officers |  | Age |    | Position
|                   |  |     |    |         
|Greg H. Weaver     |  |     | 49 |          |  | Chairman of the
Board and Chief Executive Officer
|Timothy M. Harmon  |  |     | 51 |          |  | President and Chief Merchandising Officer        
|Carl W. Womack     |  |     | 51 |          |  | Senior Vice President, Chief Financial Officer   
|                   |  |     |    |          |  | and Secretary                                    

Set forth below is certain information with respect to the executive officers
of the Company:

Greg H. Weaver, who joined the Company in July 1987, has served as
Chairman of the Board and Chief Executive Officer since November 1997. He
served as President and Chief Executive Officer from October 1996 to November
1997 and as a director since February 1996. Prior to October 1996, Mr. Weaver
served in various senior level executive positions since joining the Company.
Prior to joining the Company, he was employed for 13 years by Jaeger Sportswear
Ltd. in both operational and merchandising capacities for the U.S. and Canadian
stores.

Timothy M. Harmon,who joined the Company in September 1991, has served as
President and Chief Merchandising Officer from November 1997. Prior to
November 1997, he served in various senior level executive merchandising
positions since joining the Company. Prior to joining the Company, Mr. Harmon
served in various merchandising positions at Wideworld/MTV Sportswear, a
domestic apparel

8



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##### Table of Contents



manufacturer, Chauvin International, an import apparel
manufacturer, Anchor Blue, a teen apparel retailer, and Federated Department
Stores.

Carl W. Womack,who joined the Company in May 1986, has served as Senior
Vice President and Chief Financial Officer since October 1994. He served as
Vice President of Finance and Chief Financial Officer from May 1986 to
September 1994. He has served as Secretary of the Company since November 1992.
Prior to joining the Company, Mr. Womack served in several positions in public
and private accounting. Mr. Womack is a certified public accountant.




ITEM 2. PROPERTIES

In January 2002, the Company completed construction of and relocated to
its current corporate office and distribution center located in Anaheim,
California. The Companys facilities encompass approximately 550,000 square
feet. The Company believes the current facilities are capable of servicing at
least 1,200 stores.

The Company continues to lease its former facilities of approximately 267,000
square feet under two separate leases. The Company has exercised its option to
terminate the smaller of the two leases, covering approximately 91,000 square
feet, effective July 31, 2003. The remaining lease, which encompasses
approximately 176,000 square feet, expires in February 2008. The Company is
currently seeking a tenant to sublease the remaining square footage of its
former facilities for the remainder of the lease (see note 10 to the
consolidated financial statements).

The majority of the Companys stores are leased with initial lease terms
ranging from approximately eight to ten years. Substantially all leases for
the Companys stores provide for percentage rent, in excess of specified
minimums, based upon net sales.




ITEM 3. LEGAL PROCEEDINGS

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

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

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




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Companys shareholders during
the fourth quarter of the fiscal year covered by this report.

9



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##### Table of Contents






PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Companys common stock trades on the NASDAQ National Market under the
symbol PSUN. The following table sets forth for the quarterly periods
indicated the high and low bid prices per share of the common stock as reported
by NASDAQ (as adjusted to reflect the Companys 3-for-2 stock split in December
2002):

|            |  |      |       |     |  |             |       |      |  |             |  |   |       |  |  |   |       | 
|----------- |  | ---- | ----- | --- |  | ----------- | ----- | ---- |  | ----------- |  | - | ----- |  |  | - | ----- | 
|Fiscal 2002 |  | High |       | Low |  | Fiscal 2001 |       | High |  | Low        
|            |  |      |       |     |  |             |       |      |  |            
|1st Quarter |  | $    | 17.87 |     |  | $           | 13.38 |      |  | 1st Quarter |  | $ | 23.92 |  |  | $ | 13.33 | 
|2nd Quarter |  |      | 16.57 |     |  | $           | 10.81 |      |  | 2nd Quarter |  | $ | 17.37 |  |  | $ | 11.91 | 
|3rd Quarter |  |      | 16.79 |     |  | $           | 10.82 |      |  | 3rd Quarter |  | $ | 12.69 |  |  | $ | 7.63  | 
|4th Quarter |  |      | 20.11 |     |  | $           | 15.23 |      |  | 4th Quarter |  | $ | 16.21 |  |  | $ | 10.03 | 

As of March 24, 2003, the number of holders of record of common stock of
the Company was approximately 300, and the number of beneficial holders of the
common stock was in excess of 5,500.

The Company has never declared or paid any dividends on its common stock
and does not intend to pay any dividends on its common stock in the foreseeable
future. In addition, the Companys current credit facility prohibits the
payment of cash dividends on its capital stock.




ITEM 6. SELECTED FINANCIAL DATA

The selected balance sheet and income statement data as of February 1,
2003, and February 2, 2002, and for each of the three fiscal years in the period
ended February 1, 2003, are derived from audited consolidated financial
statements of the Company included herein and should be read in conjunction
with such financial statements. Such data and the selected consolidated
operating data below should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations
included in this report. The consolidated balance sheet data as of
February 4,
2001 (fiscal 2000), January 30, 2000, and January 31, 1999, and the
consolidated income statement data for each of the two fiscal years in the
period ended January 30, 2000, are derived from audited consolidated financial
statements of the Company, which are not included herein.

10



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|                                                                        |  |                                                              |           |         |  |         |           |          |  |          |           |   |  |   |           |   |  |   |         |  
|----------------------------------------------------------------------- |  | ------------------------------------------------------------ | --------- | ------- |  | ------- | --------- | -------- |  | -------- | --------- | - |  | - | --------- | - |  | - | ------- | -
|                                                                        |  | Fiscal Year Ended (1)                                       
|                                                                        |  |                                                             
|                                                                        |  | Feb. 1,                                                      |           | Feb. 2, |  | Feb. 4, |           | Jan. 30, |  | Jan. 31,
|                                                                        |  | 2003                                                         |           | 2002    |  | 2001    |           | 2000     |  | 1999    
|                                                                        |  |                                                              |           |         |  |         |           |          |  |         
|                                                                        |  | (in thousands, except per share and selected operating data)
|Consolidated Income Statement Data:                                     |  |                                                              |           |         |  |         |           |          |  |          |           |   |  |   |           |   |  |   |         |  
|Net sales                                                               |  | $                                                            | 846,393   |         |  | $       | 684,840   |          |  | $        | 589,438   |   |  | $ | 436,808   |   |  | $ | 321,125 |  
|Cost of goods sold (including buying,
distribution and occupancy costs) |  |                                                              | 562,710   |         |  |         | 464,660   |          |  |          | 391,816   |   |  |   | 284,187   |   |  |   | 212,859 |  
|                                                                        |  |                                                              |           |         |  |         |           |          |  |          |           |   |  |   |           |   |  |   |         |  
|Gross margin                                                            |  |                                                              | 283,683   |         |  |         | 220,180   |          |  |          | 197,622   |   |  |   | 152,621   |   |  |   | 108,266 |  
|Selling, general and administrative expenses                            |  |                                                              | 202,445   |         |  |         | 175,898   |          |  |          | 133,999   |   |  |   | 96,117    |   |  |   | 70,369  |  
|                                                                        |  |                                                              |           |         |  |         |           |          |  |          |           |   |  |   |           |   |  |   |         |  
|Operating income                                                        |  |                                                              | 81,238    |         |  |         | 44,282    |          |  |          | 63,623    |   |  |   | 56,504    |   |  |   | 37,897  |  
|Net interest expense/(income)                                           |  |                                                              | 594       |         |  |         | (470      | )        |  |          | (1,344    | ) |  |   | (916      | ) |  |   | (977    | )
|                                                                        |  |                                                              |           |         |  |         |           |          |  |          |           |   |  |   |           |   |  |   |         |  
|Income before income tax expense                                        |  |                                                              | 80,644    |         |  |         | 44,752    |          |  |          | 64,967    |   |  |   | 57,420    |   |  |   | 38,874  |  
|Income tax expense                                                      |  |                                                              | 30,967    |         |  |         | 17,186    |          |  |          | 25,213    |   |  |   | 22,119    |   |  |   | 15,369  |  
|                                                                        |  |                                                              |           |         |  |         |           |          |  |          |           |   |  |   |           |   |  |   |         |  
|Net income                                                              |  | $                                                            | 49,677    |         |  | $       | 27,566    |          |  | $        | 39,754    |   |  | $ | 35,301    |   |  | $ | 23,505  |  
|                                                                        |  |                                                              |           |         |  |         |           |          |  |          |           |   |  |   |           |   |  |   |         |  
|Net income per share, diluted (2)                                       |  | $                                                            | 0.99      |         |  | $       | 0.56      |          |  | $        | 0.81      |   |  | $ | 0.73      |   |  | $ | 0.49    |  
|                                                                        |  |                                                              |           |         |  |         |           |          |  |          |           |   |  |   |           |   |  |   |         |  
|Weighted average shares outstanding, diluted (2)                        |  |                                                              | 50,098    |         |  |         | 49,659    |          |  |          | 48,822    |   |  |   | 48,285    |   |  |   | 48,350  |  
|                                                                        |  |                                                              |           |         |  |         |           |          |  |          |           |   |  |   |           |   |  |   |         |  
|Selected Consolidated Operating Data:                                   |  |                                                              |           |         |  |         |           |          |  |          |           |   |  |   |           |   |  |   |         |  
|Stores open at end of period                                            |  |                                                              | 791       |         |  |         | 718       |          |  |          | 589       |   |  |   | 450       |   |  |   | 342     |  
|Stores opened during period                                             |  |                                                              | 85        |         |  |         | 135       |          |  |          | 142       |   |  |   | 111       |   |  |   | 74      |  
|Stores closed during period                                             |  |                                                              | 12        |         |  |         | 6         |          |  |          | 3         |   |  |   | 3         |   |  |   | 4       |  
|Capital expenditures (000s)                                            |  | $                                                            | 40,423    |         |  | $       | 92,936    |          |  | $        | 61,869    |   |  | $ | 40,219    |   |  | $ | 31,603  |  
|Average net sales per gross square foot (3) (4)                         |  | $                                                            | 330       |         |  | $       | 321       |          |  | $        | 368       |   |  | $ | 398       |   |  | $ | 403     |  
|Average net sales per store (000s) (3) (4)                             |  | $                                                            | 1,102     |         |  | $       | 1,031     |          |  | $        | 1,082     |   |  | $ | 1,084     |   |  | $ | 1,034   |  
|Square footage of gross store space                                     |  |                                                              | 2,647,343 |         |  |         | 2,319,149 |          |  |          | 1,764,123 |   |  |   | 1,254,373 |   |  |   | 888,507 |  
|Comparable store net sales increase/
(decrease) (4) (5)                 |  |                                                              | 9.7       | %       |  |         | (2.5      | )%       |  |          | 3.5       | % |  |   | 7.8       | % |  |   | 8.6     | %
|Consolidated Balance Sheet Data:                                        |  |                                                              |           |         |  |         |           |          |  |          |           |   |  |   |           |   |  |   |         |  
|Working capital                                                         |  | $                                                            | 109,305   |         |  | $       | 78,899    |          |  | $        | 79,799    |   |  | $ | 67,351    |   |  | $ | 47,545  |  
|Total assets                                                            |  |                                                              | 399,743   |         |  |         | 355,440   |          |  |          | 277,453   |   |  |   | 209,342   |   |  |   | 147,775 |  
|Long-term debt                                                          |  |                                                              | 1,102     |         |  |         | 24,597    |          |  |          |          |   |  |   |          |   |  |   |        |  
|Shareholders equity                                                    |  | $                                                            | 302,391   |         |  | $       | 247,955   |          |  | $        | 213,131   |   |  | $ | 161,826   |   |  | $ | 116,697 |  



---

|(1) |  | Except for the fiscal year ended February 4, 2001, which included 53
weeks, all fiscal years presented included 52 weeks. Effective February
1, 2002, the Company changed its fiscal year end from the Sunday closest
to the end of January to the Saturday closest to the end of January. As a
result, the last day of fiscal 2001 was Saturday, February 2, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Adjusted to give effect to the three-for-two stock splits effected as of
December 18, 2002, June 8, 1999, and June 8, 1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(3) |  | For purposes of calculating these amounts, the number of stores and the
amount of square footage reflect the number of months during the period
that new stores and closed stores were open.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(4) |  | These amounts have been adjusted to exclude the fifty-third week in the
fiscal year ended February 4, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(5) |  | Stores are deemed comparable stores on the first day of the first month
following the one-year anniversary of their opening. In conjunction with
the expansion or relocation of certain stores to a larger format with a
square footage increase of 15% or more, the Company excludes each such
stores net sales results from the first day of the month of its expansion
or relocation. Each of these stores is deemed a comparable store on the
first day of the first month following the one-year anniversary of its
expansion or relocation. In conjunction with the conversion of certain
PacSun stores to the d.e.m.o. format, the Company excludes each such
stores net sales results from the first day of the month of its
conversion. Each of these stores is deemed a comparable store on the
first day of the first month following the one-year anniversary of its
conversion to the d.e.m.o. format.

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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of the Company included
elsewhere in this Form 10-K. The following Managements Discussion and
Analysis of Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties. The Companys
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under Cautionary Note Regarding Forward-Looking Statements and Risk
Factors in this section.

Critical Accounting Policies

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

Revenue Recognition- Sales are recognized upon purchase by customers at the
Companys retail store locations or through the Companys website. The Company
has recorded reserves of $.5 million 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. An impairment is assessed when the undiscounted expected
future cash flows derived from an asset or asset group are less than its carrying amount.
Impairments are recognized in operating earnings. The Company uses its best
judgment based on the most current facts and circumstances surrounding its
business when applying these impairment rules to determine the timing of the
impairment test, the undiscounted cash flows used to assess impairments, and
the fair value of a potentially impaired asset. Changes in assumptions used
could have a significant impact on the Companys assessment of recoverability.
Numerous factors, including changes in the Companys business, industry
segment, and global economy, could significantly impact managements decision
to retain, dispose of, or idle certain of its long-lived assets.

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

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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, 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.

Corporate Rent Reserve- During fiscal 2001, the Company recorded a $1.4
million charge to accrue for rent expense associated with the Companys former
corporate offices, which remain unused at the end of fiscal 2002. The current
accrual at March 24, 2003 of $1.3 million is approximately the amount of rent
expense for one year, within which time the Company currently believes a tenant
will be identified to sublease the premises. To the extent managements
estimate relating to the Companys ability to sublease these premises within
one year changes, additional charges may be recorded in the future up to the
net remaining obligation under the lease depending on the facts and
circumstances in existence at the time. As of February 1, 2003, the aggregate
net remaining obligation under this lease was approximately $6.7 million.

Litigation- The Company is involved from time to time in litigation incidental
to its business. Management believes that the outcome of current litigation
will not have a material adverse effect upon the results of operations or
financial condition of the Company and, from time to time, may make provisions
for potential litigation losses. Depending on the actual outcome of pending
litigation, charges in excess of any provisions could be recorded in the future
that may have an adverse effect on the Companys operating results (see Note 7
to the 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 fiscal years indicated.
The discussion that follows should be read in conjunction with the table below:

|                                                                        |  |                               |       |         |  |         |       |   |  |  |       |  
|----------------------------------------------------------------------- |  | ----------------------------- | ----- | ------- |  | ------- | ----- | - |  |  | ----- | -
|                                                                        |  | As a Percentage of Net Sales,
|                                                                        |  | Fiscal Year Ended            
|                                                                        |  |                              
|                                                                        |  | Feb. 1,                       |       | Feb. 2, |  | Feb. 4,
|                                                                        |  | 2003                          |       | 2002    |  | 2001   
|                                                                        |  |                               |       |         |  |        
|Net sales                                                               |  |                               | 100.0 | %       |  |         | 100.0 | % |  |  | 100.0 | %
|Cost of goods sold (including buying, distribution
and occupancy costs) |  |                               | 66.5  |         |  |         | 67.8  |   |  |  | 66.5  |  
|                                                                        |  |                               |       |         |  |         |       |   |  |  |       |  
|Gross margin                                                            |  |                               | 33.5  |         |  |         | 32.2  |   |  |  | 33.5  |  
|Selling, general and administrative expenses                            |  |                               | 23.9  |         |  |         | 25.7  |   |  |  | 22.7  |  
|                                                                        |  |                               |       |         |  |         |       |   |  |  |       |  
|Operating income                                                        |  |                               | 9.6   |         |  |         | 6.5   |   |  |  | 10.8  |  
|Interest expense/(income), net                                          |  |                               | 0.1   |         |  |         | (0.1  | ) |  |  | (0.2  | )
|                                                                        |  |                               |       |         |  |         |       |   |  |  |       |  
|Income before income tax expense                                        |  |                               | 9.5   |         |  |         | 6.6   |   |  |  | 11.0  |  
|Income tax expense                                                      |  |                               | 3.6   |         |  |         | 2.6   |   |  |  | 4.3   |  
|                                                                        |  |                               |       |         |  |         |       |   |  |  |       |  
|Net income                                                              |  |                               | 5.9   | %       |  |         | 4.0   | % |  |  | 6.7   | %
|                                                                        |  |                               |       |         |  |         |       |   |  |  |       |  
|Number of stores open at end of period                                  |  |                               | 791   |         |  |         | 718   |   |  |  | 589   |  

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Fiscal 2002 Compared to Fiscal 2001

Net Sales

Net sales increased to $846.4 million in fiscal 2002 from $684.8 million
in fiscal 2001, an increase of $161.6 million, or 23.6%. Of this $161.6
million increase, $61.0 million was attributable to a 9.7% increase in
comparable store net sales in fiscal 2002 compared to the comparable 52-week period ended February 2, 2002, $50.6 million was attributable to net sales
generated by 85 new stores opened in fiscal 2002 not yet included in the
comparable store base, $40.9 million was attributable to net sales generated by
new stores opened in fiscal 2001 not yet included in the comparable store base,
$13.7 million was attributable to other non-comparable store sales, and $1.4
million was due to the change in the Companys fiscal year end from the Sunday
closest to the end of January to the Saturday closest to the end of January
effective for fiscal 2001, which resulted in an additional shopping day in
fiscal 2002 as compared to fiscal 2001. Offsetting these increases was a $6.0
million decrease in net sales attributable to the closing of twelve stores
during fiscal 2002 and six stores during fiscal 2001. Other non-comparable
sales consist 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 9.7% increase in comparable store net sales in fiscal 2002,
PacSun and PacSun Outlet comparable store net sales increased 9.4% and d.e.m.o.
comparable store net sales increased 12.4%. The increase in comparable store
net sales within PacSun and PacSun Outlet was primarily attributable to
increases in comparable store net sales of footwear, juniors, and accessories.
The increase in comparable store net sales within d.e.m.o. was primarily
attributable to increases in comparable store net sales of juniors and
accessories 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. Average retail prices of merchandise sold remained
relatively unchanged in fiscal 2002 compared to fiscal 2001 and had no
significant impact on the net sales increase for fiscal 2002.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, increased to
$283.7 million in fiscal 2002 from $220.2 million in fiscal 2001, an increase
of $63.5 million, or 28.8%. As a percentage of net sales, gross margin was
33.5% for fiscal 2002 compared to 32.2% for fiscal 2001. Of this 1.3%
increase, occupancy costs and buying costs each decreased by .4% as a
percentage of net sales compared to fiscal 2001, primarily due to leveraging
these costs over higher total sales, distribution costs as a percentage of net
sales decreased .3% due to freight and labor efficiencies in the new
distribution center as well as leveraging these costs over higher total sales,
and .2% was due to an increase in net merchandise margins as a percentage of
sales, primarily 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 $202.4 million
in fiscal 2002 from $175.9 million in fiscal 2001, an increase of $26.5
million, or 15.1%. As a percentage of net sales, these expenses decreased to
23.9% from 25.7%. Of this 1.8% net decrease, .8% was attributable to decreased
advertising expenses as a percentage of net sales, primarily due to the
elimination of television advertising and a sports game sponsorship in fiscal
2002, .6% was due to a decrease in store closing expenses as a percentage of
net sales, and .4% was attributable to a decrease in store payroll expenses as
a percentage of net sales, primarily due to the operating leverage associated
with a 9.7% increase in comparable store net sales. Selling, general and administrative expenses include provisions made by the Company for the wage and hour litigation pending against the
Company (see Item 3. Legal Proceedings and Note 7 to the consolidated financial statements).

Net Interest Expense/Income

Net interest expense was $.6 million in fiscal 2002 compared to interest
income of $.5 million in fiscal 2001, a decrease of $1.1 million. This
decrease was primarily the result of interest expense arising from a
construction loan related to the construction of the Companys new corporate
offices and distribution center in fiscal 2002 as well as lower average cash
balances during fiscal 2002 as compared to fiscal 2001.

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Income Tax Expense

Income tax expense was $31.0 million in fiscal 2002 compared to $17.2
million in fiscal 2001. The effective income tax rate in fiscal 2002 and
fiscal 2001 was 38.4%.

Fiscal 2001 Compared to Fiscal 2000

Net Sales

Net sales increased to $684.8 million in fiscal 2001 from $589.4 million
in fiscal 2000, an increase of $95.4 million, or 16.2%. Of this $95.4 million
increase, $69.9 million was attributable to net sales generated by 135 new
stores opened in fiscal 2001 not yet included in the comparable store base,
$40.2 million was attributable to net sales generated by new stores opened in
fiscal 2000 not yet included in the comparable store base and $8.3 million was
attributable to other non-comparable store sales. Offsetting these increases
was a $13.0 million decrease in net sales attributable to a 2.5% decrease in
comparable store net sales in fiscal 2001 compared to the comparable 52-week period ended February 3, 2001, a $6.1 million decrease in net sales
attributable to the one less week in fiscal 2001 (fiscal 2001 had 52 weeks and fiscal 2000 had 53 weeks), a $2.5 million decrease in net
sales attributable to the closing of six stores during fiscal 2001 and three
stores during fiscal 2000 and a $1.4 million decrease due to the change in the
Companys fiscal year end from the Sunday closest to the end of January to the
Saturday closest to the end of January effective for fiscal 2001. Other
non-comparable sales consist 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 2.5% decrease in comparable store
net sales in fiscal 2001, PacSun and PacSun Outlet comparable store net sales
decreased 2.8% and d.e.m.o. comparable store net sales increased 1.6%. Stores
are deemed comparable stores on the first day of the first month following the
one-year anniversary of their opening or expansion/relocation. Average retail
prices of merchandise sold remained relatively unchanged in fiscal 2001
compared to fiscal 2000 and had no significant impact on the net sales increase
for fiscal 2001.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, increased to
$220.2 million in fiscal 2001 from $197.6 million in fiscal 2000, an increase
of $22.6 million, or 11.4%. As a percentage of net sales, gross margin was
32.2% for fiscal 2001 compared to 33.5% for fiscal 2000. Of this 1.3%
decrease, occupancy costs for fiscal 2001 increased 1.4% as a percentage of net
sales compared to fiscal 2000, primarily due to the 2.5% decrease in comparable
store net sales in fiscal 2001 as well as opening 135 new stores in fiscal
2001. Occupancy costs as a percentage of net sales for new stores are
generally higher than for mature stores. Offsetting this increase was a .1%
decrease in buying and distribution costs as a percentage of net sales in
fiscal 2001 compared to fiscal 2000.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $175.9 million
in fiscal 2001 from $134.0 million in fiscal 2000, an increase of $41.9
million, or 31.3%. As a percentage of net sales, these expenses increased to
25.7% from 22.7%. Of this 3.0% net increase, 1.6% was due to an increase in
store payroll and other store selling expenses, primarily as a result of lower
comparable store net sales as well as opening 135 new stores in fiscal 2001.
Store payroll and other store selling expenses as a percentage of net sales for
new stores are generally higher than for mature stores. In addition, .6% was
due to the one-time non-cash charge of $4.2 million related to the disposal of
most of the materials handling equipment in the Companys former distribution
center. Of the remaining increase of .8%, .3% was due to an increase in
general and administrative expenses, .2% was due to an increase in store
closing expenses, .2% was due to the Companys charge to accrue for rent
expense for the Companys former corporate office and distribution center that
became unused when the Company moved into its new corporate office and
distribution center at the end of fiscal 2001 and .1% was due to an increase in
advertising expenses.

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Net Interest Income

Net interest income was $.5 million in fiscal 2001 compared to $1.3 million in
fiscal 2000, a decrease of $.8 million. This decrease was primarily the result
of lower average cash balances and lower interest rates during fiscal 2001 as
compared to fiscal 2000.

Income Tax Expense

Income tax expense was $17.2 million in fiscal 2001 compared to $25.2 million
in fiscal 2000. The effective income tax rate in fiscal 2001 was 38.4%
compared to 38.8% in fiscal 2000.

Liquidity and Capital Resources

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

Net cash provided by operating activities for fiscal 2002, fiscal 2001 and
fiscal 2000 was $76.6 million, $58.4 million and $52.0 million, respectively.
The $18.2 million increase in cash provided by operations in fiscal 2002 as
compared to fiscal 2001 was attributable to an increase in net income of $22.1
million, an increase in accrued liabilities of $12.3 million, and an increase
in depreciation and amortization of $5.3 million. Offsetting these increases
were a $14.9 million decrease in accounts payable, a $3.2 million decrease in
losses on fixed asset disposals, a $3.0 million decrease in accrued income
taxes and deferred income taxes, and other items netting to a decrease of $.4
million. Working capital at the end of fiscal 2002, fiscal 2001 and fiscal
2000 was $109.3 million, $78.9 million and $79.8 million, respectively. The
$30.4 million increase in working capital at February 1, 2003, as compared to
February 2, 2002, was attributable to an increase in inventories of $20.9
million, an increase in cash of $13.3 million, a decrease in accounts payable
of $9.0 million, and other items netting to an increase of $4.0 million.
Offsetting these increases in working capital was a $16.8 million increase in
accrued liabilities. 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. The increase in inventories at February 1, 2003,
was primarily related to the 9.7% comparable store net sales increase as well
as opening 85 new stores and expanding/relocating 30 stores that have in excess
of 50% larger average square footage than their previous locations. The
decrease in accounts payable of $9.0 million at February 1, 2003, as compared to
February 2, 2002, was primarily attributable to increased efficiencies in the
Companys new distribution center in fiscal 2002 as compared to fiscal 2001
when the Company started up operations in its new distribution center which
delayed payments in some cases. Accounts payable as a percentage of inventory
decreased to 23.1% at February 1, 2003, as compared to 36.6% at February 2,
2002. The increase in accrued liabilities of $16.8 million at February 1, 2003,
as compared to February 2, 2002, was primarily attributable to increased payroll
and bonus accruals.

Net cash used in investing activities in fiscal 2002, fiscal 2001 and
fiscal 2000 was $40.4 million, $92.9 million and $61.9 million, respectively,
which was used for investment in property and equipment. Of the $40.4 million
of net cash used for investment in property and equipment in fiscal 2002, $29.4
million was used for 85 new stores and 30 expansions/relocations opened in
fiscal 2002, $4.4 million was used for the initial construction costs of new
stores and expansions/relocations to be opened in fiscal 2003, $4.4 million was
used for maintenance capital expenditures on existing stores, and $2.2 million
was used for other capital expenditures including computer hardware and
software. Property and equipment expenditures were significantly lower in
fiscal 2002 as compared to fiscal 2001, primarily due to the Companys
construction of its new corporate facilities during fiscal 2001.

Net cash used in financing activities in fiscal 2002 was $22.9 million as
compared to cash provided by financing activities in fiscal 2001 and fiscal
2000 of $28.7 million and $6.4 million, respectively. Of the $22.9 million of
net cash used in financing activities in fiscal 2002, $25.5 million was due to
the repayment

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of the Companys construction loan and $.8 million was due to
principal payments under capital lease obligations, offset by $3.4 million in
proceeds received from the exercise of stock options.

The Company has a credit facility with a bank, which expires March 31,
2004. The credit facility provides for a $45.0 million line of credit (the
Credit Line) to be used for cash advances, commercial letters of credit and
shipside bonds, and an additional $25.0 million line of credit (the
Construction Facility) which was used to finance the construction of the
Companys current corporate office and distribution center. On August 30,
2002, the Company repaid the outstanding balance of $25.0 million related to
the Construction Facility using available cash
generated from operations. Interest on the Credit Line is payable monthly at
the banks prime rate (4.25% at February 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s weighted average interest rate on its
outstanding borrowings was 3.67% at February 1, 2003. At February 1, 2003, the
Company had no borrowings outstanding under the Credit Line and $10.3 million
outstanding in letters of credit. 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 February
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s financial obligations
under these arrangements are approximately $76 million in fiscal 2003 and
similar amounts thereafter. 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 $10.3 million of open letters of credit outstanding as
of February 1, 2003. As of February 1, 2003, the Companys future financial
commitments under these arrangements are as follows:

|                            |  |                        |       |      |  |             |      |       |  |         |       |           |  |   |       |  |  |   |       | 
|--------------------------- |  | ---------------------- | ----- | ---- |  | ----------- | ---- | ----- |  | ------- | ----- | --------- |  | - | ----- |  |  | - | ----- | 
|                            |  | Payments Due by Period
|                            |  |                       
|Contractual Obligations     |  |                        |       |      |  | Less than 1 |      | 1-3   |  | 3-5     |       | More than
|(in millions)               |  | Total                  |       | year |  | years       |      | years |  | 5 years
|                            |  |                        |       |      |  |             |      |       |  |        
|Operating lease obligations |  | $                      | 583.7 |      |  | $           | 73.2 |       |  | $       | 146.8 |           |  | $ | 147.0 |  |  | $ | 216.7 | 
|Capital lease obligations   |  |                        | 4.0   |      |  |             | 1.7  |       |  |         | 2.1   |           |  |   | 0.2   |  |  |   |      | 
|Long-term debt obligations  |  |                        | 2.1   |      |  |             | 0.9  |       |  |         | 1.2   |           |  |   |      |  |  |   |      | 
|Letters of credit           |  |                        | 10.3  |      |  |             | 10.3 |       |  |         |      |           |  |   |      |  |  |   |      | 
|                            |  |                        |       |      |  |             |      |       |  |         |       |           |  |   |       |  |  |   |       | 
|Total                       |  | $                      | 600.1 |      |  | $           | 86.1 |       |  | $       | 150.1 |           |  | $ | 147.2 |  |  | $ | 216.7 | 

The Companys average cost to build a new store in fiscal 2002, including
leasehold improvements, furniture and fixtures and landlord allowances, was
approximately $285,000 for PacSun stores, approximately $210,000 for PacSun
Outlet stores, and approximately $225,000 for d.e.m.o. stores. The average
cost of expanding or relocating a PacSun store was approximately $430,000 and
approximately $360,000 in fiscal 2002 and fiscal 2001, respectively. The
average total cost to build new stores and relocate or expand stores will vary
in the future, depending on various factors, including square footage, changes
in store design, local construction costs and landlord allowances. The
Companys average initial inventory, at cost, for new stores opened in fiscal
2002 was approximately $118,000 for PacSun stores, approximately $150,000 for
PacSun Outlet stores and approximately $77,000 for d.e.m.o. stores. The
Companys initial inventory for new stores will vary in the future depending on
various factors, including store concept and square footage.

During fiscal 2003, the Company plans to open approximately 75 net new
stores, of which approximately 61 will be PacSun stores, approximately four
will be PacSun Outlet stores and approximately ten will be d.e.m.o. stores.
The Company also plans to expand or relocate approximately 30 existing smaller
PacSun stores. In fiscal 2003, capital expenditures are expected to be
approximately $46 million, of which approximately $41 million will be for
opening approximately 75 net new stores and for approximately 30
expansions/relocations, and approximately $5 million will be used for other
capital expenditures including maintenance capital on existing stores and
computer hardware and software.

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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 eleven stores in fiscal
2003.

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

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

A significant decrease in the Companys operating results could adversely
affect the Companys ability to maintain required financial ratios under the
Companys credit facility. Required financial ratios include total liabilities
to tangible net worth ratio, limitations on capital expenditures and
achievement of certain rolling four-quarter EBITDA requirements. If these
financial ratios are not maintained, the bank will have the option to require
immediate repayment of all amounts outstanding under the credit facility. The
most likely result would require the Company to either renegotiate certain
terms of the credit agreement, obtain a waiver from the bank, or obtain a new
credit agreement with another bank, which may contain different terms. As of
February 1, 2003, the Company had no borrowings outstanding under its credit
facility.

New Accounting Pronouncements

Goodwill and Other Intangible Assets  On February 3, 2002, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Intangible Assets, which revises the
accounting for purchased goodwill and intangible assets. Under SFAS No. 142,
goodwill and intangible assets with indefinite lives are no longer amortized
but are tested for impairment annually and also in the event of an impairment
indicator. The Company completed the required transitional impairment test and
the annual test and determined that no impairment existed. Any subsequent
impairment losses will be reflected in operating income. With the adoption of
SFAS No. 142, the Company discontinued amortization of goodwill. Had
amortization of goodwill not been recorded in fiscal 2001 and fiscal 2000, net
income would have increased by $.2 million in each fiscal year, net of taxes,
and diluted earnings per share would have increased by $.01 in fiscal 2000 due
to rounding.

Accounting for the Impairment or Disposal of Long-Lived Assets  In August
2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, which supersedes previous guidance on financial
accounting and reporting for the impairment or disposal of long-lived assets
and for segments of a business to be disposed of. The Company adopted SFAS No.
144 effective February 3, 2002. Upon adoption of SFAS No. 144, the Company
reviewed long-lived assets and determined that no impairment existed. Under
SFAS No. 144, long-lived assets, including amortizing intangible assets, will
be tested for impairment whenever events or changes in circumstances indicate
that the carrying value of such assets may not be recoverable.

Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections  In April 2002, the FASB issued SFAS No.
145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. SFAS No. 145 amended certain
provisions of SFAS No. 13 and requires the fair value recognition of guarantee
obligations under which the Company may become secondarily liable. The Company
adopted SFAS No. 145 during fiscal 2002. The adoption of SFAS No. 145 resulted
in the recognition of a $.5 million liability related to the

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Companys
guarantee of an assignees performance under a lease obligation (see Note 7 to
the consolidated financial statements).

Accounting for Costs Associated with Exit or Disposal Activities  In June,
2002 the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities, which addresses financial accounting and reporting for
costs associated with exit or disposal activities and supersedes Emerging
Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under Issue 94-3, a liability for an exit cost
as defined in EITF Issue 94-3 was recognized at the date of an entitys commitment to
an exit plan. SFAS No. 146 also establishes that the liability should
initially be measured and recorded at fair value. The Company will adopt the
provisions of SFAS No. 146 for exit or disposal activities that are initiated
after December 31, 2002.

Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others  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
Company adopted the disclosure provisions of FIN 45 during fiscal 2002. The
Company is currently evaluating the
recognition provisions of FIN 45 but expects that they will not have a material
adverse impact on the Companys financial position or results of operations
upon adoption.

Accounting for Stock-Based
Compensation - Transition and Disclosure - an
amendment of FASB Statement No. 123  In December 2002, the FASB issued
SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure. SFAS
No. 148 amends
SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods for voluntary transition to SFAS No.123s fair value
method of accounting for stock-based employee compensation (the fair value
method). SFAS No. 148 also requires disclosure of the effects of an entitys
accounting policy with respect to stock-based employee compensation on reported
net income (loss) and earnings (loss) per share in annual and interim
financials statements. The Company is required to follow the prescribed
disclosure format and has provided the additional disclosures required by SFAS
No. 148 for the year ended February 1, 2003 (see Notes 1 and 9) and must also
provide the disclosures in its quarterly reports containing condensed financial
statements for interim periods beginning with the quarterly period ending May
3, 2003.

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

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Inflation

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

Seasonality and Quarterly Results

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

Cautionary Note Regarding Forward-Looking Statements and Risk Factors

This report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
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. See Item 1.
Business - Merchandising.

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. See Item 1. Business - Merchandising.

20



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

Expansion and Management of Growth.PacSuns continued growth depends to a
significant degree on its ability to open and operate stores on a profitable
basis and on managements ability to manage the Companys planned expansion.
During fiscal 2003, the Company plans to open approximately 75 net new stores,
of which approximately 61 will be PacSun stores, approximately four will be
PacSun Outlet stores and approximately ten 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 nor that the Company will be able to
manage its growth effectively. Any failure to manage growth could have a
material adverse effect on the Companys business, financial condition and
results of operations.

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

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

Stores in the d.e.m.o. Format.Comparable store net sales results for d.e.m.o.
stores did not meet managements expectations during the first half of fiscal
2002 (+.9%) or during fiscal 2001 (+1.6%). Although comparable store net sales
results improved significantly for d.e.m.o. stores during the second half of
fiscal 2002, the Company is not certain that d.e.m.o. stores will achieve
acceptable levels of sales or profitability in the future. Negative comparable
store net sales results for d.e.m.o. stores may have a material adverse effect
on the Companys business, financial condition and results of operations and
may result in a greater number of store closings.

Internet Sales. The Companys internet operations are subject to numerous
risks, including unanticipated operating problems, reliance on third party
computer hardware and software providers, system failures and the need to
invest in additional computer systems. There can be no assurance that the
internet operations will achieve sales and profitability levels that justify
the Companys investment therein. The internet operations also involve other
risks that could have a material adverse effect on the Company, including (i)
difficulties with hiring, retention and training of key personnel to conduct
the Companys internet operations, (ii) diversion of sales from PacSun stores,
(iii) rapid technological change, (iv) liability for online content and (v)
risks related to the failure of the computer systems that operate the web site
and its related support systems, including computer viruses, telecommunication
failures and electronic break-ins and similar disruptions. In addition, the
internet operations involve risks which are beyond the Companys control that
could have a material adverse effect on the Company, including (i) price
competition involving

21



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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 Terrorist Attacks or War/Threat of War.The majority of the
Companys stores are located in regional shopping malls. In response to the
terrorist attacks of September 11, 2001, security has been heightened in public
areas. Any further threat of terrorist attacks 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. For
example, on September 11, 2001, a substantial number of the Companys stores
were closed early due to closure of the malls in response to the terrorist
attacks. Mall closures, as well as lower customer traffic due to security
concerns, could result in decreased sales. Additionally, war or the threat of
war could significantly diminish consumer spending, resulting in decreased
sales for the Company. Decreased sales would 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 and importing merchandise from abroad, such as: (i) political
instability; (ii) imposition of new legislation relating to import quotas that
may limit the quantity of goods which may be imported into the United States
from countries in a region that the Company does business; (iii) imposition of
duties, taxes, and other charges on imports; and (iv) local business practice
and political issues, including issues relating to compliance with domestic or
international labor standards which may result in adverse publicity. New
initiatives may be proposed that may have an impact on the trading status of
certain countries and may include retaliatory duties or other trade sanctions
which, if enacted, would increase the cost of products purchased from suppliers
in countries that the Company does business with. The inability of the Company
to rely on its foreign sources of production due to any of the factors listed
above could have a material adverse 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 either renegotiate certain terms of the credit
agreement, obtain a waiver from the bank, or obtain a new credit agreement with
another bank, which may contain different terms.

Stock Options.A number of publicly traded companies have recently announced
that they will begin expensing stock option grants to employees. In addition,
the FASB and 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 annual financial statements in
accordance with accounting principles generally accepted in the United States
of America but does not include stock option expenses in the Companys reported
financial statements. If accounting standards are changed to require the
Company to expense stock options, the Companys reported earnings will decrease
and its stock price could decline.

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

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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. See Item 5. Market for Registrants Common Equity and
Related Stockholder Matters.

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

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




ITEM 7A. 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 February 1,
2003, there were no borrowings outstanding under the Companys credit facility.
Based on the weighted average interest rate of 3.67% on the Companys credit
facility during the 52 weeks ended February 1, 2003, if interest rates
on the credit facility were to increase by 10%, and to the extent borrowings
were outstanding, for every $1,000,000 outstanding on the Companys credit
facility, net income would be reduced by approximately $3,000 per year. See
Summary of Significant Accounting Policies and Nature of Business. The
Company is not a party with respect to derivative financial instruments.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information with respect to this item is set forth in Index to Financial
Statements.




ITEM 9. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.




PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to this item is incorporated by reference from
the Registrants definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the Registrants fiscal year.

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ITEM 11. EXECUTIVE COMPENSATION

Information with respect to this item is incorporated by reference from the
Registrants definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the Registrants fiscal year.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information with respect to this item is incorporated by reference from the
Registrants definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the Registrants fiscal year.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to this item is incorporated by reference from
the Registrants definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the Registrants fiscal year.




ITEM 14. CONTROLS AND PROCEDURES

In the 90-day period before the filing of 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-14(c)
and 15d-14(c) under the Exchange Act). These disclosure controls and procedures
are designed to ensure that the information required to be disclosed by the
Company in its periodic reports filed with the Commission is recorded,
processed, summarized and reported within the time periods specified by the
Commissions rules and forms, and that the information is communicated to the
certifying officers on a timely basis.

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

No significant changes in the Companys internal controls or in other factors
were detected that could significantly affect the Companys internal controls
subsequent to the date when the internal controls were evaluated.




PART IV




ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

|    |    |                                                                                                                                                             
|--- | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | 1. | The financial statements listed in the Index to Consolidated Financial Statements at
page F-1 are filed as a part of this report.                         
|   
|    | 2. | Financial statement schedules are omitted because they are
not applicable or the required information is shown in the financial statements or notes thereto.
|   
|    | 3. | Exhibits included or incorporated herein:                                                                                                                   
|    |    | See Index to Exhibits.                                                                                                                                      
|   
|(b) |    | Reports on
Form 8-K - None.                                                                                                                                 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on March
27, 2003 on its behalf by the undersigned, thereunto duly authorized.

PACIFIC SUNWEAR OF CALIFORNIA, INC.

|    |  |                   
|--- |  | ------------------
|By: |  | /s/ GREG H. WEAVER
|    |  |                   

Greg H. Weaver
Chairman of the Board and
Chief Executive Officer


Each person whose signature appears below hereby authorizes Greg H. Weaver and
Carl W. Womack or either of them, as attorneys-in-fact to sign on his behalf,
individually, and in each capacity stated below and to file all amendments
and/or supplements to the Annual Report on Form 10-K.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

|          |                                |  |                                                                                             |  |               
|--------- | ------------------------------ |  | ------------------------------------------------------------------------------------------- |  | --------------
|Signature | Title                          |  | Date                                                                                       
|          |                                |  |                                                                                            
|/s/       | GREG H. WEAVER

Greg H. Weaver |  | Chairman of the Board and Chief
Executive Officer (Principal Executive
Officer)             |  | March 27, 2003
|          |                                |  |                                                                                             |  |               
|/s/       | CARL W. WOMACK

Carl W. Womack |  | Sr. Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer) |  | March 27, 2003
|          |                                |  |                                                                                             |  |               
|/s/       | JULIUS JENSEN III              |  | Director                                                                                    |  | March 27, 2003
|          |                                |  |                                                                                             |  |               
|          | Julius Jensen III              |  |                                                                                             |  |               
|          |                                |  |                                                                                             |  |               
|/s/       | PEARSON C. CUMMIN III          |  | Director                                                                                    |  | March 27, 2003
|          |                                |  |                                                                                             |  |               
|          | Pearson C. Cummin III          |  |                                                                                             |  |               
|          |                                |  |                                                                                             |  |               
|/s/       | PETER L. HARRIS                |  | Director                                                                                    |  | March 27, 2003
|          |                                |  |                                                                                             |  |               
|          | Peter L. Harris                |  |                                                                                             |  |               
|          |                                |  |                                                                                             |  |               
|/s/       | SALLY FRAME KASAKS             |  | Director                                                                                    |  | March 27, 2003
|          |                                |  |                                                                                             |  |               
|          | Sally Frame Kasaks             |  |                                                                                             |  |               
|          |                                |  |                                                                                             |  |               
|/s/       | PETER STARRETT                 |  | Director                                                                                    |  | March 27, 2003
|          |                                |  |                                                                                             |  |               
|          | Peter Starrett                 |  |                                                                                             |  |               
|          |                                |  |                                                                                             |  |               
|/s/       | THOMAS M. MURNANE              |  | Director                                                                                    |  | March 27, 2003
|          |                                |  |                                                                                             |  |               
|          | Thomas M. Murnane              |  |                                                                                             |  |               

25



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CERTIFICATIONS

I, Greg H. Weaver, certify that:

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

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

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

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
the Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):



| | a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 27, 2003

/s/ GREG H. WEAVER

Greg H. Weaver
Chairman of the Board and Chief Executive Officer

26



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I, Carl W. Womack, certify that:

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

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

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

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
the Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):



| | a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 27, 2003

/s/ CARL W. WOMACK

Carl W. Womack
Senior Vice President, Chief Financial Officer and Secretary

27



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##### Table of Contents



PACIFIC SUNWEAR OF CALIFORNIA, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED FEBRUARY 1, 2003, FEBRUARY 2, 2002, AND FEBRUARY 4, 2001:

CONSOLIDATED FINANCIAL STATEMENTS:

|                                                                                                                                   |  |     | 
|---------------------------------------------------------------------------------------------------------------------------------- |  | --- | 
|Independent Auditors Report                                                                                                       |  | F-2 | 
|Consolidated Balance Sheets as of February 1, 2003, and February 2, 2002                                                           |  | F-3 | 
|Consolidated Statements of Income and Comprehensive Income for each of the
three fiscal years in the period ended February 1, 2003 |  | F-4 | 
|Consolidated Statements of Shareholders Equity for each of three fiscal years
in the period ended February 1, 2003                |  | F-5 | 
|Consolidated Statements of Cash Flows for each of the three fiscal years
in the period ended February 1, 2003                      |  | F-6 | 
|Notes to Consolidated Financial Statements                                                                                         |  | F-7 | 

F-1



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors and Shareholders
Pacific Sunwear of California, Inc.
Anaheim, California

We have audited the accompanying consolidated balance sheets of Pacific Sunwear
of California, Inc. and its wholly owned subsidiaries as of February 1, 2003
and February 2, 2002, and the related consolidated statements of income and
comprehensive income, shareholders equity, and cash flows for each of the
three fiscal years in the period ended February 1, 2003. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Pacific Sunwear of California,
Inc. and its wholly owned subsidiaries as of February 1, 2003, and February 2,
2002, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended February 1, 2003, in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for goodwill and other intangible assets during the year
ended February 1, 2003 as a result of adopting Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective
February 3, 2002.

DELOITTE & TOUCHE LLP
Costa Mesa, California
March 11, 2003

F-2





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##### Table of Contents



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

|                                                                                                                                            |                                                                            |                              |         |                                            |         |             |         |             |         |   |         | 
|------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ---------------------------- | ------- | ------------------------------------------ | ------- | ----------- | ------- | ----------- | ------- | - | ------- | 
|                                                                                                                                            |                                                                            |                              |         |                                            |         | February 1, |         | February 2,
|                                                                                                                                            |                                                                            |                              |         |                                            |         | 2003        |         | 2002       
|                                                                                                                                            |                                                                            |                              |         |                                            |         |             |         |            
|ASSETS                                                                                                                                      |                                                                            |                              |         |                                            |         |             |         |            
|CURRENT ASSETS:                                                                                                                             |                                                                            |                              |         |                                            |         |             |         |            
|                                                                                                                                            | Cash and cash equivalents (Note 1)                                         |                              | $       | 36,438                                     |         |             | $       | 23,136      |        
|                                                                                                                                            | Accounts receivable                                                        |                              |         | 2,916                                      |         |             |         | 3,044       |        
|                                                                                                                                            | Merchandise inventories                                                    |                              |         | 123,433                                    |         |             |         | 102,512     |        
|                                                                                                                                            | Prepaid expenses, includes $9,664 and $8,410 of
prepaid rent, respectively |                              |         | 14,871                                     |         |             |         | 11,856      |        
|                                                                                                                                            | Deferred taxes  current (Note 6)                                          |                              |         | 4,975                                      |         |             |         | 4,282       |        
|                                                                                                                                            |                                                                            |                              |         |                                            |         |             |         |             |        
|                                                                                                                                            |                                                                            | Total current assets         |         |                                            | 182,633 |             |         |             | 144,830 |  
|PROPERTY AND EQUIPMENT(Note 1):                                                                                                             |                                                                            |                              |         |                                            |         |             |         |            
|                                                                                                                                            | Land                                                                       |                              |         | 12,156                                     |         |             |         | 12,156      |        
|                                                                                                                                            | Buildings and building improvements                                        |                              |         | 26,680                                     |         |             |         | 26,475      |        
|                                                                                                                                            | Leasehold improvements                                                     |                              |         | 111,431                                    |         |             |         | 102,075     |        
|                                                                                                                                            | Furniture, fixtures and equipment                                          |                              |         | 148,377                                    |         |             |         | 125,706     |        
|                                                                                                                                            |                                                                            |                              |         |                                            |         |             |         |             |        
|                                                                                                                                            |                                                                            | Total property and equipment |         |                                            | 298,644 |             |         |             | 266,412 |  
|                                                                                                                                            | Less accumulated depreciation and amortization                             |                              |         | (97,131                                    | )       |             |         | (71,412     | )      
|                                                                                                                                            |                                                                            |                              |         |                                            |         |             |         |             |        
|                                                                                                                                            |                                                                            | Net property and equipment   |         |                                            | 201,513 |             |         |             | 195,000 |  
|OTHER ASSETS:                                                                                                                               |                                                                            |                              |         |                                            |         |             |         |            
|                                                                                                                                            | Goodwill (Notes 1 and 3)                                                   |                              |         | 6,492                                      |         |             |         | 6,492       |        
|                                                                                                                                            | Deferred compensation and other assets (Notes 2 and 9)                     |                              |         | 9,105                                      |         |             |         | 7,807       |        
|                                                                                                                                            | Deferred taxes  noncurrent (Note 6)                                       |                              |         |                                           |         |             |         | 1,311       |        
|                                                                                                                                            |                                                                            |                              |         |                                            |         |             |         |             |        
|                                                                                                                                            |                                                                            | Total other assets           |         |                                            | 15,597  |             |         |             | 15,610  |  
|                                                                                                                                            |                                                                            |                              |         |                                            |         |             |         |             |        
|                                                                                                                                            |                                                                            |                              |         | Total assets                               |         | $           | 399,743 |             |         | $ | 355,440 | 
|                                                                                                                                            |                                                                            |                              |         |                                            |         |             |         |             |        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                        |                                                                            |                              |         |                                            |         |             |         |            
|CURRENT LIABILITIES:                                                                                                                        |                                                                            |                              |         |                                            |         |             |         |            
|                                                                                                                                            | Line
of credit (Note 4)                                                    |                              | $       |                                           |         |             | $       |            |        
|                                                                                                                                            | Current
portion of long-term debt (Notes 4 and 7)                          |                              |         | 829                                        |         |             |         | 425         |        
|                                                                                                                                            | Current portion of capital lease obligations (Note 7)                      |                              |         | 1,521                                      |         |             |         | 834         |        
|                                                                                                                                            | Accounts payable                                                           |                              |         | 28,456                                     |         |             |         | 37,493      |        
|                                                                                                                                            | Accrued liabilities (Notes 5 and 10)                                       |                              |         | 34,522                                     |         |             |         | 17,743      |        
|                                                                                                                                            | Income taxes payable (Note 6)                                              |                              |         | 8,000                                      |         |             |         | 9,436       |        
|                                                                                                                                            |                                                                            |                              |         |                                            |         |             |         |             |        
|                                                                                                                                            |                                                                            | Total current liabilities    |         |                                            | 73,328  |             |         |             | 65,931  |  
|LONG-TERM LIABILITIES:                                                                                                                      |                                                                            |                              |         |                                            |         |             |         |            
|Long-term debt (Notes 4 and 7)                                                                                                              |                                                                            |                              | 1,102   |                                            |         |             | 24,597  |            
|Long-term capital lease obligations (Note 7)                                                                                                |                                                                            |                              | 2,236   |                                            |         |             | 731     |            
|Deferred compensation (Note 9)                                                                                                              |                                                                            |                              | 7,097   |                                            |         |             | 7,439   |            
|Deferred rent                                                                                                                               |                                                                            |                              | 10,574  |                                            |         |             | 8,759   |            
|Deferred taxes (Note 6)                                                                                                                     |                                                                            |                              | 3,015   |                                            |         |             |        |            
|Other long-term liabilities                                                                                                                 |                                                                            |                              |        |                                            |         |             | 28      |            
|                                                                                                                                            |                                                                            |                              |         |                                            |         |             |         |             |        
|                                                                                                                                            |                                                                            | Total long-term liabilities  |         |                                            | 24,024  |             |         |             | 41,554  |  
|Commitments and contingencies (Note 7)                                                                                                      |                                                                            |                              |         |                                            |         |             |         |            
|SHAREHOLDERS EQUITY(Notes 8 and 9):                                                                                                        |                                                                            |                              |         |                                            |         |             |         |            
|Preferred stock, $.01 par value; 5,000,000 shares authorized; none
issued and outstanding                                                   |                                                                            |                              |        |                                            |         |             |        |            
|Common stock, $.01 par value; 113,906,250 shares authorized;
49,488,764 and 49,155,753 shares issued and outstanding, respectively (Note 1) |                                                                            |                              | 495     |                                            |         |             | 492     |            
|Additional paid-in capital                                                                                                                  |                                                                            |                              | 93,008  |                                            |         |             | 88,252  |            
|Retained earnings                                                                                                                           |                                                                            |                              | 208,888 |                                            |         |             | 159,211 |            
|                                                                                                                                            |                                                                            |                              |         |                                            |         |             |         |             |        
|                                                                                                                                            |                                                                            | Total shareholders equity   |         |                                            | 302,391 |             |         |             | 247,955 |  
|                                                                                                                                            |                                                                            |                              |         |                                            |         |             |         |             |        
|                                                                                                                                            |                                                                            |                              |         | Total liabilities and shareholders equity |         | $           | 399,743 |             |         | $ | 355,440 | 
|                                                                                                                                            |                                                                            |                              |         |                                            |         |             |         |             |        

See notes to consolidated financial statements

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##### Table of Contents



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

|                                                                       |  |                   |            |             |  |             |            |   |  |   |            |  
|---------------------------------------------------------------------- |  | ----------------- | ---------- | ----------- |  | ----------- | ---------- | - |  | - | ---------- | -
|                                                                       |  | Fiscal Year Ended
|                                                                       |  |                  
|                                                                       |  | February 1,       |            | February 2, |  | February 4,
|                                                                       |  | 2003              |            | 2002        |  | 2001       
|                                                                       |  |                   |            |             |  |            
|Net sales                                                              |  | $                 | 846,393    |             |  | $           | 684,840    |   |  | $ | 589,438    |  
|Cost of goods sold, including buying,
distribution and occupancy costs |  |                   | 562,710    |             |  |             | 464,660    |   |  |   | 391,816    |  
|                                                                       |  |                   |            |             |  |             |            |   |  |   |            |  
|Gross margin                                                           |  |                   | 283,683    |             |  |             | 220,180    |   |  |   | 197,622    |  
|Selling, general and administrative expenses                           |  |                   | 202,445    |             |  |             | 175,898    |   |  |   | 133,999    |  
|                                                                       |  |                   |            |             |  |             |            |   |  |   |            |  
|Operating income                                                       |  |                   | 81,238     |             |  |             | 44,282     |   |  |   | 63,623     |  
|Interest expense/(income), net                                         |  |                   | 594        |             |  |             | (470       | ) |  |   | (1,344     | )
|                                                                       |  |                   |            |             |  |             |            |   |  |   |            |  
|Income before income tax expense                                       |  |                   | 80,644     |             |  |             | 44,752     |   |  |   | 64,967     |  
|Income tax expense (Note 6)                                            |  |                   | 30,967     |             |  |             | 17,186     |   |  |   | 25,213     |  
|                                                                       |  |                   |            |             |  |             |            |   |  |   |            |  
|Net income                                                             |  | $                 | 49,677     |             |  | $           | 27,566     |   |  | $ | 39,754     |  
|                                                                       |  |                   |            |             |  |             |            |   |  |   |            |  
|Comprehensive income (Note 1)                                          |  | $                 | 49,677     |             |  | $           | 27,566     |   |  | $ | 39,754     |  
|                                                                       |  |                   |            |             |  |             |            |   |  |   |            |  
|Net income per share, basic (Note 1)                                   |  | $                 | 1.01       |             |  | $           | 0.56       |   |  | $ | 0.83       |  
|                                                                       |  |                   |            |             |  |             |            |   |  |   |            |  
|Net income per share, diluted (Note 1)                                 |  | $                 | 0.99       |             |  | $           | 0.56       |   |  | $ | 0.81       |  
|                                                                       |  |                   |            |             |  |             |            |   |  |   |            |  
|Weighted average shares outstanding, basic
(Note 1)                    |  |                   | 49,287,680 |             |  |             | 49,021,791 |   |  |   | 47,842,611 |  
|                                                                       |  |                   |            |             |  |             |            |   |  |   |            |  
|Weighted average shares outstanding,
diluted (Note 1)                  |  |                   | 50,097,994 |             |  |             | 49,658,699 |   |  |   | 48,822,429 |  
|                                                                       |  |                   |            |             |  |             |            |   |  |   |            |  

See notes to consolidated financial statements

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##### Table of Contents



PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands, except share amounts)

|                                                                                                                 |  |        |            |        |  |            |     |          |  |       |        |   |  |   |         |  |  |   |         |  
|---------------------------------------------------------------------------------------------------------------- |  | ------ | ---------- | ------ |  | ---------- | --- | -------- |  | ----- | ------ | - |  | - | ------- |  |  | - | ------- | -
|                                                                                                                 |  | Common |            | Common |  | Additional |     |          |  |       |        |   |  |  
|                                                                                                                 |  | Stock  |            | Stock  |  | Paid-in    |     | Retained |  |       |        |  
|                                                                                                                 |  | Shares |            | Amount |  | Capital    |     | Earnings |  | Total
|                                                                                                                 |  |        |            |        |  |            |     |          |  |      
|BALANCE, January 31, 2000                                                                                        |  |        | 47,194,127 |        |  | $          | 472 |          |  | $     | 69,461 |   |  | $ | 91,891  |  |  | $ | 161,824 |  
|Exercise of stock options and shares
sold under employee stock purchase plan and restricted stock grant (Note 9) |  |        | 1,468,026  |        |  |            | 15  |          |  |       | 6,431  |   |  |   |        |  |  |   | 6,446   |  
|Restricted stock award, vesting of shares
(Note 9)                                                               |  |        |           |        |  |            |    |          |  |       | 290    |   |  |   |        |  |  |   | 290     |  
|Tax benefits related to exercise of
stock options (Note 9)                                                       |  |        |           |        |  |            |    |          |  |       | 4,816  |   |  |   |        |  |  |   | 4,816   |  
|Net income                                                                                                       |  |        |           |        |  |            |    |          |  |       |       |   |  |   | 39,754  |  |  |   | 39,754  |  
|                                                                                                                 |  |        |            |        |  |            |     |          |  |       |        |   |  |   |         |  |  |   |         |  
|BALANCE, February 4, 2001                                                                                        |  |        | 48,662,153 |        |  |            | 487 |          |  |       | 80,998 |   |  |   | 131,645 |  |  |   | 213,130 |  
|Exercise of stock options and shares
sold under employee stock purchase plan
and restricted stock grant (Note 9) |  |        | 493,600    |        |  |            | 5   |          |  |       | 4,256  |   |  |   |        |  |  |   | 4,261   |  
|Restricted stock award, vesting of
shares (Note 9)                                                               |  |        |           |        |  |            |    |          |  |       | 290    |   |  |   |        |  |  |   | 290     |  
|Tax benefits related to exercise of stock
options (Note 9)                                                       |  |        |           |        |  |            |    |          |  |       | 2,708  |   |  |   |        |  |  |   | 2,708   |  
|Net income                                                                                                       |  |        |           |        |  |            |    |          |  |       |       |   |  |   | 27,566  |  |  |   | 27,566  |  
|                                                                                                                 |  |        |            |        |  |            |     |          |  |       |        |   |  |   |         |  |  |   |         |  
|BALANCE, February 2, 2002                                                                                        |  |        | 49,155,753 |        |  |            | 492 |          |  |       | 88,252 |   |  |   | 159,211 |  |  |   | 247,955 |  
|Exercise of stock options and shares
sold under employee stock
purchase plan
(Note 9)                            |  |        | 333,803    |        |  |            | 3   |          |  |       | 3,441  |   |  |   |        |  |  |   | 3,444   |  
|Cancellation of fractional shares due to
3-for-2 stocksplit (Note 1)                                             |  |        | (792       | )      |  |            |    |          |  |       | (14    | ) |  |   |        |  |  |   | (14     | )
|Restricted stock award, vesting of
shares (Note 9)                                                               |  |        |           |        |  |            |    |          |  |       | 291    |   |  |   |        |  |  |   | 291     |  
|Tax benefits related to exercise of
stock options (Note 9)                                                       |  |        |           |        |  |            |    |          |  |       | 1,038  |   |  |   |        |  |  |   | 1,038   |  
|Net income                                                                                                       |  |        |           |        |  |            |    |          |  |       |       |   |  |   | 49,677  |  |  |   | 49,677  |  
|                                                                                                                 |  |        |            |        |  |            |     |          |  |       |        |   |  |   |         |  |  |   |         |  
|BALANCE, February 1, 2003                                                                                        |  |        | 49,488,764 |        |  | $          | 495 |          |  | $     | 93,008 |   |  | $ | 208,888 |  |  | $ | 302,391 |  
|                                                                                                                 |  |        |            |        |  |            |     |          |  |       |        |   |  |   |         |  |  |   |         |  

See notes to consolidated financial statements

F-5





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##### Table of Contents



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

|                                                      |                                                                                   |                                                                      |                                             |                                                     |        |                   |         |             |        |             |         |         |        |        |         |  
|----------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------- | --------------------------------------------------- | ------ | ----------------- | ------- | ----------- | ------ | ----------- | ------- | ------- | ------ | ------ | ------- | -
|                                                      |                                                                                   |                                                                      |                                             |                                                     |        | Fiscal Year Ended
|                                                      |                                                                                   |                                                                      |                                             |                                                     |        |                  
|                                                      |                                                                                   |                                                                      |                                             |                                                     |        | February 1,       |         | February 2, |        | February 4,
|                                                      |                                                                                   |                                                                      |                                             |                                                     |        | 2003              |         | 2002        |        | 2001       
|                                                      |                                                                                   |                                                                      |                                             |                                                     |        |                   |         |             |        |            
|CASH FLOWS FROM OPERATING ACTIVITIES:                 |                                                                                   |                                                                      |                                             |                                                     |        |                   |         |             |        |             |         |        
|                                                      | Net income                                                                        |                                                                      | $                                           | 49,677                                              |        |                   | $       | 27,566      |        |             | $       | 39,754  |       
|                                                      | Adjustments to reconcile net income to net cash provided by
operating activities: |                                                                      |                                             |                                                     |        |                   |         |             |        |             |         |         |       
|                                                      |                                                                                   |                                                                      | Depreciation and amortization               |                                                     |        | 32,453            |         |             |        | 27,146      |         |         |        | 19,871 |        
|                                                      |                                                                                   |                                                                      | Loss on disposal of equipment (Note 10)     |                                                     |        | 4,240             |         |             |        | 7,451       |         |         |        | 1,440  |        
|                                                      |                                                                                   |                                                                      | Change in operating assets and liabilities: |                                                     |        |                   |         |             |        |             |         |         |        |        |        
|                                                      |                                                                                   |                                                                      |                                             | Accounts receivable                                 |        |                   | 128     |             |        |             | (290    | )       |        |        | (576    | )
|                                                      |                                                                                   |                                                                      |                                             | Merchandise inventories                             |        |                   | (20,921 | )           |        |             | (19,819 | )       |        |        | (22,691 | )
|                                                      |                                                                                   |                                                                      |                                             | Prepaid expenses                                    |        |                   | (1,949  | )           |        |             | (1,669  | )       |        |        | (3,144  | )
|                                                      |                                                                                   |                                                                      |                                             | Deferred compensation and other assets              |        |                   | 231     |             |        |             | (127    | )       |        |        | 633     |  
|                                                      |                                                                                   |                                                                      |                                             | Accounts payable                                    |        |                   | (9,037  | )           |        |             | 5,861   |         |        |        | 11,519  |  
|                                                      |                                                                                   |                                                                      |                                             | Accrued liabilities                                 |        |                   | 16,751  |             |        |             | 4,492   |         |        |        | (623    | )
|                                                      |                                                                                   |                                                                      |                                             | Income taxes payable and deferred taxes             |        |                   | 3,235   |             |        |             | 6,203   |         |        |        | 4,474   |  
|                                                      |                                                                                   |                                                                      |                                             | Deferred rent                                       |        |                   | 1,815   |             |        |             | 1,548   |         |        |        | 1,379   |  
|                                                      |                                                                                   |                                                                      |                                             |                                                     |        |                   |         |             |        |             |         |         |       
|                                                      |                                                                                   |                                                                      |                                             | Net cash provided by operating activities           |        |                   | 76,623  |             |        |             | 58,362  |         |        |        | 52,036  |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |                                                                                   |                                                                      |                                             |                                                     |        |                   |         |             |        |             |         |        
|                                                      | Investment in property and equipment                                              |                                                                      |                                             | (40,423                                             | )      |                   |         | (92,936     | )      |             |         | (61,869 | )     
|                                                      |                                                                                   |                                                                      |                                             |                                                     |        |                   |         |             |        |             |         |         |       
|                                                      |                                                                                   |                                                                      |                                             | Net cash used in investing activities               |        |                   | (40,423 | )           |        |             | (92,936 | )       |        |        | (61,869 | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                 |                                                                                   |                                                                      |                                             |                                                     |        |                   |         |             |        |             |         |        
|                                                      | (Repayments)/borrowings under long-term debt obligations                          |                                                                      |                                             | (25,504                                             | )      |                   |         | 24,998      |        |             |         |        |       
|                                                      | Principal payments under capital lease obligations                                |                                                                      |                                             | (824                                                | )      |                   |         | (519        | )      |             |         | (58     | )     
|                                                      | Cash paid in lieu of fractional shares due to 3-for-2 stock split                 |                                                                      |                                             | (14                                                 | )      |                   |         |            |        |             |         |        |       
|                                                      | Proceeds from exercise of stock options                                           |                                                                      |                                             | 3,444                                               |        |                   |         | 4,260       |        |             |         | 6,445   |       
|                                                      |                                                                                   |                                                                      |                                             |                                                     |        |                   |         |             |        |             |         |         |       
|                                                      |                                                                                   |                                                                      |                                             | Net cash (used in)/provided by financing activities |        |                   | (22,898 | )           |        |             | 28,739  |         |        |        | 6,387   |  
|                                                      |                                                                                   |                                                                      |                                             |                                                     |        |                   |         |             |        |             |         |         |       
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: |                                                                                   |                                                                      | 13,302                                      |                                                     |        |                   | (5,835  | )           |        |             | (3,446  | )      
|CASH AND CASH EQUIVALENTS, beginning of fiscal year   |                                                                                   |                                                                      | 23,136                                      |                                                     |        |                   | 28,971  |             |        |             | 32,417  |        
|                                                      |                                                                                   |                                                                      |                                             |                                                     |        |                   |         |             |        |             |         |         |       
|CASH AND CASH EQUIVALENTS, end of fiscal year         |                                                                                   | $                                                                    | 36,438                                      |                                                     |        | $                 | 23,136  |             |        | $           | 28,971  |        
|                                                      |                                                                                   |                                                                      |                                             |                                                     |        |                   |         |             |        |             |         |         |       
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION     |                                                                                   |                                                                      |                                             |                                                     |        |                   |         |             |        |             |         |        
|Cash paid during the period for:                      |                                                                                   |                                                                      |                                             |                                                     |        |                   |         |             |        |             |         |        
|                                                      |                                                                                   | Interest, including $428 of capitalized interest paid in fiscal 2001 |                                             | $                                                   | 944    |                   |         | $           | 515    |             |         | $       | 12     |       
|                                                      |                                                                                   | Income taxes                                                         |                                             | $                                                   | 27,732 |                   |         | $           | 10,983 |             |         | $       | 20,739 |       

Supplemental disclosures of non-cash transactions: During the fiscal years
ended February 1, 2003, February 2, 2002 and February 4, 2001, the Company
recorded an increase to additional paid-in capital of $1,038, $2,708 and
$4,816, respectively, related to tax benefits associated with the exercise of
nonqualified stock options. During the fiscal years ended February 1, 2003,
February 2, 2002 and February 4, 2001, the Company recorded an increase to
additional paid-in capital of $291, $290 and $290, respectively, related to the
issuance of stock to satisfy certain deferred compensation liabilities. During
the year ended February 1, 2003, the Company purchased a prepaid three-year
computer maintenance agreement under a long-term debt obligation for $2,413.
During the years ended February 1, 2003, February 2, 2002 and February 4,
2001, the Company acquired property pursuant to capital lease obligations in
the amount of $3,016, $493 and $1,650, respectively. Additionally, during the
year ended February 2, 2002, the Company financed the purchase of a vehicle for
$24.

See notes to consolidated financial statements

F-6



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##### Table of Contents



PACIFIC SUNWEAR OF CALIFORNIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended February 1, 2003, February 2, 2002 and February 4, 2001
(all amounts in thousands, except share and per share amounts, unless otherwise indicated)



|1. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF BUSINESS
|-- |  | -----------------------------------------------------------------

Nature of Business  Pacific Sunwear of California, Inc. and its wholly-owned
subsidiaries (the Company) is a leading specialty retailer of everyday casual
apparel, footwear and accessories designed to meet the needs of active teens
and young adults. The Company operates three nationwide, primarily mall-based
chains of retail stores, under the names Pacific Sunwear (as well as
PacSun), Pacific Sunwear Outlet and d.e.m.o. Pacific Sunwear and Pacific
Sunwear Outlet stores specialize in board-sport inspired casual apparel,
footwear and related accessories catering to teenagers and young adults.
d.e.m.o. specializes in hip-hop music inspired casual apparel and related
accessories catering to teenagers and young adults. In addition, the Company
operates a website through a wholly-owned subsidiary which sells PacSun
merchandise online, provides content and community for its target customers,
and provides information about the Company.

The Companys fiscal year is a 52- or 53-week period ending near January 31.
Fiscal 2002 was a 52-week period ended February 1, 2003. Fiscal 2001 was a
52-week period ended February 2, 2002. Fiscal 2000 was a 53-week period ended
February 4, 2001.

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

Basis of Presentation  The consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America.

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

Fair Value of Financial Instruments  Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosures about Fair Value of Financial
Instruments, requires management to disclose the estimated fair value of
certain assets and liabilities defined by SFAS No. 107 as financial
instruments. Financial instruments are generally defined by SFAS No. 107 as
cash, evidence of ownership interest in an entity, or a contractual obligation
that both conveys to one entity a right to receive cash or other financial
instruments from another entity and imposes on the other entity the obligation
to deliver cash or other financial instruments to the first entity. At
February 1, 2003, management believes that the carrying amounts of cash,
receivables and payables approximate fair value because of the short maturity
of these financial instruments.

Cash and Cash Equivalents  The Company considers all highly liquid financial
instruments, if any, purchased with an original maturity of three months or
less to be cash equivalents.

Merchandise Inventories  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. The Companys success is largely dependent upon its ability to gauge
the fashion tastes of its customers and provide merchandise that satisfies
customer demand. Any inability to provide appropriate merchandise in
sufficient quantities in a timely manner could increase future markdown rates.

Property and Equipment  Leasehold improvements and furniture, fixtures and
equipment are stated at cost. Amortization of leasehold improvements is
computed on the straight-line method over the lesser of their estimated useful
lives or the life of the lease (generally 10 years). Depreciation on
furniture, fixtures and equipment is computed on the straight-line method over
five years.

The Company completed construction of and moved into a new corporate office and
distribution center in January 2002. The total cost of the completed
facilities, including purchased land, was $54.5 million. Of the $54.5 million
total cost, $26.5 million was

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buildings, $12.2 million was land, $12.2 million
was a new materials handling system and $3.6 million was furniture, fixtures
and equipment.

Change in Accounting for Goodwill and Other Intangible Assets  On February 3,
2002, the Company adopted SFAS No. 142, Goodwill and
Intangible Assets, which
revises the accounting for purchased goodwill and intangible assets. Under
SFAS No. 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are tested for impairment annually and also in the event
of an impairment indicator. The Company completed the required transitional
impairment test and the annual test and determined that no impairment existed.
Any subsequent impairment losses will be reflected in operating income. With
the adoption of SFAS No. 142, the Company discontinued amortization of goodwill
(see Note 3).

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  In
August 2001, the Financial Accounting Standards Board
(FASB) issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which
supersedes previous guidance on financial accounting and reporting for the
impairment or disposal of long-lived assets and for segments of a business to
be disposed of. The Company adopted SFAS No. 144 effective February 3, 2002.
Upon adoption of SFAS No. 144, the Company reviewed long-lived assets and
determined that no impairment existed. Under SFAS No. 144, long-lived assets,
including amortizing intangible assets, will be tested for impairment whenever
events or changes in circumstances indicate that the carrying value of such
assets may not be recoverable.

Corporate Rent Reserve  During fiscal 2001, the Company recorded a $1.4
million charge to accrue for rent expense associated with the Companys former
corporate offices, which remain unused at the end of fiscal 2002. The current
accrual of $1.3 million is approximately the amount of rent expense for one
year, within which time the Company currently believes a tenant will be
identified to sublease the premises. To the extent managements estimates
relating to the Companys ability to sublease these premises within one year
changes, additional charges may be recorded in the future up to the net
remaining obligation under the
lease depending on the facts and circumstances in existence at that time. As
of February 1, 2003, the aggregate net remaining obligation under this lease
was approximately $6.7 million.

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

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, 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.

Deferred Rent  The Company averages any defined rental escalations over the
term of the related lease in order to provide level recognition of rent
expense.

Stock Split  On December 18, 2002, the Company effected a three-for-two stock
split. Shareholders equity has been restated to give retroactive recognition
to the stock split in prior periods by reclassifying the par value ($164) of
the additional shares arising from the split from additional paid-in capital to
common stock. Additionally, all share and per share amounts have been
restated to give effect to the stock split.

Revenue Recognition  Sales are recognized upon purchase by customers at the
Companys retail store locations or through the Companys website. The Company
has recorded reserves to estimate sales returns by customers based on
historical sales return results. Actual return rates have historically been
within managements expectations and the reserves established. However, in the
unlikely event that the actual rate of sales returns by customers increased
significantly, the Companys operational results could be adversely affected.

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Advertising Costs  Costs associated with the production of advertising, such
as photography, design, creative talent, editing and other costs, are expensed
the first time the advertising takes place. Costs associated with placing
advertising that has been produced, such as television and magazine
advertising, are expensed when the advertising takes place. Advertising costs
were $8,897, $12,967 and $10,766 in fiscal 2002, 2001 and 2000, respectively.

Earnings per Share  The Company reports earnings per share in accordance with
the provisions of SFAS No. 128, Earnings Per Share. Basic earnings per
common share is computed using the weighted average number of shares
outstanding. Diluted earnings per common share is computed using the weighted
average number of shares outstanding adjusted for the incremental shares
attributed to outstanding options to purchase common stock. Incremental shares
of 810,314, 636,908, and 979,818 in fiscal 2002, 2001 and 2000, respectively,
were used in the calculation of diluted earnings per common share. Options to
purchase 1,355,599, 1,585,185 and 1,132,794 shares of common stock in fiscal
2002, 2001 and 2000, respectively,
were not included in the computation of diluted earnings per common share
because the option exercise price was greater than the average market price of
the common stock during the respective period.

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

SFAS No. 123, Accounting for Stock-Based Compensation, requires the
disclosure of pro forma net income and earnings
per share. Under SFAS No. 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 following
vesting; stock volatility, 55.2% in fiscal 2002, 71.4% in fiscal 2001 and
104.1% in fiscal 2000; risk-free interest rates, 3.0% in fiscal 2002, 4.4% in
fiscal 2001 and 4.85% in fiscal 2000; and no dividends during the expected
term. The Companys calculations are based on a multiple-option valuation
approach and forfeitures are recognized as they occur. If the computed fair
values of the fiscal 2002, 2001 and 2000 awards had been amortized to expense
over the vesting period of the awards, pro forma net income and earnings per
share would have been reduced to the pro forma amounts indicated below:

|                              |                                                                                                                                             |  |             |        |             |  |             |        |   |  |   |        |  
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------ | ----------- |  | ----------- | ------ | - |  | - | ------ | -
|                              |                                                                                                                                             |  | Fiscal 2002 |        | Fiscal 2001 |  | Fiscal 2000
|                              |                                                                                                                                             |  |             |        |             |  |            
|Net Income                    |                                                                                                                                             |  |             |        |             |  |             |        |   |  |   |       
|                              | As reported                                                                                                                                 |  | $           | 49,677 |             |  | $           | 27,566 |   |  | $ | 39,754 |  
|                              | Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects |  |             | (5,589 | )           |  |             | (5,153 | ) |  |   | (4,631 | )
|                              |                                                                                                                                             |  |             |        |             |  |             |        |   |  |   |        |  
|                              | Pro forma                                                                                                                                   |  | $           | 44,088 |             |  | $           | 22,413 |   |  | $ | 35,123 |  
|Net Income Per Share, Basic   |                                                                                                                                             |  |             |        |             |  |             |        |   |  |   |       
|                              | As reported                                                                                                                                 |  | $           | 1.01   |             |  | $           | 0.56   |   |  | $ | 0.83   |  
|                              | Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects |  |             | (0.12  | )           |  |             | (0.10  | ) |  |   | (0.10  | )
|                              |                                                                                                                                             |  |             |        |             |  |             |        |   |  |   |        |  
|                              | Pro forma                                                                                                                                   |  | $           | 0.89   |             |  | $           | 0.46   |   |  | $ | 0.73   |  
|Net Income Per Share, Diluted |                                                                                                                                             |  |             |        |             |  |             |        |   |  |   |       
|                              | As reported                                                                                                                                 |  | $           | 0.99   |             |  | $           | 0.56   |   |  | $ | 0.81   |  
|                              | Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects |  |             | (0.10  | )           |  |             | (0.10  | ) |  |   | (0.08  | )
|                              |                                                                                                                                             |  |             |        |             |  |             |        |   |  |   |        |  
|                              | Pro forma                                                                                                                                   |  | $           | 0.89   |             |  | $           | 0.46   |   |  | $ | 0.73   |  

Comprehensive Income  The Company reports comprehensive income in accordance
with the provisions of SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 established standards for the reporting and display of comprehensive

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income. Components of comprehensive income include net earnings (loss),
foreign currency translation adjustments and gains/losses associated with
investments available for sale. There was no difference between net income and
comprehensive income for the years ended February 1, 2003, February 2, 2002 and
February 4, 2001.

Segment Information  The Company has one reportable segment representing the
aggregation of its operating segments due to the similarities of economic and
operating characteristics among the operating segments represented by the
Companys three store formats.

Merchandise Risk  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 and financial condition.

New Accounting Pronouncements  In April 2002, the FASB issued SFAS No.
145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. SFAS No. 145 amended certain
provisions of SFAS No. 13 and requires the fair value recognition of guarantee
obligations under which the Company may become secondarily liable. The Company
adopted SFAS No. 145 during fiscal 2002. The adoption of SFAS No. 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 to
the consolidated financial statements).

In June, 2002 the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities, which
addresses financial accounting and reporting for costs associated with exit or
disposal activities and supercedes Emerging Issues Task Force (EITF) Issue
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
Under Issue 94-3, a liability for an exit cost as defined in EITF Issue 94-3 was
recognized at the date of an entitys commitment to an exit plan. SFAS No. 146
also establishes that the liability should initially be measured and recorded
at fair value. The Company will adopt the provisions of SFAS No. 146 for exit
or disposal activities that are initiated after December 31, 2002.

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 Company adopted the disclosure
provisions of FIN 45 during fiscal 2002. The Company is currently evaluating
the recognition provisions of FIN 45 but expects that they will not have a
material adverse impact on the Companys financial position or results of
operations upon adoption.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods for voluntary
transition to SFAS No. 123s fair value method of accounting for stock-based
employee compensation (the fair value method). SFAS
No. 148 also requires
disclosure of the effects of an entitys accounting policy with respect to
stock-based employee compensation on reported net income (loss) and earnings
(loss) per share in annual and interim financials statements. The Company is
required to follow the prescribed disclosure format and has provided the
additional disclosures required by SFAS No. 148 for the year ended February 1,
2003 (see Notes 1 and 9) and must also provide the disclosures in its quarterly
reports
containing condensed financial statements for interim periods beginning with
the quarterly period ending April 3, 2003.

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

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

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|2. |  | DEFERRED COMPENSATION AND OTHER ASSETS
|-- |  | --------------------------------------

Deferred compensation and other assets consist of the following:

|                                         |  |             |       |             |  |   |       | 
|---------------------------------------- |  | ----------- | ----- | ----------- |  | - | ----- | 
|                                         |  | February 1, |       | February 2,
|                                         |  | 2003        |       | 2002       
|                                         |  |             |       |            
|Deferred compensation                    |  | $           | 7,565 |             |  | $ | 7,587 | 
|Long-term computer maintenance
contracts |  |             | 1,359 |             |  |   |      | 
|Other assets                             |  |             | 181   |             |  |   | 220   | 
|                                         |  |             |       |             |  |   |       | 
|                                         |  | $           | 9,105 |             |  | $ | 7,807 | 
|                                         |  |             |       |             |  |   |       | 



|3. |  | GOODWILL
|-- |  | --------

On February 3, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which eliminated the amortization of goodwill and other
intangible assets with indefinite useful lives. SFAS No. 142 requires, among
other items, disclosure of the after-tax impact to reported net income and
earnings per share of the adoption of the statement for all periods presented.
The following table recognizes the after-tax impact to the Companys operating
results of the adoption of SFAS No. 142 as if the non-amortization provisions
of the standard had been in effect for all periods presented:

|                                              |                                               |   |             |      |             |   |             |      |  |   |        |      | 
|--------------------------------------------- | --------------------------------------------- | - | ----------- | ---- | ----------- | - | ----------- | ---- |  | - | ------ | ---- | 
|                                              |                                               |   | February 1, |      | February 2, |   | February 4,
|                                              |                                               |   | 2003        |      | 2002        |   | 2001       
|For the Year Ended:                           |                                               |   |             |      |             |  
|Reported net income                           |                                               | $ | 49,677      |      |             | $ | 27,566      |      |  | $ | 39,754 |     
|Add back goodwill amortization (tax effected) |                                               |   |            |      |             |   | 192         |      |  |   | 192    |     
|                                              |                                               |   |             |      |             |   |             |      |  |   |        |     
|Adjusted net income                           |                                               | $ | 49,677      |      |             | $ | 27,758      |      |  | $ | 39,946 |     
|Basic earnings per share:                     |                                               |   |             |      |             |   |             |      |  |   |        |     
|                                              | Reported net income                           |   | $           | 1.01 |             |   | $           | 0.56 |  |   | $      | 0.83 | 
|                                              | Add back goodwill amortization (tax
effected) |   |             | 0.00 |             |   |             | 0.01 |  |   |        | 0.00 | 
|                                              |                                               |   |             |      |             |   |             |      |  |   |        |     
|                                              | Adjusted net income                           |   | $           | 1.01 |             |   | $           | 0.57 |  |   | $      | 0.83 | 
|Diluted earnings per share:                   |                                               |   |             |      |             |   |             |      |  |   |        |     
|                                              | Reported net income                           |   | $           | 0.99 |             |   | $           | 0.56 |  |   | $      | 0.81 | 
|                                              | Add back goodwill amortization (tax
effected) |   |             | 0.00 |             |   |             | 0.00 |  |   |        | 0.01 | 
|                                              |                                               |   |             |      |             |   |             |      |  |   |        |     
|                                              | Adjusted net income                           |   | $           | 0.99 |             |   | $           | 0.56 |  |   | $      | 0.82 | 
|                                              |                                               |   |             |      |             |   |             |      |  |   |        |     



|4. |  | CREDIT FACILITY
|-- |  | ---------------

The Company has a credit facility with a bank, which expires March 31, 2004.
The credit facility provides for a $45.0 million line of credit (the Credit
Line) to be used for cash advances, commercial letters of credit and shipside
bonds, and an additional $25.0 million line of credit (the Construction
Facility) which was used to finance the construction of the Companys new
corporate office and distribution center. On August 30, 2002, the Company
repaid the outstanding balance of $25.0 million related to the Construction
Facility using available cash generated from operations. Interest on the
Credit Line is payable monthly at the banks prime rate (4.25% at February 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s
weighted average interest rate on its outstanding borrowings was 3.67% at
February 1, 2003. At February 1, 2003, the Company had no borrowings
outstanding under the Credit Line and $10.3 million outstanding in letters of
credit. 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 February 1, 2003, the Company
was in compliance with all of the covenants.

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|5. |  | ACCRUED LIABILITIES
|-- |  | -------------------

Accrued liabilities consist of the following:

|                                                                |  |             |        |             |  |   |        | 
|--------------------------------------------------------------- |  | ----------- | ------ | ----------- |  | - | ------ | 
|                                                                |  | February 1, |        | February 2,
|                                                                |  | 2003        |        | 2002       
|                                                                |  |             |        |            
|Accrued compensation and benefits                               |  | $           | 14,420 |             |  | $ | 4,620  | 
|Gift certificates and store merchandise credits                 |  |             | 5,967  |             |  |   | 4,160  | 
|Reserve for store expansion/relocation and
closing costs        |  |             | 3,653  |             |  |   | 2,094  | 
|Sales tax payable                                               |  |             | 2,290  |             |  |   | 1,647  | 
|Reserve for corporate rent  old corporate
facilities (Note 10) |  |             | 1,263  |             |  |   | 1,396  | 
|Accrued medical insurance costs                                 |  |             | 980    |             |  |   | 855    | 
|Other                                                           |  |             | 5,949  |             |  |   | 2,971  | 
|                                                                |  |             |        |             |  |   |        | 
|                                                                |  | $           | 34,522 |             |  | $ | 17,743 | 
|                                                                |  |             |        |             |  |   |        | 



|6. |  | INCOME TAXES
|-- |  | ------------

The components of the income tax expense are as follows:

|                       |  |                   |        |             |  |             |        |   |  |   |        | 
|---------------------- |  | ----------------- | ------ | ----------- |  | ----------- | ------ | - |  | - | ------ | 
|                       |  | Fiscal Year Ended
|                       |  |                  
|                       |  | February 1,       |        | February 2, |  | February 4,
|                       |  | 2003              |        | 2002        |  | 2001       
|                       |  |                   |        |             |  |            
|Current income taxes:  |  |                   |        |             |  |             |        |   |  |   |        | 
|Federal                |  | $                 | 23,938 |             |  | $           | 18,040 |   |  | $ | 22,001 | 
|State                  |  |                   | 3,396  |             |  |             | 2,659  |   |  |   | 3,137  | 
|                       |  |                   |        |             |  |             |        |   |  |   |        | 
|                       |  |                   | 27,334 |             |  |             | 20,699 |   |  |   | 25,138 | 
|Deferred income taxes: |  |                   |        |             |  |             |        |   |  |   |        | 
|Federal                |  |                   | 3,231  |             |  |             | (3,066 | ) |  |   | 19     | 
|State                  |  |                   | 402    |             |  |             | (447   | ) |  |   | 56     | 
|                       |  |                   |        |             |  |             |        |   |  |   |        | 
|                       |  |                   | 3,633  |             |  |             | (3,513 | ) |  |   | 75     | 
|                       |  |                   |        |             |  |             |        |   |  |   |        | 
|                       |  | $                 | 30,967 |             |  | $           | 17,186 |   |  | $ | 25,213 | 
|                       |  |                   |        |             |  |             |        |   |  |   |        | 

A reconciliation of the income tax expense to the amount of income tax expense
that would result from applying the federal statutory rate to income before
income taxes is as follows:

|                                                     |  |                   |        |             |  |             |        |  |  |   |        | 
|---------------------------------------------------- |  | ----------------- | ------ | ----------- |  | ----------- | ------ |  |  | - | ------ | 
|                                                     |  | Fiscal Year Ended
|                                                     |  |                  
|                                                     |  | February 1,       |        | February 2, |  | February 4,
|                                                     |  | 2003              |        | 2002        |  | 2001       
|                                                     |  |                   |        |             |  |            
|Provision for income taxes at statutory rate         |  | $                 | 28,225 |             |  | $           | 15,663 |  |  | $ | 22,738 | 
|State income taxes,net of federal income
tax benefit |  |                   | 2,469  |             |  |             | 1,438  |  |  |   | 2,076  | 
|Other                                                |  |                   | 273    |             |  |             | 85     |  |  |   | 399    | 
|                                                     |  |                   |        |             |  |             |        |  |  |   |        | 
|                                                     |  | $                 | 30,967 |             |  | $           | 17,186 |  |  | $ | 25,213 | 
|                                                     |  |                   |        |             |  |             |        |  |  |   |        | 

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At February 1, 2003, the Companys current net deferred tax asset was $4,975
and long-term net deferred tax liability was $3,015. At February 2, 2002, the
Companys current net deferred tax asset was $4,282 and long-term net deferred
tax asset was $1,311. The major components of the Companys overall net
deferred tax asset of $1,960 and $5,593 at February 1, 2003, and February 2,
2002, respectively, are as follows:

|                                                         |  |             |         |             |  |   |        |  
|-------------------------------------------------------- |  | ----------- | ------- | ----------- |  | - | ------ | -
|                                                         |  | February 1, |         | February 2,
|                                                         |  | 2003        |         | 2002       
|                                                         |  |             |         |            
|Depreciation                                             |  | $           | (10,127 | )           |  | $ | (5,097 | )
|Deferred rent                                            |  |             | 4,198   |             |  |   | 3,497  |  
|Reserve for store expansion/relocation and
closing costs |  |             | 1,745   |             |  |   | 1,393  |  
|State income taxes                                       |  |             | 468     |             |  |   | 121    |  
|Inventory cost capitalization                            |  |             | 2,189   |             |  |   | 1,917  |  
|Deferred compensation                                    |  |             | 2,817   |             |  |   | 2,970  |  
|Other                                                    |  |             | 670     |             |  |   | 792    |  
|                                                         |  |             |         |             |  |   |        |  
|                                                         |  | $           | 1,960   |             |  | $ | 5,593  |  
|                                                         |  |             |         |             |  |   |        |  



|7. |  | COMMITMENTS AND CONTINGENCIES
|-- |  | -----------------------------

Operating Leases  The Company leases its retail stores, former corporate
offices and distribution facilities, and certain equipment under operating
lease agreements expiring at various dates through January 2015. Substantially
all of the leases require the Company to pay maintenance, insurance, property
taxes and percentage rent ranging from 5% to 7% based on sales volumes over
certain minimum sales levels.

Minimum future annual rental commitments under noncancellable leases are as
follows:

|                    |  |   |         | 
|------------------- |  | - | ------- | 
|Fiscal year ending: |  |   |         | 
|                    |  |   |         | 
|January 31, 2004    |  | $ | 73,162  | 
|January 29, 2005    |  |   | 73,512  | 
|January 28, 2006    |  |   | 73,307  | 
|February 3, 2007    |  |   | 74,366  | 
|February 2, 2008    |  |   | 72,616  | 
|Thereafter          |  |   | 216,666 | 
|                    |  |   |         | 
|                    |  | $ | 583,629 | 
|                    |  |   |         | 

Rental expense, including common area maintenance, was $117,847, $91,480 and
$71,175, of which $2,151, $1,062 and $1,085 was paid as percentage rent based
on sales volume for the fiscal years ended February 1, 2003,
February 2, 2002,
and February 4, 2001, respectively.

Capital Leases  During each of the fiscal years ended February 1, 2003,
February 2, 2002, and February 4, 2001, the Company acquired computer equipment
pursuant to capital lease obligations. The leases bear interest at average
rates of 3.8%, 6.0% and 6.6%, respectively, and require monthly principal and
interest payments of $90, $22 and $51, respectively, and expire at various
dates through March 2006. The net book value of capital lease assets was
$4,356 and $1,804, respectively, at February 1, 2003, and February 2, 2002.
Future commitments under the capital lease obligation are as follows:

|                      |  |   |       |  
|--------------------- |  | - | ----- | -
|Fiscal year ending:   |  |   |       |  
|                      |  |   |       |  
|January 31, 2004      |  | $ | 1,660 |  
|January 29, 2005      |  |   | 1,077 |  
|January 28, 2006      |  |   | 1,077 |  
|February 3, 2007      |  |   | 179   |  
|                      |  |   |       |  
|Total payments        |  |   | 3,993 |  
|Less interest portion |  |   | (236  | )
|                      |  |   |       |  
|                      |  | $ | 3,757 |  
|                      |  |   |       |  

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Letters of Credit  The Company was contingently liable for $10.3 million in
open letters of credit with foreign suppliers at February 1, 2003.

Other Long-Term Debt Obligations  During the year ended February 1, 2003, the
Company purchased a prepaid three-year computer maintenance agreement under a
long-term debt obligation for $2,413. The debt obligation bears interest at
6.2% and requires quarterly principal and interest payments of $231 through
March 2005. Future commitments under this long-term debt obligation are as
follows:

|                      |  |   |       |  
|--------------------- |  | - | ----- | -
|Fiscal year ending:   |  |   |       |  
|                      |  |   |       |  
|January 31, 2004      |  | $ | 927   |  
|January 29, 2005      |  |   | 927   |  
|January 28, 2006      |  |   | 231   |  
|                      |  |   |       |  
|Total payments        |  |   | 2,085 |  
|Less interest portion |  |   | (154  | )
|                      |  |   |       |  
|                      |  | $ | 1,931 |  
|                      |  |   |       |  

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

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

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

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 facility or lease and
indemnities to directors and officers of the Company to the maximum extent
permitted under the laws of the State of California. The Company has issued
guarantees in the form of standby letters of credit as security for merchandise
shipments from overseas. There were $10.3 million of these letters of credit
outstanding at February 1, 2003. The Company has also issued a guarantee
within 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, assuming that another sublessee would be found within
one year should the original sublessee default. The aggregate rental payments
remaining on the master lease agreement at February 1, 2003 was $6.5 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 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.

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|8. |  | COMMON STOCK
|-- |  | ------------

Stock Split  During the fiscal year ended February 1, 2003, the Company
effected a three-for-two stock split. Shareholders equity has been restated
to give retroactive recognition to the stock split in prior periods by
reclassifying the par value ($164) of the additional shares arising from the split
from additional paid-in capital to common stock. Additionally, all share and
per share amounts have been restated to give effect to the stock split.

Shareholder Rights Plan  In December 1998, the Board of Directors approved
the adoption of a Shareholder Rights Plan (the Rights Plan). The Rights Plan
provides for the distribution to the Companys shareholders of one preferred
stock purchase Right for each outstanding share of the Companys common
stock. The Rights have an exercise price of $75 per Right, subject to
subsequent adjustment. Initially, the Rights will trade with the Companys
common stock, and will not be exercisable until the occurrence of certain
takeover-related events, as defined. The Rights Plan provides that if a person
or group acquires more than 15% of the Companys stock without prior approval
of the Board of Directors, holders of the Rights will be entitled to purchase
the Companys stock at half of market value. The Rights Plan also provides
that if the Company is acquired in a merger or other business combination after
a person or group acquires more than 15% of the Companys stock without prior
approval of the Board of Directors, holders of the Rights will be entitled to
purchase the acquirers stock at half of market value. The Rights were
distributed to holders of the Companys common stock of record on December 29,
1998, as a dividend, and will expire, unless earlier redeemed, on December 29,
2008.



|9. |  | STOCK OPTION AND RETIREMENT PLANS
|-- |  | ---------------------------------

Under the Companys stock option plans, incentive and nonqualified options have
been granted to employees and directors to purchase common stock at prices
equal to the fair value of the Companys shares at the grant dates.

At February 1, 2003, outstanding incentive and nonqualified options had
exercise prices ranging from $1.00 to $23.88 per share, with an average
exercise price of $12.84, and generally begin vesting one year after the grant
date. On the initial vesting date, 25% of the options vest and, thereafter,
options generally continue to vest at 2.08% each calendar month. The options
generally expire ten years from the date of grant or 90 days after employment
or services are terminated.

At February 1, 2003, incentive and nonqualified options to purchase 5,793,031
shares were outstanding and 804,277 shares were available for future grant
under the Companys stock option plans. During the years ended February 1,
2003, February 2, 2002, and February 4, 2001, the Company recognized tax
benefits of $1,038, $2,708 and $4,816, respectively, resulting from the
exercise of certain nonqualified stock options.

Stock option (incentive and nonqualified) activity for each of the three fiscal
years ended February 1, 2003, was as follows:

|                                                                      |                   |   |             |           |             |   |             |           |   |   |           |            |  
|--------------------------------------------------------------------- | ----------------- | - | ----------- | --------- | ----------- | - | ----------- | --------- | - | - | --------- | ---------- | -
|                                                                      |                   |   | Fiscal 2002 |           | Fiscal 2001 |   | Fiscal 2000
|                                                                      |                   |   |             |           |             |   |            
|Beginning options outstanding                                         |                   |   | 4,798,684   |           |             |   | 4,129,734   |           |   |   | 4,792,199 |           
|                                                                      | Options granted   |   |             | 1,525,058 |             |   |             | 1,638,750 |   |   |           | 857,250    |  
|                                                                      | Options canceled  |   |             | (236,188  | )           |   |             | (517,029  | ) |   |           | (223,860   | )
|                                                                      | Options exercised |   |             | (294,523  | )           |   |             | (452,771  | ) |   |           | (1,295,855 | )
|                                                                      |                   |   |             |           |             |   |             |           |   |   |           |           
|Ending options outstanding                                            |                   |   | 5,793,031   |           |             |   | 4,798,684   |           |   |   | 4,129,734 |           
|                                                                      |                   |   |             |           |             |   |             |           |   |   |           |           
|Ending options exercisable                                            |                   |   | 3,051,233   |           |             |   | 2,325,670   |           |   |   | 2,026,509 |           
|                                                                      |                   |   |             |           |             |   |             |           |   |   |           |           
|Beginning weighted average
exercise price                             |                   | $ | 11.97       |           |             | $ | 11.68       |           |   | $ | 9.05      |           
|                                                                      | Options granted   |   |             | 15.34     |             |   |             | 12.81     |   |   |           | 15.87      |  
|                                                                      | Options canceled  |   |             | 14.86     |             |   |             | 15.57     |   |   |           | 13.21      |  
|                                                                      | Options exercised |   |             | 10.02     |             |   |             | 8.25      |   |   |           | 4.45       |  
|Ending weighted average
exercise price                                |                   | $ | 12.84       |           |             | $ | 11.97       |           |   | $ | 11.68     |           
|Ending weighted average
exercise price of
exercisable options         |                   | $ | 11.39       |           |             | $ | 10.34       |           |   | $ | 9.25      |           
|Weighted average fair value
of options granted during
the fiscal year |                   | $ | 15.34       |           |             | $ | 7.86        |           |   | $ | 12.33     |           

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Additional information regarding options outstanding as of February 1, 2003, is
as follows:

|                |       |               |  |                  |  |                |   |               |  |                |                     |           |                     |  |          |      |             |  |          |       |        |  |  |           |  |  |   |       | 
|--------------- | ----- | ------------- |  | ---------------- |  | -------------- | - | ------------- |  | -------------- | ------------------- | --------- | ------------------- |  | -------- | ---- | ----------- |  | -------- | ----- | ------ |  |  | --------- |  |  | - | ----- | 
|                |       |               |  |                  |  |                |   |               |  |                | Options Outstanding |           | Options Exercisable
|                |       |               |  |                  |  |                |   |               |  |                |                     |           |                    
|                |       |               |  |                  |  |                |   |               |  |                | Number              |           |                     |  |          |      |             |  |          |       | Number |  |  |           | 
|                |       |               |  |                  |  |                |   |               |  |                | Outstanding         |           | Weighted Average    |  | Weighted |      | Exercisable |  | Weighted
|Range of        |       | as of Feb. 1, |  | Remaining        |  | Average        |   | as of Feb. 1, |  | Average       
|Exercise Prices |       | 2003          |  | Contractual Life |  | Exercise Price |   | 2003          |  | Exercise Price
|                |       |               |  |                  |  |                |   |               |  |               
|$               | 1.00  |               |  | -                |  |                | $ | 9.89          |  |                |                     | 1,313,503 |                     |  |          | 4.72 |             |  | $        | 7.24  |        |  |  | 1,286,647 |  |  | $ | 7.20  | 
|                | 10.03 |               |  | -                |  |                |   | 11.32         |  |                |                     | 1,312,090 |                     |  |          | 8.11 |             |  |          | 11.09 |        |  |  | 566,564   |  |  |   | 10.90 | 
|                | 11.40 |               |  | -                |  |                |   | 14.23         |  |                |                     | 1,229,628 |                     |  |          | 8.43 |             |  |          | 13.91 |        |  |  | 230,628   |  |  |   | 13.59 | 
|                | 14.24 |               |  | -                |  |                |   | 17.21         |  |                |                     | 1,187,936 |                     |  |          | 7.21 |             |  |          | 16.04 |        |  |  | 805,044   |  |  |   | 16.04 | 
|                | 17.27 |               |  | -                |  |                |   | 23.88         |  |                |                     | 749,874   |                     |  |          | 9.09 |             |  |          | 18.89 |        |  |  | 162,350   |  |  |   | 20.13 | 
|                |       |               |  |                  |  |                |   |               |  |                |                     |           |                     |  |          |      |             |  |          |       |        |  |  |           |  |  |   |      
|$               | 1.00  |               |  | -                |  |                | $ | 23.88         |  |                |                     | 5,793,031 |                     |  |          | 7.35 |             |  | $        | 12.84 |        |  |  | 3,051,233 |  |  | $ | 11.39 | 
|                |       |               |  |                  |  |                |   |               |  |                |                     |           |                     |  |          |      |             |  |          |       |        |  |  |           |  |  |   |      

During the year ended February 1, 1998, the Company granted a restricted stock
award of 284,761 shares with a purchase price of $0.01 per share to its Chief
Executive Officer. The 284,761 share award began vesting on March 31, 1999,
with 25% of the shares vested at such time, and thereafter vested at 25% on
each of March 31, 2000, 2001 and 2002, as, in each instance, at the applicable
vesting date, certain cumulative earnings per share growth targets had been
satisfied. The Company recorded $40, $240 and $240, respectively, of deferred
compensation expense associated with this award during the years ended February
1, 2003, February 2, 2002 and February 4, 2001, respectively.

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

During the year ended February 4, 2001, the Company granted a restricted stock
award of 112,500 shares with a purchase price of $0.01 per share to its Chief
Executive Officer. The 112,500 share award begins vesting on March 15, 2002,
with 25% of the shares vested at such time, and thereafter will vest at 25% on
each of March 15, 2003, 2004 and 2005, if, in each instance, at the applicable
vesting date, certain cumulative earnings per share growth targets have been
satisfied. The Company recorded $38 of deferred compensation expense
associated with this award during the year ended February 4, 2001. During
fiscal 2001, the Company reversed the previously recognized expense of $38
associated with this award because the cumulative earnings per share growth
targets had not been satisfied. No additional expenses have been
recognized in association with this award because the cumulative earnings per
share growth targets have not been met as of February 1, 2003.

The Company accounts for its stock-based awards using the intrinsic value
method in accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees, and its related interpretations. Accordingly, no compensation
expense has been recognized in the financial statements for employee stock
arrangements, other than described above.

In fiscal 1997, the Company established the Pacific Sunwear of California, Inc.
Employee Stock Purchase Plan (the ESPP), which provides a method for
employees of the Company whereby they may voluntarily purchase common stock at
a 10% discount from fair market value as of the beginning or the end of each
purchasing period of six months, whichever is lower. The ESPP covers
substantially all employees, except officers, who have three months of service
with the Company. The ESPP is intended to constitute an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code
of 1986, as amended, and therefore the Company does not recognize compensation
expense related to the ESPP. In fiscal 2002 and fiscal 2001, 39,394 and 40,830
shares were issued at an average price of $12.54 and $12.81, respectively,
under the ESPP.

In fiscal 1995, the Company established the Pacific Sunwear of California, Inc.
Executive Deferred Compensation Plan (the Executive Plan). The Executive
Plan covers officers of the Company, and is funded by participant contributions
and periodic discretionary contributions from the Company. For each of the
three fiscal years in the period ended February 1, 2003, the Company made
contributions of $206, $175 and $137, respectively, to the Executive Plan.

F-16





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##### Table of Contents



In fiscal 1992, the Company established the Pacific Sunwear of California, Inc.
Employee Savings Plan (the 401(k) Plan). The 401(k) Plan is a defined
contribution plan (401(k)) covering substantially all employees who have
reached age 21 and have one year of service with the Company. The 401(k) Plan
is funded by employee contributions and periodic discretionary contributions
from the Company, which are subject to approval by the Companys Board of
Directors. For each of the three fiscal years in the period ended February 1,
2003, the Company made contributions, net of forfeitures, of $328, $364 and
$310, respectively, to the 401(k) Plan.



|10. |  | CORPORATE RELOCATION-RELATED CHARGES
|--- |  | ------------------------------------

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

During fiscal 2001, the Company recorded a $1.4 million charge to accrue for
rent expense associated with the Companys former corporate offices, which
remain unused at the end of fiscal 2002. The current accrual of $1.3 million
is approximately the amount of rent expense for one year, within which time the
Company currently believes a tenant will be identified to sublease the
premises. To the extent managements estimates relating to the Companys
ability to sublease these premises within one year changes, additional charges
may be recorded in the future up to the net remaining obligation under the
lease depending on the facts and circumstances in existence at the time. As of
February 1, 2003, the aggregate net remaining obligation under this lease is
approximately $6.7 million.



|11. |  | QUARTERLY FINANCIAL DATA (UNAUDITED)
|--- |  | ------------------------------------

|                                               |  |         |            |         |  |         |            |         |  |   |            |  |  |   |            | 
|---------------------------------------------- |  | ------- | ---------- | ------- |  | ------- | ---------- | ------- |  | - | ---------- |  |  | - | ---------- | 
|                                               |  | First   |            | Second  |  | Third   |            | Fourth 
|                                               |  | Quarter |            | Quarter |  | Quarter |            | Quarter
|                                               |  |         |            |         |  |         |            |        
|Fiscal year ended February 1, 2003:            |  |         |            |         |  |         |            |         |  |   |            |  |  |   |            | 
|Net sales                                      |  | $       | 161,710    |         |  | $       | 190,854    |         |  | $ | 228,239    |  |  | $ | 265,590    | 
|Gross margin                                   |  |         | 49,166     |         |  |         | 60,605     |         |  |   | 78,915     |  |  |   | 94,997     | 
|Operating income                               |  |         | 5,453      |         |  |         | 12,151     |         |  |   | 25,956     |  |  |   | 37,677     | 
|Net income                                     |  |         | 3,269      |         |  |         | 7,296      |         |  |   | 15,902     |  |  |   | 23,209     | 
|                                               |  |         |            |         |  |         |            |         |  |   |            |  |  |   |            | 
|Net income per share, basic                    |  | $       | 0.07       |         |  | $       | 0.15       |         |  | $ | 0.32       |  |  | $ | 0.47       | 
|Net income per share, diluted                  |  | $       | 0.07       |         |  | $       | 0.15       |         |  | $ | 0.32       |  |  | $ | 0.46       | 
|Wtd. avg. shares outstanding,
basic (Note 1)   |  |         | 49,197,137 |         |  |         | 49,257,374 |         |  |   | 49,303,737 |  |  |   | 49,392,438 | 
|Wtd. avg. shares outstanding,
diluted (Note 1) |  |         | 50,117,441 |         |  |         | 49,844,660 |         |  |   | 49,949,165 |  |  |   | 50,510,547 | 
|Fiscal year ended February 2, 2002:            |  |         |            |         |  |         |            |         |  |   |            |  |  |   |            | 
|Net sales                                      |  | $       | 137,698    |         |  | $       | 156,509    |         |  | $ | 183,028    |  |  | $ | 207,605    | 
|Gross margin                                   |  |         | 41,957     |         |  |         | 48,178     |         |  |   | 60,786     |  |  |   | 69,259     | 
|Operating income                               |  |         | 1,355      |         |  |         | 5,741      |         |  |   | 14,321     |  |  |   | 22,865     | 
|Net income                                     |  |         | 979        |         |  |         | 3,544      |         |  |   | 8,885      |  |  |   | 14,157     | 
|                                               |  |         |            |         |  |         |            |         |  |   |            |  |  |   |            | 
|Net income per share, basic                    |  | $       | 0.02       |         |  | $       | 0.07       |         |  | $ | 0.18       |  |  | $ | 0.29       | 
|Net income per share, diluted                  |  | $       | 0.02       |         |  | $       | 0.07       |         |  | $ | 0.18       |  |  | $ | 0.28       | 
|Wtd. avg. shares outstanding,
basic (Note 1)   |  |         | 48,778,221 |         |  |         | 49,079,099 |         |  |   | 49,104,816 |  |  |   | 49,126,325 | 
|Wtd. avg. shares outstanding,
diluted (Note 1) |  |         | 49,796,586 |         |  |         | 49,652,723 |         |  |   | 49,351,130 |  |  |   | 49,682,930 | 

Earnings per basic and diluted shares outstanding are computed independently
for each of the quarters presented and, therefore, may not sum to the totals
for the year.

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INDEX TO EXHIBITS

|               |       |                        |  |                                                                                                                                                                                    
|-------------- | ----- | ---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |       | Description of Exhibit
|               |       |                       
|               | 3.1   |                        |  | Third Amended and Restated Articles of Incorporation of the
Company (1)                                                                                                            
|               | 3.2   |                        |  | Certificate of Amendment, dated December 17, 2002, of Third
Amended and Restated Articles of Incorporation of the Company                                                          
|               | 3.3   |                        |  | Certificate of Correction, dated February 28, 2003, of Third
Amended and Restated Articles of Incorporation of the Company                                                         
|               | 3.4   |                        |  | Certificate of Determination of Preferences of Series A Junior
Participating Preferred Stock of the Company (4)                                                                    
|               | 3.5   |                        |  | Second Amended and Restated Bylaws of the Company (1)                                                                                                                              
|               | 3.6   |                        |  | Amendment, dated March 25, 2003, to the Second Amended and
Restated Bylaws of the Company                                                                                          
|               | 4.1   |                        |  | Specimen stock certificate (1)                                                                                                                                                     
|               | 10.1  |                        |  | Form of Indemnity Agreement between the Company and each of
its executive officers and directors (1) *                                                                             
|               | 10.2  |                        |  | 1986-87 Stock Option Plan dated as of December 11, 1986, as
amended (the Option Plan) (1) *                                                                                      
|               | 10.3  |                        |  | Amended and Restated 1992 Stock Award Plan dated June 8, 1999
(the Award Plan) (8) *                                                                                             
|               | 10.4  |                        |  | Amended and Restated 1999 Stock Award Plan dated December 31,
2002 *                                                                                                               
|               | 10.5  |                        |  | Pacific Sunwear of California, Inc. Executive Deferred
Compensation Plan and Trust Agreement (2) *                                                                                 
|               | 10.6  |                        |  | Amended and Restated Pacific Sunwear of California, Inc.
Employee Stock Purchase Plan dated December 31, 2002 *                                                                    
|               | 10.7  |                        |  | Restricted Stock Award Agreement dated September 18, 1996, by
and between the Company and
Greg H. Weaver (8) *                                                                     
|               | 10.8  |                        |  | Restricted Stock Award Agreement dated September 17, 1999, by
and between the Company and Greg H. Weaver (7) *                                                                     
|               | 10.9  |                        |  | Restricted Stock Award Agreement dated January 3, 2001, by and
between the Company and Greg H. Weaver (8) *                                                                        
|               | 10.10 |                        |  | Amended and Restated Employment Agreement dated February 5,
2001, between the Company and 
Greg H. Weaver (8) *                                                                    
|               | 10.11 |                        |  | Severance Agreements, dated October 27, 1997, and November 6,
1996, by and between Pacific Sunwear of California, Inc. and
Timothy M. Harmon and Carl W. Womack, respectively (3) *

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##### Table of Contents



|               |       |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------------- | ----- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |       | Description of Exhibit
|               |       |                       
|               | 10.12 |                        |  | Standard Industrial Lease  Net, dated September 30, 1997,
between the Company and Bank of America National Trust and
Savings Association, as amended, and Standard Industrial Lease
- Net, dated January 12, 1998 between the Company and The
Realty Associates Fund IV, L.P., a Delaware limited
partnership, as amended for the Companys former corporate
headquarters and distribution center located in Anaheim,
California (3)
|               | 10.13 |                        |  | Standard Sublease  dated December 22, 1998, between the
Company and Bekins Moving and Storage Company, LLC (6)                                                                                                                                                                                                                                                                                                                      
|               | 10.14 |                        |  | Rights Agreement, dated as of December 16, 1998, between the
Company and U.S. Stock Transfer Corporation (5)                                                                                                                                                                                                                                                                                                                         
|               | 10.15 |                        |  | Business Loan Agreement, dated April 3, 2001, between the
Company and Bank of America N.A. (9)                                                                                                                                                                                                                                                                                                                                       
|               | 10.16 |                        |  | First Amendment to Business Loan Agreement, dated as of April
17, 2001, between the Company and Bank of America N.A. (9)                                                                                                                                                                                                                                                                                                             
|               | 10.17 |                        |  | Master Continuing and Unconditional Guaranty to Bank of
America N.A. from Pacific Sunwear Stores Corp. and
ShopPacSun.com Corp. (9)                                                                                                                                                                                                                                                                                                  
|               | 10.18 |                        |  | Second Amendment to Business Loan Agreement, dated as of
August 1, 2001, between the Company and Bank of America N.A.
(10)                                                                                                                                                                                                                                                                                                           
|               | 10.19 |                        |  | Third Amendment to Business Loan Agreement, dated as of August
19, 2002, between the Company and Bank of America N.A. (11)                                                                                                                                                                                                                                                                                                           
|               | 10.20 |                        |  | Fourth Amendment to Business Loan Agreement, dated as of
January 14, 2003, between the Company and Bank of America N.A                                                                                                                                                                                                                                                                                                               
|               | 21    |                        |  | Subsidiaries
of the Registrant                                                                                                                                                                                                                                                                                                                                                                                                       
|               | 23.1  |                        |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                                                                                     
|               | 99.1  |                        |  | Sarbanes-Oxley Act Section 906 Certifications                                                                                                                                                                                                                                                                                                                                                                                        



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|(1) |  | Incorporated by reference from the Companys Form S-1 Registration
Statement (No. 33-57860) as filed with the Securities and Exchange
Commission on February 4, 1993.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Incorporated by reference from the Companys Annual Report on Form 10-K as
filed with the Securities and Exchange Commission on March 17, 1995.                      
|   
|   
|   
|   
|(3) |  | Incorporated by reference from the Companys Annual Report on Form 10-K as
filed with the Securities and Exchange Commission on April 9, 1998.                       
|   
|   
|   
|   
|(4) |  | 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.                   
|   
|   
|   
|   
|(5) |  | Incorporated by reference from the Companys Form 8-A Registration
Statement as filed with the Securities and Exchange Commission on December
24, 1998.              
|   
|   
|   
|   
|(6) |  | Incorporated by reference from the Companys Annual Report on Form 10-K as
filed with the Securities and Exchange Commission on April 8, 1999.                       
|   
|   
|   
|   
|(7) |  | Incorporated by reference from the Companys Annual Report on Form 10-K as
filed with the Securities and Exchange Commission on April 6, 2000.                       

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##### Table of Contents



|(8)  |  | Incorporated by reference from the Companys Annual Report on Form 10-K as
filed with the Securities and Exchange Commission on March 30, 2001.       
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|(9)  |  | Incorporated by reference from the Companys Quarterly Report on Form 10-Q
as filed with the Securities and Exchange Commission on June 8, 2001.      
|    
|    
|    
|    
|(10) |  | Incorporated by reference from the Companys Quarterly Report on Form 10-Q
as filed with the Securities and Exchange Commission on September 14,
2001.
|    
|    
|    
|    
|(11) |  | Incorporated by reference from the Companys Quarterly Report on Form 10-Q
as filed with the Securities and Exchange Commission on September 11,
2002.
|    
|    
|    
|    
|*    |  | Management contract or compensatory plan or arrangement.                                                                                              

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