##### Table of Contents

United States

Securities and Exchange Commission

Washington, DC 20549

FORM 10-K

|                                                                                                                                                          |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|(Mark One)                                                                                                                                                |  | 
|[ x ] Annual Report
    Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934
    For the fiscal year ended: January 28, 2006
    or
|[  ] Transition
    Report pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934                                                    






PACIFIC SUNWEAR OF
CALIFORNIA, INC.




|                                             |  |                                     
|-------------------------------------------- |  | ------------------------------------
|CALIFORNIA                                   |  | 95-3759463                          
|(State of incorporation)                     |  | (I.R.S. Employer Identification No.)
|3450 E. Miraloma Ave.,
    Anaheim, CA       |  | 92806                               
|(Address of principal executive
    offices) |  | (Zip Code)                          






















S-K 10-K 10-K.


12b-2




12b-2








10-K.






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##### Table of Contents

PART I




Item 1. Business

Pacific Sunwear of California, Inc. (together with its wholly
owned subsidiaries, the Company,
Registrant, we, us, or
our) is a leading specialty retailer of everyday
casual apparel, accessories and footwear designed to meet the
needs of active teens and young adults.

We operate three nationwide, primarily mall-based chains of
retail stores under the names Pacific Sunwear (also
PacSun), Pacific Sunwear 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 fashion-focused streetwear, including casual
apparel, footwear and related accessories catering to teenagers
and young adults. In addition, we operate two websites that sell
PacSun and d.e.m.o. merchandise online, respectively, provide
content and community for our target customers and provide
investor relations information about us. We will begin operating
a new mall-based chain of specialty retail footwear stores under
the name One Thousand Steps during April 2006.

The Company, a California corporation, was incorporated in
August 1982. As of the dates presented, we leased and operated
the following number of stores among all 50 states and
Puerto Rico:

|         |  |                  |       |  |                |  |           |             |  |  |                |  |  |  |           | 
|-------- |  | ---------------- | ----- |  | -------------- |  | --------- | ----------- |  |  | -------------- |  |  |  | --------- | 
|         |  | January 28, 2006 |       |  | March 24, 2006 | 
|         |  |                  |      
|         |  | # of Stores      |       |  | Square Footage |  |           | # of Stores |  |  | Square Footage | 
|         |  |                  |      
|PacSun   |  |                  | 811   |  |                |  | 2,994,945 |             |  |  | 814            |  |  |  | 3,019,184 | 
|Outlet   |  |                  | 96    |  |                |  | 393,565   |             |  |  | 96             |  |  |  | 393,008   | 
|d.e.m.o. |  |                  | 198   |  |                |  | 542,481   |             |  |  | 197            |  |  |  | 542,344   | 
|         |  |                 
|Total    |  |                  | 1,105 |  |                |  | 3,930,991 |             |  |  | 1,107          |  |  |  | 3,954,536 | 

www.pacsun.com www.demostores.com. 10-K, 10-Q, 8-K,


53-week


|            |                  |  |            |  | 
|----------- | ---------------- |  | ---------- |  | 
|Fiscal Year | Year-End Date    |  | # of Weeks
|           
|2006        | February 3, 2007 |  | 53        
|2005        | January 28, 2006 |  | 52        
|2004        | January 29, 2005 |  | 52        
|2003        | January 31, 2004 |  | 52        
|2002        | February 1, 2003 |  | 52        
|2001        | February 2, 2002 |  | 52        

Our Mission and Strategies




Offer Popular Name Brands Supplemented by Proprietary
Brands.








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##### Table of Contents

that our merchandising strategy differentiates our stores from
competitors who may offer 100% proprietary brands or seek to
serve a wider customer base and age range. See
Merchandising.

Promote the PacSun and d.e.m.o. Brand Images. We promote
the PacSun and d.e.m.o. brands primarily through national print
advertising in major magazines that target teens and young
adults. We also maintain a proprietary brand credit card through
a third party to promote the PacSun brand image and lifestyle.

Actively Manage Merchandise Trends. We do not attempt to
dictate fashion, but instead devote considerable effort to
identifying emerging fashion trends and brand names. We use
focus groups, listen to our customers and store employees,
monitor sell-through trends, test small quantities of new
merchandise in a limited number of stores, and maintain close
domestic and international sourcing relationships. We believe
that these practices enhance our ability to identify and respond
to emerging fashion trends and brand names as well as develop
new proprietary brand styles in order to capitalize on existing
fashion trends.

Maintain Strong Vendor Relationships. We view our vendor
relationships as important to our success and we promote
frequent personal interaction with our vendors. We believe many
of our vendors view PacSun, PacSun Outlet and d.e.m.o. stores as
important distribution channels due to our nationwide presence
and ability to introduce products to a broad audience. We tend
to be one of the largest, if not the largest, customers for many
of our vendors and we work closely with them to respond to
emerging fashion trends and to obtain PacSun and d.e.m.o.
exclusives, which are products that cannot be found
at any other retailer.

Provide Attentive Customer Service. We are committed to
offering courteous, professional and non-intrusive customer
service. We strive to give our 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
our customers, we train our 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 proprietary brands,
merchandised by category. d.e.m.o. merchandise is displayed by
brand accompanied by 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. We believe the
combination of our attentive customer service and unique store
environments is key to our success.

Continue to Expand the Number of Stores. We intend to
continue our store growth through the opening of new stores
under our three existing formats as well as through the launch
of One Thousand Steps. We believe the One Thousand Steps concept
can reach 600-800 stores in the future. We may also acquire an
existing retail chain. In each of the last three fiscal years in
the period ended January 28, 2006, we opened 115, 113, and
86 net new stores, respectively. See Store
Expansion within the Stores section of this
document for further details regarding plans for fiscal 2006.

Offer Merchandise for Sale Over the Internet. We sell
merchandise over the internet at www.pacsun.comand www.demostores.com. The websites offer a
selection of the same merchandise carried in our stores. We
maintain a substantial database of
e-mail names that we
use for marketing purposes. We also advertise our websites as a
shopping destination on certain internet portals and search
engines and market our websites in our stores using in-store
signage, merchandise bags and receipts. Our internet strategy
benefits from the nationwide retail presence of our stores, the
strong brand recognition of PacSun and d.e.m.o., a loyal and
internet-savvy customer base, the participation of our key
brands and the ability to return merchandise to our stores.

Merchandising

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



Pacific Sunwear of California, Inc. Annual Report
2005 / 3



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##### Table of Contents

as the dominant retailer for their lifestyle. The following
table sets forth our merchandise assortment as a percentage of
net sales for the most recent three fiscal years:

|              |  |               |      |  |      |  |      |      |  |  |      | 
|------------- |  | ------------- | ---- |  | ---- |  | ---- | ---- |  |  | ---- | 
|              |  | Total Company |     
|              |  |               |     
|              |  | 2005          |      |  | 2004 |  |      | 2003 | 
|              |  |               |     
|Guys apparel  |  |               | 36%  |  |      |  | 37%  |      |  |  | 38%  | 
|Girls apparel |  |               | 31%  |  |      |  | 30%  |      |  |  | 31%  | 
|Accessories   |  |               | 19%  |  |      |  | 19%  |      |  |  | 19%  | 
|Footwear      |  |               | 14%  |  |      |  | 14%  |      |  |  | 12%  | 
|              |  |              
|Total         |  |               | 100% |  |      |  | 100% |      |  |  | 100% | 
|              |  |              

|              |  |                   |      |  |          |  |      |      |  |  |      |  |  |      |      |  |      |  |      |  |  |  |      | 
|------------- |  | ----------------- | ---- |  | -------- |  | ---- | ---- |  |  | ---- |  |  | ---- | ---- |  | ---- |  | ---- |  |  |  | ---- | 
|              |  | PacSun and Outlet |      |  | d.e.m.o. | 
|              |  |                   |     
|              |  | 2005              |      |  | 2004     |  |      | 2003 |  |  | 2005 |  |  | 2004 |      |  | 2003 | 
|              |  |                   |     
|Guys apparel  |  |                   | 35%  |  |          |  | 35%  |      |  |  | 36%  |  |  |      | 45%  |  |      |  | 51%  |  |  |  | 63%  | 
|Girls apparel |  |                   | 29%  |  |          |  | 29%  |      |  |  | 31%  |  |  |      | 38%  |  |      |  | 35%  |  |  |  | 27%  | 
|Accessories   |  |                   | 20%  |  |          |  | 20%  |      |  |  | 20%  |  |  |      | 13%  |  |      |  | 12%  |  |  |  | 10%  | 
|Footwear      |  |                   | 16%  |  |          |  | 16%  |      |  |  | 13%  |  |  |      | 4%   |  |      |  | 2%   |  |  |  | n/a  | 
|              |  |                  
|Total         |  |                   | 100% |  |          |  | 100% |      |  |  | 100% |  |  |      | 100% |  |      |  | 100% |  |  |  | 100% | 
|              |  |                  





Vendor and Contract Manufacturer Relationships.












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benefit from the lower costs associated with foreign
manufacturing and the shorter lead times associated with
domestic manufacturing.

Purchasing, Allocation and Distribution. Our
merchandising department oversees the purchasing and allocation
of our merchandise. Our buyers are responsible for reviewing
branded merchandise lines from new and existing vendors,
identifying emerging fashion trends, and selecting branded and
proprietary brand merchandise styles in quantities, colors and
sizes to meet inventory levels established by Company
management. Our 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 our
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 our distribution facility in
Anaheim, California, where it is inspected, received into our
computer system, allocated to stores, ticketed when necessary,
and boxed for distribution to our stores or packaged for
delivery to our internet customers. Each store is typically
shipped merchandise three to five times a week, providing it
with a steady flow of new merchandise. We use a national and a
regional small package carrier to ship merchandise to our stores
and internet customers. We may occasionally use airfreight to
ship merchandise to stores during peak selling periods.

Stores

Locations. We operate stores in each of the
50 states and Puerto Rico. For a geographical breakdown of
stores by state for each of our store concepts, see Item 2,
Properties.

Store Expansion. During fiscal 2005, we opened
115 net new stores, which included 67 PacSun stores, 12
PacSun Outlet stores and 36 d.e.m.o. stores, and also expanded
or relocated an additional 34 existing stores. During fiscal
2006, we plan to open approximately 100 new stores, 9 of which
will be our new One Thousand Steps footwear concept, with the
remaining stores consisting of a mixture of PacSun, d.e.m.o. and
a relatively smaller portion of PacSun Outlet locations. We also
plan to expand or relocate approximately 45-50 of our most
productive stores to larger locations during fiscal 2006. As of
the date of this filing, approximately 75% of the leases related
to fiscal 2006 stores have been executed.

Our store site selection strategy is to locate our stores
primarily in high-traffic, regional malls serving markets that
meet our demographic criteria, including average household
income and population density. We also consider mall sales per
square foot, the performance of other retail tenants serving
teens and young adult customers, anchor tenants and occupancy
costs. We currently seek PacSun and PacSun Outlet store
locations of approximately 4,000 square feet and d.e.m.o.
store locations of approximately 3,000 square feet. One
Thousand Steps stores will initially be targeted at
approximately 2,500 square feet. For details concerning
average costs to build and stock new and relocated stores in
fiscal 2005, see Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Liquidity and Capital Resources.

Our continued growth depends upon our ability to open and
operate stores on a profitable basis. Our ability to expand
successfully will be dependent upon a number of factors,
including sufficient demand for our merchandise in existing and
new markets, our ability 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. Our stores are open for business during
mall shopping hours. Each store has a manager, one or more
co-managers or assistant managers, and approximately six to
twelve part-time sales associates. District managers supervise
approximately seven to twelve stores and approximately six to
ten district managers report to a regional director. District
and store managers as well as store co-managers participate in a
bonus program based on achieving predetermined metrics,
including sales and inventory shrinkage targets. We have
well-established store operating policies and procedures and an
extensive in-store training program for new store managers and
co-managers. We



Pacific Sunwear of California, Inc. Annual Report
2005 / 5



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place great emphasis on loss prevention programs in order to
control inventory shrinkage. These programs include 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. As a result of
these programs, our historical inventory shrinkage rates have
been below 1.5% of net sales at retail (0.6% at cost).

Information Systems

Our merchandise, financial and store computer systems are fully
integrated and operate using primarily IBM equipment. Our
software is regularly upgraded or modified as needs arise or
change. Our information systems provide Company management,
buyers and planners with 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. Company
management uses weekly best/worst item sales reports to enhance
the timeliness and effectiveness of purchasing and markdown
decisions. Merchandise purchases are based on planned sales and
inventory levels and are frequently revised to reflect changes
in demand for a particular item or classification.

All of our 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, electronic
check and credit/debit authorization, and automatic nightly
transmittal of data between the store and our corporate offices.
Each of the regional directors 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. We believe our management information systems are adequate
to support our planned expansion at least through fiscal 2006.

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. Our stores compete nationally with
Abercrombie and Fitch, Hollister, American Eagle Outfitters, The
Gap, Aeropostale, Hot Topic and others as well as a wide variety
of regional and local specialty stores. Many of our competitors
are larger and have significantly greater resources than we do.
We believe the principal competitive factors in our industry are
fashion, merchandise assortment, quality, price, store location,
environment and customer service.

Trademarks and Service Marks

We are the owner in the United States of the marks Pacific
Sunwear of California, PacSun, Pacific
Sunwear, d.e.m.o., and One Thousand
Steps. We also use and have registered, or have a pending
registration on, a number of other marks, including those
attributable to our proprietary brands. We have also registered
many of our marks outside of the United States. We believe our
rights in our marks are important to our business and intend to
maintain our marks and the related registrations.

Seasonality

For details concerning the seasonality of our business, see
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, Seasonality
and Quarterly Results.

Working Capital Concentration

A significant portion of our working capital is related to
merchandise inventories available for sale to customers as well
as in our distribution center. For details concerning working
capital and the merchandising risk associated with our
inventories, see Risk Factors in Item 1A and
Working Capital within Item 7,
Managements Discussion and Analysis of Financial Condition
and Results of Operations.

Employees

At the end of fiscal 2005, we had approximately 15,000
employees, of whom approximately 11,000 were part-time. Of the
total employees, approximately 600 were employed at our
corporate headquarters and distribution center. A



6 / Pacific Sunwear of California, Inc. Annual Report
2005



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significant number of seasonal employees are hired during peak
selling periods. None of our employees are represented by a
labor union, and we believe that our relationships with our
employees are good.

Executive Officers. Set forth below are the names, ages,
titles, and certain background information of persons serving as
executive officers of the Company as of March 24, 2006:

|                  |  |     |    |  |       |                                                          
|----------------- |  | --- | -- |  | ----- | ---------------------------------------------------------
|Executive Officer |  | Age |    |  | Title
|                 
|Greg H. Weaver    |  |     | 52 |  |       | Executive Chairman of the Board
    (until April 1, 2006)
|Seth R. Johnson   |  |     | 52 |  |       | Chief Executive Officer, Board
    member                
|Thomas M. Kennedy |  |     | 44 |  |       | Division President of PacSun                             
|Lou Ann Bett      |  |     | 44 |  |       | Division President of d.e.m.o.                           
|Gerald M. Chaney  |  |     | 59 |  |       | Senior Vice President, Chief
    Financial Officer       
|Wendy E. Burden   |  |     | 52 |  |       | Chief Operating Officer                                  



















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Company, Vice President and Chief Financial Officer of Eastern
Europe for Pepsi-Cola International and Vice President and Chief
Financial Officer of Pepsi West.



Item 1A. Risk Factors

Cautionary Note Regarding Forward-Looking Statements

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 we intend that such
forward-looking statements be subject to the safe harbors
created thereby. We are hereby providing cautionary statements
identifying important factors that could cause our 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, including forecasts of
fiscal 2006 planned new store openings and future capital
expenditures, are based on information available to us as of the
date hereof, and we assume no obligation to update or revise any
such forward-looking statements to reflect events or
circumstances that occur after such statements are made.

The products we sell are subject to significant
merchandising/fashion sensitivity. Our success is
largely dependent upon our ability to gauge the fashion tastes
of our customers and to provide merchandise at competitive
prices and in adequate quantities that satisfies customer demand
in a timely manner. Our failure to anticipate, identify or react
appropriately in a timely manner to changes in fashion trends
could have a material adverse effect on our same store sales
results, operating margins, financial condition and results of
operations. Misjudgments or unanticipated fashion changes could
also have a material adverse effect on our image with our
customers. Some of our 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, PacSun Outlet, d.e.m.o. and One Thousand Steps stores,
or the loss of one or more key vendors or proprietary brand
sources for any reason, could have a material adverse effect on
our business.

We may not be able to manage our planned expansion
effectively. Our continued growth depends to a
significant degree on our ability to open and operate stores on
a profitable basis and to manage our planned expansion. There
can be no assurance that we will achieve our planned expansion,
that such expansion will be profitable, or that we will be able
to manage our growth effectively. Our planned expansion is
dependent upon a number of factors, including our ability 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 our control may also affect our ability to
expand, including general economic and business conditions
affecting consumer spending. Any failure to manage growth could
have a material adverse effect on our business, financial
condition and results of operations.

We will begin operating a new retail concept during fiscal
2006, One Thousand Steps, which could negatively affect existing
operations. We will commence operations for One
Thousand Steps during April 2006. We are currently making final
preparations for the initial nine store openings planned for
fiscal 2006. Our ability to make this new retail concept
successful is subject to numerous risks, including, but not
limited to, (i) unanticipated operating problems,
(ii) lack of customer acceptance, (iii) new vendor
relationships, (iv) competition from existing and new
retailers, and (v) lack of sufficient product
differentiation. There can be no assurance that this new retail
concept will achieve sales and profitability levels that justify
the Companys investment in it. Additionally, the expansion
of this new retail concept involves other risks that could have
a material adverse effect on the Company, including, but not
limited to, (i) diversion of managements attention
from the Companys core businesses, (ii) inability to
attract, train and retain qualified personnel, including
management and product designers, and (iii) difficulty in
locating and obtaining favorable



8 / Pacific Sunwear of California, Inc. Annual Report
2005



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store sites and negotiating acceptable lease terms. Any
inability to succeed in developing a profitable new retail
concept could have a material adverse effect on our continued
growth and results of operations.

Our customers may not accept our proprietary brand
merchandise. Sales from proprietary brand merchandise
accounted for approximately 31%, 30%, and 32% of net sales in
fiscal 2005, 2004 and 2003, respectively. We may increase the
percentage of net sales in proprietary brand merchandise in the
future, although there can be no assurance that we will be able
to achieve increases in proprietary brand merchandise sales as a
percentage of net sales. Because our proprietary brand
merchandise generally carries higher merchandise margins than
our other merchandise, our failure to anticipate, identify and
react in a timely manner to fashion trends with our proprietary
brand merchandise, particularly if the percentage of net sales
derived from proprietary brand merchandise increases, may have a
material adverse effect on our same store sales results,
operating margins, financial condition and results of operations.

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

We could lose key personnel at any time. Our
continued success is dependent to a significant degree upon the
services of our key personnel, particularly our executive
officers. The loss of the services of any member of our senior
management team could have a material adverse effect on our
business, financial condition and results of operations. Our
success in the future will also be dependent upon our ability to
attract and retain qualified personnel. Our inability to attract
and retain qualified personnel in the future could have a
material adverse effect on our business, financial condition and
results of operations.

Our dependence on a single distribution facility exposes us
to significant operational risks. All of our current
distribution functions continue to reside within a single
facility in Anaheim, California. The Company is currently
evaluating site selection alternatives for the construction of a
second distribution center. Any significant interruption in the
operation of the existing distribution facility due to natural
disasters, accidents, system failures or other unforeseen causes
would have a material adverse effect on our business, financial
condition and results of operations. There can be no assurance
that our current distribution center will be adequate to support
our future growth.

Selling merchandise over the internet carries particular
risks that can distract attention from our core
businesses. Our internet operations are subject to
numerous risks that could have a material adverse effect on our
operational results, including unanticipated operating problems,
reliance on third party computer hardware and software
providers, system failures and the need to invest in additional
computer systems. Specific risks include: (i) diversion of
sales from our stores; (ii) rapid technological change;
(iii) liability for online content; and (iv) risks
related to the failure of the computer systems that operate the
website and its related support systems, including computer
viruses, telecommunication failures and electronic break-ins and
similar disruptions. In addition, internet operations involve
risks which are beyond our control that could have a material
adverse effect on our operational results, including:
(i) price competition involving the items we intend to
sell; (ii) the entry of our vendors into the internet
business, in direct competition with us; (iii) the level of
merchandise returns experienced by us; (iv) governmental
regulation; (v) online security breaches involving
unauthorized access to Company and/or customer information;
(vi) credit card fraud; and (vii) competition and
general economic conditions specific to the internet, online
commerce and the apparel industry.

Any terrorist attacks or war/threat of war could
significantly affect consumer spending. The majority of
our stores are located in regional shopping malls. Any 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



Pacific Sunwear of California, Inc. Annual Report
2005 / 9



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##### Table of Contents

management could close regional shopping malls in response to
any immediate security concern. Mall closures, as well as lower
customer traffic due to security concerns, could result in
decreased sales. 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 our business, financial condition and results
of operations.

Our foreign sources of production may not always be
reliable. We purchase merchandise directly in foreign
markets for our proprietary brands. In addition, we purchase
merchandise from domestic vendors, some of which is manufactured
overseas. We do not have any long-term merchandise supply
contracts and our imports are subject to existing or potential
duties, tariffs and quotas. We face competition from other
companies for production facilities and import quota capacity.
We also face a variety of other risks generally associated with
doing business in foreign markets and importing merchandise from
abroad, such as: (i) political instability;
(ii) enhanced security measures at United States ports,
which could delay delivery of imports; (iii) 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 within which we do business;
(iv) imposition of duties, taxes, and other charges on
imports; (v) delayed receipt or non-delivery of goods due
to the failure of foreign-source suppliers to comply with
applicable import regulations; (vi) delayed receipt or
non-delivery of goods due to organized labor strikes or
unexpected or significant port congestion at United States
ports; and (vii) 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 that, if
enacted, would increase the cost of products purchased from
suppliers in countries that we do business with. Any inability
on our part to rely on our foreign sources of production due to
any of the factors listed above could have a material adverse
effect on our business, financial condition and results of
operations.

Any failure by us to maintain credit facility financial
covenants could have a material adverse impact on our
business. A significant decrease in our operating
results could adversely affect our ability to maintain required
financial ratios under our credit facility. Required financial
ratios include a rolling four-quarter minimum fixed charge
coverage ratio as well as a maximum leverage ratio. If these
financial ratios are not maintained, the lenders will have the
option to terminate the facility and require immediate repayment
of all amounts outstanding under the credit facility, if any.
The alternatives available to the Company if in default of its
covenants would include renegotiating certain terms of the
credit agreement, obtaining waivers from the lenders, or
obtaining a new credit agreement with another bank or group of
lenders, which may contain different terms.

Adverse outcomes of litigation matters could significantly
affect our operational results. We are involved from
time to time in litigation incidental to our business. We
believe that the outcome of current litigation will not have a
material adverse effect upon our results of operations or
financial condition. However, our assessment of current
litigation could change in light of the discovery of facts with
respect to legal actions pending against us not presently known
to us or determinations by judges, juries or other finders of
fact which do not accord with our evaluation of the possible
liability or outcome of such litigation.

Our stock price can fluctuate significantly. The
market price of our 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, net 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
public companies for reasons frequently unrelated to the
operating performance of the specific companies.

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



10 / Pacific Sunwear of California, Inc. Annual
Report 2005



---



##### Table of Contents

We caution that the risk factors described above could cause
actual results or outcomes to differ materially from those
expressed in any forward-looking statements made by us or on
behalf of the Company. Further, we cannot assess the impact of
each such factor on our 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 1B. Unresolved Staff Comments

None.



Item 2. Properties

We operate retail apparel stores in all 50 states and
Puerto Rico. At the end of fiscal 2005, the geographic
distribution of our stores by concept was as follows:

|               |  |        |     |        |         |  |    |          |  |  |       |  |  |  |       | 
|-------------- |  | ------ | --- | ------ | ------- |  | -- | -------- |  |  | ----- |  |  |  | ----- | 
|               |  |        |     | PacSun |         |  |    |          | 
|State          |  | PacSun |     |        | Outlets |  |    | d.e.m.o. |  |  | Total | 
|               | 
|Alabama        |  |        | 12  |        |         |  | 2  |          |  |  |       |  |  |  | 14    | 
|              
|Alaska         |  |        | 3   |        |         |  |    |          |  |  | 3     |  |  |  | 6     | 
|              
|Arizona        |  |        | 15  |        |         |  | 3  |          |  |  | 3     |  |  |  | 21    | 
|              
|Arkansas       |  |        | 3   |        |         |  |    |          |  |  |       |  |  |  | 3     | 
|              
|California     |  |        | 96  |        |         |  | 18 |          |  |  | 47    |  |  |  | 161   | 
|              
|Colorado       |  |        | 17  |        |         |  | 3  |          |  |  | 3     |  |  |  | 23    | 
|              
|Connecticut    |  |        | 10  |        |         |  |    |          |  |  | 5     |  |  |  | 15    | 
|              
|Delaware       |  |        | 3   |        |         |  | 1  |          |  |  | 1     |  |  |  | 5     | 
|              
|Florida        |  |        | 56  |        |         |  | 7  |          |  |  | 17    |  |  |  | 80    | 
|              
|Georgia        |  |        | 21  |        |         |  | 1  |          |  |  | 6     |  |  |  | 28    | 
|              
|Hawaii         |  |        | 8   |        |         |  |    |          |  |  | 1     |  |  |  | 9     | 
|              
|Idaho          |  |        | 6   |        |         |  |    |          |  |  |       |  |  |  | 6     | 
|              
|Illinois       |  |        | 25  |        |         |  | 2  |          |  |  | 8     |  |  |  | 35    | 
|              
|Indiana        |  |        | 16  |        |         |  | 2  |          |  |  | 4     |  |  |  | 22    | 
|              
|Iowa           |  |        | 10  |        |         |  |    |          |  |  |       |  |  |  | 10    | 
|              
|Kansas         |  |        | 8   |        |         |  |    |          |  |  |       |  |  |  | 8     | 
|              
|Kentucky       |  |        | 9   |        |         |  |    |          |  |  | 1     |  |  |  | 10    | 
|              
|Louisiana      |  |        | 11  |        |         |  |    |          |  |  | 3     |  |  |  | 14    | 
|              
|Maine          |  |        | 3   |        |         |  | 2  |          |  |  | 1     |  |  |  | 6     | 
|              
|Maryland       |  |        | 15  |        |         |  | 2  |          |  |  | 4     |  |  |  | 21    | 
|              
|Massachusetts  |  |        | 21  |        |         |  | 2  |          |  |  | 5     |  |  |  | 28    | 
|              
|Michigan       |  |        | 25  |        |         |  | 3  |          |  |  | 9     |  |  |  | 37    | 
|              
|Minnesota      |  |        | 15  |        |         |  | 2  |          |  |  | 3     |  |  |  | 20    | 
|              
|Mississippi    |  |        | 5   |        |         |  |    |          |  |  |       |  |  |  | 5     | 
|              
|Missouri       |  |        | 12  |        |         |  | 3  |          |  |  | 1     |  |  |  | 16    | 
|              
|Montana        |  |        | 4   |        |         |  |    |          |  |  |       |  |  |  | 4     | 
|              
|Nebraska       |  |        | 3   |        |         |  |    |          |  |  |       |  |  |  | 3     | 
|              
|Nevada         |  |        | 5   |        |         |  | 3  |          |  |  | 3     |  |  |  | 11    | 
|              
|New Hampshire  |  |        | 5   |        |         |  | 2  |          |  |  | 1     |  |  |  | 8     | 
|              
|New Jersey     |  |        | 22  |        |         |  | 3  |          |  |  | 8     |  |  |  | 33    | 
|              
|New Mexico     |  |        | 7   |        |         |  |    |          |  |  | 1     |  |  |  | 8     | 
|              
|New York       |  |        | 36  |        |         |  | 6  |          |  |  | 10    |  |  |  | 52    | 
|              
|North Carolina |  |        | 23  |        |         |  | 2  |          |  |  | 8     |  |  |  | 33    | 
|              
|North Dakota   |  |        | 4   |        |         |  |    |          |  |  |       |  |  |  | 4     | 
|              
|Ohio           |  |        | 35  |        |         |  | 2  |          |  |  | 8     |  |  |  | 45    | 
|              
|Oklahoma       |  |        | 7   |        |         |  |    |          |  |  |       |  |  |  | 7     | 
|              
|Oregon         |  |        | 11  |        |         |  | 2  |          |  |  | 2     |  |  |  | 15    | 
|              
|Pennsylvania   |  |        | 45  |        |         |  | 5  |          |  |  | 8     |  |  |  | 58    | 
|              
|Rhode Island   |  |        | 2   |        |         |  |    |          |  |  |       |  |  |  | 2     | 
|              
|South Carolina |  |        | 14  |        |         |  | 3  |          |  |  | 4     |  |  |  | 21    | 
|              
|South Dakota   |  |        | 2   |        |         |  |    |          |  |  |       |  |  |  | 2     | 
|              
|Tennessee      |  |        | 12  |        |         |  | 2  |          |  |  | 1     |  |  |  | 15    | 
|              
|Texas          |  |        | 56  |        |         |  | 4  |          |  |  | 9     |  |  |  | 69    | 
|              
|Utah           |  |        | 11  |        |         |  | 1  |          |  |  |       |  |  |  | 12    | 
|              
|Vermont        |  |        | 3   |        |         |  | 1  |          |  |  |       |  |  |  | 4     | 
|              
|Virginia       |  |        | 22  |        |         |  | 2  |          |  |  | 6     |  |  |  | 30    | 
|              
|Washington     |  |        | 22  |        |         |  | 2  |          |  |  | 1     |  |  |  | 25    | 
|              
|West Virginia  |  |        | 8   |        |         |  |    |          |  |  |       |  |  |  | 8     | 
|              
|Wisconsin      |  |        | 13  |        |         |  | 1  |          |  |  |       |  |  |  | 14    | 
|              
|Wyoming        |  |        | 2   |        |         |  |    |          |  |  |       |  |  |  | 2     | 
|              
|Puerto Rico    |  |        | 12  |        |         |  | 2  |          |  |  | 3     |  |  |  | 17    | 
|              
|Total          |  |        | 811 |        |         |  | 96 |          |  |  | 198   |  |  |  | 1,105 | 
|              







---



##### Table of Contents

We lease our retail stores under operating lease agreements with
initial terms ranging from approximately eight to ten years that
expire at various dates through January 2018 (see Note 7 to
the consolidated financial statements).

Our corporate office and distribution center are located in
Anaheim, California and encompass a total of approximately
550,000 square feet. We believe the current facilities are
capable of servicing our operational needs through fiscal 2007.
We plan to purchase additional land and begin construction of a
new, additional corporate office and a new, additional
distribution center before the end of fiscal 2007. We have
initiated planning efforts to assess these future needs.



Item 3. Legal Proceedings

We are involved from time to time in litigation incidental to
our business. We believe that the outcome of current litigation
will not likely have a material adverse effect on our results of
operations or financial condition.



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.





PART II





Item 5.
    Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity SecuritiesOur 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 sale prices per
share of the common stock as reported by NASDAQ:

|            |  |             |       |  |             |   |       |      |  |   |       |  |  |   |       | 
|----------- |  | ----------- | ----- |  | ----------- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|            |  | Fiscal 2005 |       |  | Fiscal 2004 |  
|            |  |             |      
|            |  | High        |       |  | Low         |   |       | High |  |   | Low   | 
|            |  |             |      
|1st Quarter |  | $           | 29.05 |  |             | $ | 22.09 |      |  | $ | 25.78 |  |  | $ | 21.24 | 
|2nd Quarter |  | $           | 25.28 |  |             | $ | 20.33 |      |  | $ | 22.48 |  |  | $ | 17.25 | 
|3rd Quarter |  | $           | 24.83 |  |             | $ | 20.70 |      |  | $ | 23.63 |  |  | $ | 17.64 | 
|4th Quarter |  | $           | 27.99 |  |             | $ | 22.68 |      |  | $ | 25.46 |  |  | $ | 21.00 | 





Common Stock Repurchase and Retirement




Item 6. Selected Financial Data










---



##### Table of Contents

selected consolidated operating data below should also be read
in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
included in this report. The consolidated income statement data
for fiscal 2002 and 2001, as well as the consolidated balance
sheet data as of the end of fiscal 2003, 2002 and 2001, are
derived from audited consolidated financial statements of the
Company, which are not included herein. All amounts presented
below are in millions, except per share and selected
consolidated operating data.

|                                                                  |  |             |         |  |      |   |         |      |  |   |         |  |  |      |       |  |  |   |        | 
|----------------------------------------------------------------- |  | ----------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ----- |  |  | - | ------ | 
|                                                                  |  | Fiscal Year |        
|                                                                  |  |             |        
|                                                                  |  | 2005        |         |  | 2004 |   |         | 2003 |  |   | 2002    |  |  | 2001 |      
|                                                                  |  |             |        
|CONSOLIDATED INCOME STATEMENT DATA:                               |  |             |         |  |      |   |         |      |  |   |         |  |  |      |       |  |  |   |        | 
|Net sales                                                         |  | $           | 1,391.5 |  |      | $ | 1,229.8 |      |  | $ | 1,041.5 |  |  | $    | 847.2 |  |  | $ | 685.4  | 
|Gross margin (after buying,
    distribution and occupancy costs) |  |             | 506.5   |  |      |   | 447.9   |      |  |   | 372.6   |  |  |      | 292.3 |  |  |   | 226.0  | 
|Operating income                                                  |  |             | 197.3   |  |      |   | 170.0   |      |  |   | 128.2   |  |  |      | 81.2  |  |  |   | 44.3   | 
|Net income                                                        |  |             | 126.2   |  |      |   | 106.9   |      |  |   | 80.2    |  |  |      | 49.7  |  |  |   | 27.6   | 
|Net income per share, diluted                                     |  | $           | 1.67    |  |      | $ | 1.38    |      |  | $ | 1.02    |  |  | $    | 0.66  |  |  | $ | 0.37   | 
|                                                                 
|CONSOLIDATED OPERATING DATA:                                      |  |             |         |  |      |   |         |      |  |   |         |  |  |      |       |  |  |   |        | 
|Comparable store net sales
    +/(-)(2)                           |  |             | 3.2%    |  |      |   | 7.3%    |      |  |   | 13.1%   |  |  |      | 9.7%  |  |  |   | (2.5)% | 
|Average net sales($)/square
    foot(1)                           |  |             | 371     |  |      |   | 374     |      |  |   | 363     |  |  |      | 330   |  |  |   | 321    | 
|Average net sales($)/store
    (000s)(1)                         |  |             | 1,309   |  |      |   | 1,290   |      |  |   | 1,229   |  |  |      | 1,102 |  |  |   | 1,031  | 
|Stores open at end of period                                      |  |             | 1,105   |  |      |   | 990     |      |  |   | 877     |  |  |      | 791   |  |  |   | 718    | 
|Capital expenditures ($million)                                   |  |             | 109.2   |  |      |   | 82.0    |      |  |   | 49.6    |  |  |      | 53.3  |  |  |   | 108.1  | 
|                                                                 
|CONSOLIDATED BALANCE SHEET DATA:                                  |  |             |         |  |      |   |         |      |  |   |         |  |  |      |       |  |  |   |        | 
|Working capital                                                   |  | $           | 304.3   |  |      | $ | 257.5   |      |  | $ | 243.0   |  |  | $    | 109.3 |  |  | $ | 78.9   | 
|Total assets                                                      |  |             | 807.6   |  |      |   | 677.8   |      |  |   | 644.5   |  |  |      | 464.0 |  |  |   | 413.2  | 
|Long-term debt                                                    |  |             |        |  |      |   |        |      |  |   | 0.2     |  |  |      | 1.1   |  |  |   | 24.6   | 







Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations


10-K.


Executive Overview




Comparable (or same store) sales


Net merchandise margins








---



##### Table of Contents

Operating margin  We view operating margin as
a key indicator of our success. The key drivers of operating
margins are comparable store net sales, net merchandise margins,
and our ability to control operating expenses. Operating margin
as a percentage of net sales for fiscal 2005, 2004, and 2003 was
14.2%, 13.8% and 12.3%, respectively. The 14.2% operating margin
result for fiscal 2005 was our highest historical annual
operating margin. For a discussion of the changes in the
components comprising operating margins, see Results of
Operations in this section.

Store sales trends  We evaluate store sales
trends in assessing the operational performance of our store
expansion strategies. Important store sales trends include
average net sales per store and average net sales per square
foot. Average net sales per store (in millions) for fiscal 2005,
2004 and 2003 were $1.31, $1.29 and $1.23, respectively. Average
net sales per square foot were $371, $374 and $363, respectively.

Cash flow and liquidity (working capital)  We
evaluate cash flow from operations, liquidity and working
capital to determine our short-term operational financing needs.
Cash flows from operations for fiscal 2005, 2004 and 2003 (in
millions) were $184.3, $143.0 and $161.0, respectively. We
expect cash flows from operations will be sufficient to finance
operations without borrowing under our credit facility during
fiscal 2006.

Critical Accounting Policies

The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America necessarily requires us 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 we believe are the most critical to aid
in fully understanding and evaluating reported financial results
include the following:

Revenue Recognition  Sales are recognized upon
purchase by customers at the Companys retail store
locations or upon delivery to and acceptance by the customer for
orders placed through the Companys website. We accrue for
estimated sales returns by customers based on historical sales
return results. Actual return rates have historically been
within our expectations and the reserves established. However,
in the event that the actual rate of sales returns by customers
increased significantly, our operational results could be
adversely affected. The Company records the sale of gift cards
as a current liability and recognizes a sale when a customer
redeems a gift card. The amount of the gift card liability is
determined taking into account our estimate of the portion of
gift cards that will not be redeemed or recovered.

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. We base the decision to mark down merchandise
primarily upon the current rate of sale and age of a specific
item, among other factors. To the extent that our estimates
differ from actual results, additional markdowns may have to be
recorded, which could reduce our gross margins and operating
results.

Store Operating Lease Accounting  Rent expense
from store operating leases represents one of the largest
expenses incurred in operating our stores. We account for store
rent expense in accordance with SFAS 13, Accounting
for Leases, and FASB Technical Bulletin 85-3,
Accounting for Operating Leases with Scheduled Rent
Increases. Accordingly, rent expense under our store
operating leases is recognized on a straight-line basis over the
original term of each stores lease, inclusive of rent
holiday periods during store construction and excluding any
lease renewal options. We capitalize rent expense incurred
during the build-out period of our stores as a component cost of
construction and amortize this amount over the life of the
related stores lease term once construction has completed,
generally upon the commencement of store operations. Beginning
in fiscal 2006, we will begin expensing pre-opening rent in
accordance with FASB Staff Position
13-1, Accounting
for Rental Costs Incurred during a Construction Period.
The Company accounts for landlord allowances received in
connection with store operating leases in accordance with
SFAS 13, Accounting for Leases, and FASB
Technical Bulletin 88-1, Issues Relating to
Accounting for Leases. Accordingly, all amounts received
from landlords to fund tenant improvements are recorded as a
deferred lease incentive liability, which is then amortized as a
credit to rent expense over the related stores lease term.



14 / Pacific Sunwear of California, Inc. Annual
Report 2005



---



##### Table of Contents

Evaluation of Long-Lived Assets  In the normal
course of business, we acquire tangible and intangible assets.
We periodically evaluate the recoverability of the carrying
amount of our long-lived assets (including property, plant and
equipment, and other intangible assets) whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be fully recoverable. Impairment is assessed when
the undiscounted expected future cash flows derived from an
asset or asset group are less than its carrying amount.
Impairments are recognized in operating earnings. We use our
best judgment based on the most current facts and circumstances
surrounding our 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 our assessment of recoverability.
Numerous factors, including changes in our business, industry
segment, and the global economy, could significantly impact our
decision to retain, dispose of, or idle certain of our
long-lived assets.

Evaluation of Insurance Reserves  We are
responsible for workers compensation and medical insurance
claims up to a specified aggregate stop loss amount. We maintain
reserves for estimated claims, both reported and incurred but
not reported, based on historical claims experience and other
estimated assumptions. Actual claims activity has historically
been within our expectations and the reserves established. To
the extent claims experience or our estimates change, additional
charges may be recorded in the future up to the aggregate stop
loss amount for each policy year.

Income Taxes  Current income tax expense is
the amount of income taxes expected to be payable for the
current year. The combined federal and state income tax expense
was calculated using estimated effective annual tax rates. 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. We
consider future taxable income and ongoing prudent and feasible
tax planning in assessing the value of our deferred tax assets.
Evaluating the value of these assets is necessarily based on our
judgment. If we determine that it is more likely than not that
these assets will not be realized, we would reduce the value of
these assets to their expected realizable value through a
valuation allowance, thereby decreasing net income. If we
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.

Litigation  We are involved from time to time
in litigation incidental to our business. We believe that the
outcome of current litigation will not likely have a material
adverse effect on our results of operations or financial
condition and, from time to time, may make provisions for
probable litigation losses. Depending on the actual outcome of
pending litigation, charges in excess of any provisions could be
recorded in the future, which may have an adverse effect on our
operating results.

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 following table:

|                                                                            |  |             |       |   |      |  |       |      |  |  |       |  
|--------------------------------------------------------------------------- |  | ----------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                                                            |  | Fiscal Year |      
|                                                                            |  |             |      
|                                                                            |  | 2005        |       |   | 2004 |  |       | 2003 | 
|                                                                            |  |             |      
|Net sales                                                                   |  |             | 100.0 | % |      |  | 100.0 | %    |  |  | 100.0 | %
|Cost of goods sold (including
    buying, distribution and occupancy costs) |  |             | 63.6  |   |      |  | 63.6  |      |  |  | 64.2  |  
|                                                                            |  |            
|Gross margin                                                                |  |             | 36.4  |   |      |  | 36.4  |      |  |  | 35.8  |  
|Selling, general and administrative
    expenses                            |  |             | 22.2  |   |      |  | 22.6  |      |  |  | 23.5  |  
|                                                                            |  |            
|Operating income                                                            |  |             | 14.2  |   |      |  | 13.8  |      |  |  | 12.3  |  
|Interest income/(expense), net                                              |  |             | 0.4   |   |      |  | 0.2   |      |  |  | 0.1   |  
|                                                                            |  |            
|Income before income tax expense                                            |  |             | 14.6  |   |      |  | 14.0  |      |  |  | 12.4  |  
|Income tax expense                                                          |  |             | 5.5   |   |      |  | 5.3   |      |  |  | 4.7   |  
|                                                                            |  |            
|Net income                                                                  |  |             | 9.1   | % |      |  | 8.7   | %    |  |  | 7.7   | %
|                                                                            |  |            
|Number of stores open at end of
    period                                  |  |             | 1,105 |   |      |  | 990   |      |  |  | 877   |  







---



##### Table of Contents

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

|                                |  |             |       |  |             |  |       | 
|------------------------------- |  | ----------- | ----- |  | ----------- |  | ----- | 
|                                |  | January 28, |       |  | January 29, | 
|                                |  | 2006        |       |  | 2005        | 
|                                |  |             |      
|PacSun stores                   |  |             | 811   |  |             |  | 744   | 
|Outlet stores                   |  |             | 96    |  |             |  | 84    | 
|d.e.m.o. stores                 |  |             | 198   |  |             |  | 162   | 
|                                |  |             |       |  |             |  |       | 
|Total stores                    |  |             | 1,105 |  |             |  | 990   | 
|                                |  |             |       |  |             |  |       | 
|Total square footage (in 000s) |  |             | 3,931 |  |             |  | 3,448 | 

Fiscal 2005 Compared to Fiscal 2004


Net Sales




|           |       |                 |  |                                                                                                                                                      
|---------- | ----- | --------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|           |       |                 | 
|Amount     |       |                
|($million) |       | Attributable to
|          
|$          | 70.9  |                 |  | 126 new stores opened in fiscal
    2005 not yet included in the comparable store base                                                               
|          
|           | 48.5  |                 |  | Net sales from stores opened in
    fiscal 2004 not included in the comparable store base in 2005                                                    
|          
|           | 36.9  |                 |  | 3.2% increase in comparable store
    net sales in fiscal 2005 compared to fiscal 2004                                                               
|          
|           | 13.3  |                 |  | Other non-comparable sales (net
    sales from expanded or relocated stores not yet included in the
    comparable store base and internet net sales)
|          
|           | (7.9  | )               |  | 11 closed stores in fiscal 2005 and
    5 closed stores in fiscal 2004                                                                               
|          
|$          | 161.7 |                 |  | Total                                                                                                                                                
|          







Gross Margin










---



##### Table of Contents

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to
$309.2 million in fiscal 2005 from $277.9 million in
fiscal 2004, an increase of $31.3 million, or 11.3%. As a
percentage of net sales, these expenses decreased to 22.2% from
22.6%. The components of this 0.4% net decrease in selling,
general and administrative expenses as a percentage of net sales
were as follows:

|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      
|%      |  | Attributable to                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|      
|(0.2)% |  | Decrease in store payroll as a
    percentage of net sales to 11.1% of net sales
    ($153.8 million) for fiscal 2005 versus 11.3%
    ($137.9 million) for fiscal 2004, an increase of
    $15.9 million. Store payroll expenses were down as a
    percentage of net sales due to tighter payroll controls in
    fiscal 2005. The increase in absolute dollars was due to the
    addition of 115 net new stores in fiscal 2005.                                                                                                   
|      
|(0.1)% |  | Decrease in general and
    administrative expenses as a percentage of net sales to 4.9%
    ($68.9 million) for fiscal 2005 from 5.0%
    ($62.1 million) for fiscal 2004, primarily due to a
    decrease in corporate payroll expenses as a percentage of net
    sales attributable to planned unfilled positions and lower bonus
    expenses for fiscal 2005. In absolute dollars, corporate payroll
    was $37.0 million for fiscal 2005 versus $34.0 million
    for fiscal 2004, primarily due to increased total headcount.
|      
|(0.1)% |  | Decrease in store closing expenses
    to $2.6 million for fiscal 2005 as compared to
    $3.0 million for fiscal 2004, primarily due to subleasing
    100% of our former Manhattan store location and lower overall
    expenses associated with store closures and relocations.                                                                                                                                                                                                                                                    
|      
|(0.4)% |  | Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      

Net Interest Income




Income Tax Expense




Fiscal 2004 Compared to Fiscal 2003


Net Sales




|           |       |                 |  |                                                                                                                                                      
|---------- | ----- | --------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|          
|Amount    
|($million) |       | Attributable to
|          
|$          | 70.5  |                 |  | 7.3% increase in comparable store
    net sales in fiscal 2004 compared to fiscal 2003                                                               
|          
|           | 67.0  |                 |  | 118 new stores opened in fiscal
    2004 not yet included in the comparable store base                                                               
|          
|           | 37.3  |                 |  | Net sales from stores opened in
    fiscal 2003 not included in the comparable store base in 2004                                                    
|          
|           | 16.3  |                 |  | Other non-comparable sales (net
    sales from expanded or relocated stores not yet included in the
    comparable store base and internet net sales)
|          
|           | (2.8  | )               |  | 5 closed stores in fiscal 2004 and
    4 closed stores in fiscal 2003                                                                                
|          
|$          | 188.3 |                 |  | Total                                                                                                                                                
|          







---



##### Table of Contents

Of the 7.3% increase in comparable store net sales in fiscal
2004, PacSun and PacSun Outlet comparable store net sales
increased a combined 7.5% and d.e.m.o. comparable store net
sales increased 5.7%. Total transactions per comparable store
were up low single digits and the average sale transaction in a
comparable store was up mid single digits, primarily driven by a
low single digit increase in both average retail prices per unit
and average number of items per sale transaction. The increases
in average retail prices were focused in merchandise categories
wherein we believed we had strategic opportunities that allowed
for such increases.

Within PacSun and PacSun Outlet, comparable store net sales of
guys and girls merchandise increased 8% and 7%,
respectively. Guys comparable store net sales results were
characterized by strength in sneakers, wovens, tees, and denim.
Girls comparable store net sales results were
characterized by strength in sneakers, accessories, denim, tees,
and skirts.

Within d.e.m.o., comparable store net sales of girls
merchandise increased 19% while guys merchandise decreased
3%. Girls comparable store net sales results were
characterized by strength in denim, outerwear, knits, shoes and
tees. Guys comparable store net sales results were
characterized by weakness in knits, fleece, and active hookups,
partially offset by strength in wovens and denim. The sales
trend within d.e.m.o. was primarily driven by expanded product
offerings for girls, including accessories and footwear.

Gross Margin

Gross margin, after buying, distribution and occupancy costs,
increased to $447.9 million in fiscal 2004 from
$372.6 million in fiscal 2003, an increase of
$75.3 million, or 20.2%. As a percentage of net sales,
gross margin was 36.4% for fiscal 2004 compared to 35.8% for
fiscal 2003. The 0.6% increase in gross margin as a percentage
of net sales was primarily attributable to improved merchandise
margins.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to
$277.9 million in fiscal 2004 from $244.4 million in
fiscal 2003, an increase of $33.5 million, or 13.7%. As a
percentage of net sales, these expenses decreased to 22.6% from
23.5%. The components of this 0.9% net decrease in selling,
general and administrative expenses as a percentage of net sales
were as follows:

|  |        |  |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|- | ------ |  | --------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|% |        |  | Attributable to
| 
|  | (0.6)% |  |                 | Decrease in general and
    administrative expenses as a percentage of net sales to 5.1%
    ($62.7 million) for fiscal 2004 from 5.7%
    ($58.8 million) for fiscal 2003, primarily due to a 0.4%
    reduction in each of restricted stock expenses and general and
    administrative salaries and bonuses as a percentage of net
    sales, partially offset by an increase in other general and
    administrative expenses of 0.2% as a percentage of net sales.
    Restricted stock expenses were $1.3 million in fiscal 2004
    as compared to $5.1 million in fiscal 2003 (see Note 9
    to the consolidated financial statements). General and
    administrative salaries and bonuses, while increased in absolute
    dollars, were lower as a percentage of net sales in fiscal 2004
    due to leveraging these costs over higher total sales.
| 
|  | (0.3)% |  |                 | Decrease in store closing expenses
    to $3.0 million for fiscal 2004 as compared to
    $6.2 million for fiscal 2003, primarily due to the
    execution of two subleases related to our former Manhattan store
    location and the execution of a lease termination agreement
    during the first half of fiscal 2004 related to our former
    corporate offices (see Note 7 to the consolidated financial
    statements).                                                                                                                                                                                                                                                                                                                                                                                                                               
| 
|  | 0.0%   |  |                 | Other store expenses, including
    store payroll, depreciation and selling expenses, were flat as a
    percentage of net sales between fiscal 2004 and fiscal 2003.
    Total store expenses were $212.2 million for fiscal 2004
    versus $179.4 million for fiscal 2003, an increase of
    $32.8 million. The increase in absolute dollars was
    primarily due to the addition of 113 net new stores in
    fiscal 2004. These expenses remained steady as a percentage of
    net sales in fiscal 2004 due to leveraging these costs over
    higher total sales.                                                                                                                                                                                                                                                                                      
| 
|  | (0.9)% |  |                 | Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| 

Net Interest Income










---



##### Table of Contents

Average cash balances were higher in fiscal 2004 primarily due
to higher net income driven by the comparable store net sales
increase in fiscal 2004.

Income Tax Expense

Income tax expense was $65.0 million in fiscal 2004
compared to $48.8 million in fiscal 2003. The effective
income tax rate was 37.8% in each of fiscal 2004 and 2003.

Liquidity and Capital Resources

We have historically financed our operations primarily from
internally generated cash flow, with occasional short-term and
long-term borrowings and equity financing in past years. Our
primary capital requirements have been for the construction of
newly opened, remodeled, expanded or relocated stores, the
financing of inventories and, in the past, construction of
corporate facilities. We believe that our working capital and
cash flows from operating activities will be sufficient to meet
our operating and capital expenditure requirements without
borrowing under our credit facility for fiscal 2006.

Operating Cash Flows

Net cash provided by operating activities for fiscal 2005,
fiscal 2004 and fiscal 2003 (in millions) was $184.3, $143.0 and
$161.0, respectively. The $41.3 million increase in cash
provided by operations in fiscal 2005 as compared to fiscal 2004
was attributable to the following:

|           |      |                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---------- | ---- | --------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|          
|Amount     |      |                
|($million) |      | Attributable to
|          
|$          | 19.3 |                 |  | Increase in net income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|          
|           | 11.5 |                 |  | Increase in depreciation expense,
    primarily due to the addition of 115 net new stores during
    fiscal 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|          
|           | 11.0 |                 |  | Increase in cash flows from other
    current liabilities, primarily due to accrued income taxes
    ($7.4 million), sublease loss accruals ($4.0 million),
    and other items netting to a cash flow decrease of
    $0.4 million. Cash flows related to income taxes were
    improved due to the timing of estimated income tax payments in
    relation to the actual fiscal 2005 income tax liability as
    compared to the same items from fiscal 2004. Cash flows related
    to sublease loss accruals were improved due to the execution of
    certain sublease and lease termination agreements with former
    landlords during fiscal 2004 that required certain cash payments
    during the prior year.
|          
|           | (0.5 | )               |  | Other items netting to a decrease
    in cash provided by operating activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|          
|$          | 41.3 |                 |  | Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|          

Working Capital




|           |       |                 |  |                                                                                                                                                                                                               
|---------- | ----- | --------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|          
|Amount     |       |                
|($million) |       | Attributable to
|          
|$          | 31.3  |                 |  | Increase in inventories, net of
    accounts payable, primarily due to square footage growth of 14%
    and planned increases in inventory per square foot of 8%.                                             
|          
|           | 26.6  |                 |  | Increase in cash and short-term
    investments, primarily due to cash generated by operations
    partially offset by cash used for capital expenditures and stock
    repurchases (see cash flow statement).
|          
|           | (10.7 | )               |  | Increase in accrued liabilities,
    primarily due to increased accruals for capital expenditures,
    gift cards and sales taxes in fiscal 2005 as compared to fiscal
    2004.                              
|          
|           | (8.9  | )               |  | Increase in income taxes payable
    due to the amount and timing of fiscal 2005 estimated income tax
    payments as compared to the same items for fiscal 2004.                                             
|          
|           | 8.5   |                 |  | Other items netting to a working
    capital increase.                                                                                                                                                        
|          
|$          | 46.8  |                 |  | Total                                                                                                                                                                                                         
|          







---



##### Table of Contents

Investing Cash Flows

Net cash used in investing activities in fiscal 2005, fiscal
2004 and fiscal 2003 (in millions) was $104.9,
$95.0 million and $115.8, respectively. The components of
the $104.9 million of net cash used in investing activities
in fiscal 2005 are as follows:

|           |        |                 |  |                                                                                                    
|---------- | ------ | --------------- |  | ---------------------------------------------------------------------------------------------------
|          
|Amount     |        |                
|($million) |        | Attributable to
|          
|$          | (813.5 | )               |  | Purchases of short-term investments
    (see Note 1 to the consolidated financial statements).     
|          
|           | 817.8  |                 |  | Maturities of short-term
    investments (see Note 1 to the consolidated financial
    statements).
|          
|           | (77.6  | )               |  | Capital expenditures for 126 new
    stores and 34 expansions/relocations in fiscal 2005.          
|          
|           | (22.3  | )               |  | Maintenance capital expenditures on
    existing stores.                                           
|          
|           | (6.1   | )               |  | Corporate capital expenditures,
    including computer hardware and software.                      
|          
|           | (3.2   | )               |  | Construction costs of new, expanded
    and relocated stores to open in fiscal 2006.               
|          
|$          | (104.9 | )               |  | Total                                                                                              
|          

Fiscal 2005 New Store Costs




Future Capital Expenditures




|           |     |                 |  |                                                                                                                                                                                                    
|---------- | --- | --------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|          
|Amount     |     |                
|($million) |     | Attributable to
|          
|$          | 103 |                 |  | Opening new and relocated/expanded
    stores                                                                                                                                                      
|          
|           | 26  |                 |  | Updating store visual and fixture
    presentations                                                                                                                                                
|          
|           | 24  |                 |  | Acquiring land and beginning
    construction of a new, additional distribution center and
    acquiring land for a new, additional corporate office to be
    constructed beginning in fiscal 2007
|          
|           | 11  |                 |  | Maintenance capital on existing
    stores                                                                                                                                                         
|          
|           | 8   |                 |  | Corporate capital expenditures such
    as computer hardware and software                                                                                                                          
|          
|$          | 172 |                 |  | Total                                                                                                                                                                                              
|          













---



##### Table of Contents

average total cost to build new stores or expand or relocate
stores will vary in the future depending on various factors,
including square footage, changes in store design, and local
construction costs.

Financing Cash Flows

Net cash used by financing activities in fiscal 2005 was
$48.5 million as compared to $93.4 million in fiscal
2004 and cash provided of $28.0 million in fiscal 2003,
respectively. Of the $48.5 million of net cash used in
financing activities in fiscal 2005, $65.6 million was used
for common stock repurchases and $1.5 million was used to make
principal payments under capital lease and long-term debt
obligations, partially offset by $18.7 million in proceeds
from employee exercises of stock options.

Credit Facility

We have an unsecured $200 million credit agreement with a
syndicate of lenders which expires September 14, 2010. The
credit facility provides for a $200 million revolving line
of credit that can be increased to up to $275 million at
our option under certain circumstances. The credit facility is
available for direct borrowing and the issuance of letters of
credit with a portion also available for swing-line loans.
Direct borrowings under the credit facility bear interest at the
Administrative Agents alternate base rate (as defined,
5.1% at January 28, 2006) or at optional interest rates
that are primarily dependent upon LIBOR for the time period
chosen. We had no direct borrowings outstanding under the credit
facility at January 28, 2006. The credit facility requires
us to maintain certain financial covenants, all of which we were
in compliance with as of January 28, 2006.

A significant decrease in our operating results could adversely
affect our ability to maintain the required financial ratios
under our credit facility. Required financial ratios include a
rolling four-quarter minimum fixed charge coverage ratio as well
as a maximum leverage ratio. If these financial ratios are not
maintained, the lenders will have the option to terminate the
facility and require immediate repayment of all amounts
outstanding under the credit facility, if any. The alternatives
available to us if in default of our covenants would include
renegotiating certain terms of the credit agreement, obtaining
waivers from the lenders, or obtaining a new credit agreement
with another bank or group of lenders, which may contain
different terms.

Contractual Obligations

We have minimum annual rental commitments under existing store
leases as well as a minor amount of capital leases for computer
equipment. Our financial obligations under these arrangements
are approximately $100 million in fiscal 2006 and similar
amounts annually thereafter. We lease all of our retail store
locations under operating leases. We lease equipment, from time
to time, under both capital and operating leases. In addition,
at any time, we are contingently liable for commercial letters
of credit with foreign suppliers of merchandise. At
January 28, 2006, our future financial commitments under
these arrangements were as follows:

|                            |  |                        |       |           |        |   |       |       |  |     |       |  |           |         |       |  |  |   |       | 
|--------------------------- |  | ---------------------- | ----- | --------- | ------ | - | ----- | ----- |  | --- | ----- |  | --------- | ------- | ----- |  |  | - | ----- | 
|                            |  | Payments Due by Period |      
|                            |  |                        |      
|Contractual Obligations     |  |                        |       | Less than |        |   | 1-3   |       |  | 3-5 |       |  | More than |        
|(in millions)               |  | Total                  |       |           | 1 Year |   |       | Years |  |     | Years |  |           | 5 Years |      
|                            | 
|Operating lease obligations |  | $                      | 679.4 |           |        | $ | 100.3 |       |  | $   | 195.8 |  |           | $       | 174.2 |  |  | $ | 209.1 | 
|Capital lease obligations   |  |                        | 0.4   |           |        |   | 0.3   |       |  |     | 0.1   |  |           |         |      |  |  |   |      | 
|Letters of credit           |  |                        | 32.7  |           |        |   | 32.7  |       |  |     |      |  |           |         |      |  |  |   |      | 
|                            |  |                       
|Total                       |  | $                      | 712.5 |           |        | $ | 133.3 |       |  | $   | 195.9 |  |           | $       | 174.2 |  |  | $ | 209.1 | 
|                            |  |                       



Operating Leases








---



##### Table of Contents

insurance, property taxes and percentage rent ranging from 5% to
7% based on sales volumes exceeding certain minimum sales
levels. The initial terms of such leases are typically 8 to
10 years, many of which contain renewal options exercisable
at our discretion. Most leases also contain rent escalation
clauses that come into effect at various times throughout the
lease term. Rent expense is recorded under the straight-line
method over the life of the lease (see Straight-Line
Rent in Note 1). Other rent escalation clauses can
take effect based on changes in primary mall tenants throughout
the term of a given lease. Most leases also contain cancellation
or kick-out clauses in our favor that relieve us of any future
obligation under a lease if specified sales levels are not
achieved by a specified date. None of our retail store leases
contain purchase options.

We review the operating performance of our stores on an ongoing
basis to determine which stores, if any, to expand, relocate or
close. We closed eleven stores in fiscal 2005 and anticipate
closing approximately ten stores in fiscal 2006.

Indemnifications

In the ordinary course of business, we may provide
indemnifications of varying scope and terms to customers,
vendors, lessors, business partners and other parties with
respect to certain matters, including, but not limited to,
losses arising our of our breach of such agreements, services to
be provided by us, or from intellectual property infringement
claims made by third parties. In addition, we have entered into
indemnification agreements with our directors and certain of our
officers that will require us, among other things, to indemnify
them against certain liabilities that may arise by reason of
their status or service as directors or officers. We maintain
director and officer insurance, which may cover certain
liabilities arising from our obligation to indemnify our
directors and officers in certain circumstances.

It is not possible to determine our maximum potential liability
under these indemnification agreements due to the limited
history of prior indemnification claims and the unique facts and
circumstances involved in each particular agreement. Such
indemnification agreements may not be subject to maximum loss
clauses. Historically, we have not incurred material costs as a
result of obligations under these agreements.

New Accounting Pronouncements

Information regarding new accounting pronouncements is contained
in Note 1 to the consolidated financial statements for the
year ended January 28, 2006, which note is incorporated
herein by this reference.

Inflation

We do not believe that inflation has had a material effect on
the results of operations in the recent past. There can be no
assurance that our business will not be affected by inflation in
the future.

Seasonality and Quarterly Results

Our business is seasonal by nature. Our first quarter
historically accounts for the smallest percentage of annual net
sales with each successive quarter contributing a greater
percentage than the last. In recent years, excluding sales
generated by new and relocated/expanded stores, 44% of our net
sales have occurred in the first half of the fiscal year and 56%
have occurred in the second half, with the Christmas and
back-to-school selling
periods together accounting for approximately 30% of our annual
net sales and a higher percentage of our operating income. Our
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.





Item 7A.
    Quantitative and Qualitative Disclosures About Market RiskWe are susceptible to market value fluctuations with regard to
our marketable securities. However, due to the relatively short
maturity period of those investments and/or our intention and
ability to hold those investments until maturity, the risk of
material market value fluctuations is not expected to be
significant.

To the extent we borrow under our credit facility, we are
exposed to market risk related to changes in interest rates. At
January 28, 2006, there were no borrowings outstanding
under our credit facility and we did not borrow under the



22 / Pacific Sunwear of California, Inc. Annual
Report 2005



---



##### Table of Contents

credit facility at any time during fiscal 2005 or 2004. Based on
the interest rate of 5.1% on our credit facility at
January 28, 2006, if interest rates on the credit facility
were to increase by 10%, and to the extent borrowings were
outstanding, for every $1 million outstanding on our credit
facility, net income would be reduced by approximately $3
thousand per year. See Summary of Significant Accounting
Policies and Nature of Business. We are not a
party with respect to derivative financial instruments.





Item 8.
    Financial Statements and Supplementary DataInformation with respect to this item is set forth in
Index to Financial Statements, which appears
immediately following the Signature section of this
report.





Item 9.
    Changes in, and Disagreements with, Accountants on Accounting
    and Financial DisclosureNone.





Item 9A.
    Controls and ProceduresConclusion Regarding the Effectiveness of Disclosure Controls
and Procedures

Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined
under
Rule 13a-15(e) and
15d-15(e) promulgated
under the Securities Exchange Act of 1934, as amended (the
Exchange Act). These disclosure controls and procedures are
designed to provide reasonable assurance 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. Based on this evaluation, our
principal executive officer and our principal financial officer
concluded that our disclosure controls and procedures were
effective as of January 28, 2006.

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

Managements Report on Internal Control Over Financial
Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f)
and 15d-15(f). Under
the supervision and with the participation of our management,
including our principal executive officer and principal
financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control 
Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal
Control  Integrated Framework, our management
concluded that our internal control over financial reporting was
effective as of January 28, 2006.

Our managements assessment of the effectiveness of our
internal control over financial reporting as of January 28,
2006 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in
their report which is included herein.

Our management, including our principal executive officer and
principal financial officer, does not expect that our disclosure
controls and procedures or our internal controls will prevent
all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect
that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have
been detected.



Pacific Sunwear of California, Inc. Annual Report
2005 / 23



---



##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Pacific Sunwear of California, Inc.

Anaheim, California

We have audited managements assessment, included in the
accompanying Managements Report on Internal Control
over Financial Reporting, that Pacific Sunwear of
California, Inc. and subsidiaries (the Company)
maintained effective internal control over financial reporting
as of January 28, 2006, based on criteria established in
Internal Control  Integrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over
financial reporting based on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.

A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.

Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.

In our opinion, managements assessment that the Company
maintained effective internal control over financial reporting
as of January 28, 2006, is fairly stated, in all material
respects, based on the criteria established in Internal
Control  Integrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of January 28, 2006, based on the criteria
established in Internal Control  Integrated
Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
January 28, 2006 of the Company and our report dated
March 24, 2006, expressed an unqualified opinion on those
financial statements.

DELOITTE & TOUCHE LLP

Costa Mesa, California

March 24, 2006



24 / Pacific Sunwear of California, Inc. Annual
Report 2005



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##### Table of Contents

Item 9B. Other Information

On January 12, 2006, the Company established criteria for
performance-based bonus awards for fiscal 2006 under the Pacific
Sunwear of California, Inc. 2005 Performance Incentive Plan (the
2005 Plan) for the following Named Executive
Officers (as identified in the Companys upcoming proxy
statement in connection with the 2006 annual meeting):

|                 |  |                                                          
|---------------- |  | ---------------------------------------------------------
|Name             |  | Title                                                    
|                
|Greg H. Weaver   |  | Executive Chairman of the Board
    (until April 1, 2006)
|Seth R. Johnson  |  | Chief Executive Officer                                  
|Wendy E. Burden  |  | Chief Operating Officer                                  
|Gerald M. Chaney |  | Senior Vice President, Chief
    Financial Officer       
|Thomas Kennedy   |  | Division President, PacSun                               
|Lou Ann Bett     |  | Division President, d.e.m.o.                             











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 and Related Stockholder Matters





|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions









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##### Table of Contents

Item 14.
    Principal Accountant Fees and ServicesInformation 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.





PART IV





Item 15.
    Exhibits and Financial Statement Schedules

(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
    consolidated financial statements or notes thereto.3.
    Exhibits included or incorporated herein: See Index to
    Exhibits at end of consolidated financial statements.

26 / Pacific Sunwear of California, Inc. Annual
Report 2005



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##### Table of Contents

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 29, 2006, on its behalf
by the undersigned, thereunto duly authorized.



PACIFIC SUNWEAR OF CALIFORNIA, INC.

By:
    /s/ Seth R. JohnsonSeth R. JohnsonChief Executive Officer
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/
    Seth R. JohnsonSeth
    R. Johnson                 |  | Director and Chief Executive
    Officer (Principal Executive Officer)                             |  | March 29, 2006
|                                                          
|/s/
    Greg H. WeaverGreg
    H. Weaver                   |  | Executive Chairman of the Board                                                                    |  | March 29, 2006
|                                                          
|/s/
    Gerald M. ChaneyGerald
    M. Chaney               |  | Senior Vice President and Chief
    Financial Officer (Principal Financial and Accounting Officer) |  | March 29, 2006
|                                                          
|/s/
    Julius Jensen IIIJulius
    Jensen III             |  | Non-Employee Director                                                                              |  | March 29, 2006
|                                                          
|/s/
    Pearson C.
    Cummin IIIPearson
    C. Cummin III |  | Non-Employee Director                                                                              |  | March 29, 2006
|                                                          
|/s/
    Sally Frame KasaksSally
    Frame Kasaks           |  | Non-Employee Director                                                                              |  | March 29, 2006
|                                                          
|/s/
    Peter StarrettPeter
    Starrett                   |  | Non-Employee Director                                                                              |  | March 29, 2006
|                                                          
|/s/
    Thomas M. MurnaneThomas
    M. Murnane             |  | Non-Employee Director                                                                              |  | March 29, 2006
|                                                          
|/s/
    Michael GoldsteinMichael
    Goldstein             |  | Non-Employee Director                                                                              |  | March 29, 2006
|                                                          
|/s/
    Michael WeissMichael
    Weiss                     |  | Non-Employee Director                                                                              |  | March 29, 2006







---



##### 

PACIFIC SUNWEAR OF CALIFORNIA, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL Years
Ended:

JANUARY 28, 2006 (Fiscal 2005)

JANUARY 29, 2005 (Fiscal 2004)

JANUARY 31, 2004 (Fiscal 2003)

|                                                                                                                                           |  |    
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ---
|Report of
    Independent Registered Public Accounting Firm                                                                                |  | F-2
|                                                                                                                                          
|Consolidated
    Balance Sheets as of January 28, 2006 and January 29,
    2005                                                            |  | F-3
|                                                                                                                                          
|Consolidated
    Statements of Income and Comprehensive Income for each of the
    three fiscal years in the period ended January 28, 2006 |  | F-4
|                                                                                                                                          
|Consolidated
    Statements of Shareholders Equity for each of the three
    fiscal years in the period ended January 28, 2006            |  | F-5
|                                                                                                                                          
|Consolidated
    Statements of Cash Flows for each of the three fiscal years in
    the period ended January 28, 2006                      |  | F-6
|                                                                                                                                          
|Notes to
    Consolidated Financial Statements                                                                                             |  | F-7
|EXHIBIT 21                                                                                                                                
|EXHIBIT 23.1                                                                                                                              
|EXHIBIT 31                                                                                                                                
|EXHIBIT 32                                                                                                                                









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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Pacific Sunwear of California, Inc.

Anaheim, California

We have audited the accompanying consolidated balance sheets of
Pacific Sunwear of California, Inc. and subsidiaries (the
Company) as of January 28, 2006 and
January 29, 2005, and the related consolidated statements
of income and comprehensive income, shareholders equity,
and cash flows for each of the three years in the period ended
January 28, 2006. 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 the standards of the
Public Company Accounting Oversight Board (United States). 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 subsidiaries as of
January 28, 2006 and January 29, 2005, and the results
of their operations and their cash flows for each of the three
years in the period ended January 28, 2006, in conformity
with accounting principles generally accepted in the United
States of America.

We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of January 28, 2006, based on the
criteria established in Internal Control 
Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report, dated
March 24, 2006, expressed an unqualified opinion on
managements assessment of the effectiveness of the
Companys internal control over financial reporting and an
unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.

DELOITTE & TOUCHE LLP

Costa Mesa, California

March 24, 2006



F-2 / Pacific Sunwear of California, Inc. Annual
Report 2005



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##### Table of Contents

PACIFIC SUNWEAR OF CALIFORNIA, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                           |  |             |         |  |             |   |         | 
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------- | ------- |  | ----------- | - | ------- | 
|                                                                                                                                           |  | January 28, |         |  | January 29, |  
|(In thousands, except share amounts)                                                                                                       |  | 2006        |         |  | 2005        |  
|                                                                                                                                           | 
|ASSETS                                                                                                                                    
|CURRENT ASSETS:                                                                                                                            |  |             |         |  |             |   |         | 
|Cash and cash equivalents                                                                                                                  |  | $           | 95,185  |  |             | $ | 64,308  | 
|Marketable securities                                                                                                                      |  |             | 74,911  |  |             |   | 79,223  | 
|Merchandise inventories                                                                                                                    |  |             | 215,140 |  |             |   | 175,081 | 
|Other current assets                                                                                                                       |  |             | 41,485  |  |             |   | 34,206  | 
|                                                                                                                                           |  |            
|TOTAL CURRENT ASSETS                                                                                                                       |  |             | 426,721 |  |             |   | 352,818 | 
|PROPERTY AND EQUIPMENT,
    NET                                                                                                            |  |             | 355,822 |  |             |   | 304,222 | 
|OTHER ASSETS                                                                                                                               |  |             | 25,018  |  |             |   | 20,738  | 
|                                                                                                                                           |  |            
|TOTAL ASSETS                                                                                                                               |  | $           | 807,561 |  |             | $ | 677,778 | 
|                                                                                                                                           |  |            
|                                                                                                                                          
|LIABILITIES AND
    SHAREHOLDERS EQUITY                                                                                                  
|CURRENT LIABILITIES:                                                                                                                       |  |             |         |  |             |   |         | 
|Accounts payable                                                                                                                           |  | $           | 47,550  |  |             | $ | 38,753  | 
|Other current liabilities                                                                                                                  |  |             | 74,921  |  |             |   | 56,557  | 
|                                                                                                                                           |  |            
|TOTAL CURRENT
    LIABILITIES                                                                                                              |  |             | 122,471 |  |             |   | 95,310  | 
|LONG-TERM LIABILITIES:                                                                                                                     |  |             |         |  |             |   |         | 
|Deferred lease incentives                                                                                                                  |  |             | 81,440  |  |             |   | 67,683  | 
|Deferred rent                                                                                                                              |  |             | 28,748  |  |             |   | 26,826  | 
|Deferred income taxes                                                                                                                      |  |             | 12,584  |  |             |   | 16,132  | 
|Other long-term liabilities                                                                                                                |  |             | 15,528  |  |             |   | 13,793  | 
|                                                                                                                                           |  |            
|TOTAL LONG-TERM
    LIABILITIES                                                                                                            |  |             | 138,300 |  |             |   | 124,434 | 
|Commitments and contingencies
    (Note 7)                                                                                                 |  |             |         |  |             |   |         | 
|SHAREHOLDERS EQUITY:                                                                                                                      |  |             |         |  |             |   |         | 
|Preferred stock, $.01 par
    value; 5,000,000 shares authorized; none issued                                                              |  |             |        |  |             |   |        | 
|Common stock, $.01 par value;
    170,859,375 shares authorized; 73,751,249 and
    74,916,773 shares issued and outstanding, respectively |  |             | 737     |  |             |   | 749     | 
|Additional paid-in capital                                                                                                                 |  |             | 23,866  |  |             |   | 61,310  | 
|Retained earnings                                                                                                                          |  |             | 522,187 |  |             |   | 395,975 | 
|                                                                                                                                           |  |            
|TOTAL SHAREHOLDERS
    EQUITY                                                                                                             |  |             | 546,790 |  |             |   | 458,034 | 
|                                                                                                                                           |  |            
|TOTAL LIABILITIES AND
    SHAREHOLDERS EQUITY                                                                                             |  | $           | 807,561 |  |             | $ | 677,778 | 
|                                                                                                                                           |  |            









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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)                         |  | January 28, |            |  | January 29, |   |            | January 31, | 
|FISCAL YEAR ENDED                                                          |  | 2006        |            |  | 2005        |   |            | 2004        | 
|                                                                           | 
|Net sales                                                                  |  | $           | 1,391,473  |  |             | $ | 1,229,762  |             |  | $ | 1,041,456  | 
|Cost of goods sold, including
    buying, distribution and occupancy costs |  |             | 884,982    |  |             |   | 781,828    |             |  |   | 668,807    | 
|                                                                           |  |            
|Gross margin                                                               |  |             | 506,491    |  |             |   | 447,934    |             |  |   | 372,649    | 
|Selling, general and administrative
    expenses                           |  |             | 309,218    |  |             |   | 277,921    |             |  |   | 244,422    | 
|                                                                           |  |            
|Operating income                                                           |  |             | 197,273    |  |             |   | 170,013    |             |  |   | 128,227    | 
|Interest income, net                                                       |  |             | 5,673      |  |             |   | 1,889      |             |  |   | 732        | 
|                                                                           |  |            
|Income before income tax expense                                           |  |             | 202,946    |  |             |   | 171,902    |             |  |   | 128,959    | 
|Income tax expense                                                         |  |             | 76,734     |  |             |   | 64,998     |             |  |   | 48,759     | 
|                                                                           |  |            
|Net income                                                                 |  | $           | 126,212    |  |             | $ | 106,904    |             |  | $ | 80,200     | 
|                                                                           |  |            
|Comprehensive income                                                       |  | $           | 126,212    |  |             | $ | 106,904    |             |  | $ | 80,200     | 
|                                                                           |  |            
|Net income per share, basic                                                |  | $           | 1.69       |  |             | $ | 1.41       |             |  | $ | 1.05       | 
|                                                                           |  |            
|Net income per share,
    diluted                                          |  | $           | 1.67       |  |             | $ | 1.38       |             |  | $ | 1.02       | 
|                                                                           |  |            
|Weighted average shares
    outstanding, basic                             |  |             | 74,758,874 |  |             |   | 75,825,897 |             |  |   | 76,595,758 | 
|Weighted average shares
    outstanding, diluted                           |  |             | 75,713,793 |  |             |   | 77,464,115 |             |  |   | 78,849,651 | 









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##### Table of Contents

PACIFIC SUNWEAR OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

|                                                                                   |  |        |            |   |        |   |            |         |  |   |          |   |  |       |         |  |  |   |          |  
|---------------------------------------------------------------------------------- |  | ------ | ---------- | - | ------ | - | ---------- | ------- |  | - | -------- | - |  | ----- | ------- |  |  | - | -------- | -
|                                                                                   |  | Common |            |   |        |   | Additional |         |  |   |          |  
|                                                                                   |  | Stock  |            |   | Common |   |            | Paid-In |  |   | Retained |   |  |      
|(In thousands, except share amounts)                                               |  | Shares |            |   | Stock  |   |            | Capital |  |   | Earnings |   |  | Total |        
|                                                                                   | 
|BALANCE, February 1,
    2003                                                      |  |        | 74,233,146 |   |        | $ | 742        |         |  | $ | 92,761   |   |  | $     | 208,871 |  |  | $ | 302,374  |  
|Exercise of stock options and
    shares issued under employee stock purchase plan |  |        | 4,119,753  |   |        |   | 42         |         |  |   | 30,339   |   |  |       |        |  |  |   | 30,381   |  
|Cancellation of fractional shares
    due to 3-for-2 stock split                   |  |        | (1,597     | ) |        |   |           |         |  |   | (33      | ) |  |       |        |  |  |   | (33      | )
|Tax benefits related to exercise of
    stock options                              |  |        |           |   |        |   |           |         |  |   | 15,810   |   |  |       |        |  |  |   | 15,810   |  
|Net income                                                                         |  |        |           |   |        |   |           |         |  |   |         |   |  |       | 80,200  |  |  |   | 80,200   |  
|                                                                                   |  |       
|BALANCE, January 31,
    2004                                                      |  |        | 78,351,302 |   |        |   | 784        |         |  |   | 138,877  |   |  |       | 289,071 |  |  |   | 428,732  |  
|Exercise of stock options and
    shares issued under employee stock purchase plan |  |        | 1,829,671  |   |        |   | 18         |         |  |   | 18,176   |   |  |       |        |  |  |   | 18,194   |  
|Repurchase and retirement of common
    stock                                      |  |        | (5,264,200 | ) |        |   | (53        | )       |  |   | (109,449 | ) |  |       |        |  |  |   | (109,502 | )
|Restricted stock award, vesting of
    shares                                      |  |        |           |   |        |   |           |         |  |   | 5,471    |   |  |       |        |  |  |   | 5,471    |  
|Tax benefits related to exercise of
    stock options                              |  |        |           |   |        |   |           |         |  |   | 8,235    |   |  |       |        |  |  |   | 8,235    |  
|Net income                                                                         |  |        |           |   |        |   |           |         |  |   |         |   |  |       | 106,904 |  |  |   | 106,904  |  
|                                                                                   |  |       
|BALANCE, January 29,
    2005                                                      |  |        | 74,916,773 |   |        |   | 749        |         |  |   | 61,310   |   |  |       | 395,975 |  |  |   | 458,034  |  
|Exercise of stock options and
    shares issued under employee stock purchase plan |  |        | 1,642,776  |   |        |   | 16         |         |  |   | 18,651   |   |  |       |        |  |  |   | 18,667   |  
|Repurchase and retirement of common
    stock                                      |  |        | (2,808,300 | ) |        |   | (28        | )       |  |   | (65,615  | ) |  |       |        |  |  |   | (65,643  | )
|Restricted stock award, vesting of
    shares                                      |  |        |           |   |        |   |           |         |  |   | 1,142    |   |  |       |        |  |  |   | 1,142    |  
|Tax benefits related to exercise of
    stock options                              |  |        |           |   |        |   |           |         |  |   | 8,378    |   |  |       |        |  |  |   | 8,378    |  
|Net income                                                                         |  |        |           |   |        |   |           |         |  |   |         |   |  |       | 126,212 |  |  |   | 126,212  |  
|                                                                                   |  |       
|BALANCE, January 28,
    2006                                                      |  |        | 73,751,249 |   |        | $ | 737        |         |  | $ | 23,866   |   |  | $     | 522,187 |  |  | $ | 546,790  |  
|                                                                                   |  |       









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##### Table of Contents

PACIFIC SUNWEAR OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                                                     |                                                       |                             |          |        |             |   |            |             |         |   |          |        |         |  
|------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------- | --------------------------- | -------- | ------ | ----------- | - | ---------- | ----------- | ------- | - | -------- | ------ | ------- | -
|(In thousands)                                                                                                                       |                                                       | January 28,                 |          |        | January 29, |   |            | January 31, |        
|FISCAL YEAR ENDED                                                                                                                    |                                                       | 2006                        |          |        | 2005        |   |            | 2004        |        
|                                                                                                                                     |                                                      
|CASH FLOWS FROM OPERATING
    ACTIVITIES:                                                                                            |                                                       |                             |          |        |             |   |            |             |         |   |          |       
|Net income                                                                                                                           |                                                       | $                           | 126,212  |        |             | $ | 106,904    |             |         | $ | 80,200   |       
|Adjustments to reconcile net income
    to net cash provided by operating activities:                                                |                                                       |                             |          |        |             |   |            |             |         |   |          |       
|                                                                                                                                     | Depreciation and amortization                         |                             |          | 63,161 |             |   |            | 51,685      |         |   |          | 45,149 |        
|                                                                                                                                     | Loss on disposal of equipment                         |                             |          | 300    |             |   |            | 3,692       |         |   |          | 2,753  |        
|                                                                                                                                     | Tax benefits related to exercise of
    stock options |                             |          | 8,378  |             |   |            | 8,235       |         |   |          | 15,810 |        
|                                                                                                                                     | Change in operating assets and
    liabilities:       |                             |          |        |             |   |            |             |         |   |          |        |        
|                                                                                                                                     |                                                       | Merchandise inventories     |          |        | (40,380     | ) |            |             | (27,330 | ) |          |        | (24,318 | )
|                                                                                                                                     |                                                       | Other current assets        |          |        | (6,608      | ) |            |             | (4,295  | ) |          |        | (7,149  | )
|                                                                                                                                     |                                                       | Other assets                |          |        | (4,280      | ) |            |             | (2,657  | ) |          |        | (2,484  | )
|                                                                                                                                     |                                                       | Accounts payable            |          |        | 8,797       |   |            |             | 85      |   |          |        | 10,212  |  
|                                                                                                                                     |                                                       | Other current liabilities   |          |        | 18,138      |   |            |             | (9,877  | ) |          |        | 24,332  |  
|                                                                                                                                     |                                                       | Deferred lease incentives   |          |        | 13,376      |   |            |             | 10,687  |   |          |        | 4,273   |  
|                                                                                                                                     |                                                       | Deferred rent               |          |        | (1,377      | ) |            |             | (1,199  | ) |          |        | (112    | )
|                                                                                                                                     |                                                       | Other long-term liabilities |          |        | (1,452      | ) |            |             | 7,082   |   |          |        | 12,338  |  
|                                                                                                                                     |                                                       |                            
|Net cash provided by operating
    activities                                                                                        |                                                       |                             | 184,265  |        |             |   | 143,012    |             |         |   | 161,004  |       
|                                                                                                                                    
|CASH FLOWS FROM INVESTING
    ACTIVITIES:                                                                                            |                                                       |                             |          |        |             |   |            |             |         |   |          |       
|Purchases of property and equipment                                                                                                  |                                                       |                             | (109,174 | )      |             |   | (81,992    | )           |         |   | (49,568  | )     
|Purchases of available-for-sale
    short-term investments                                                                           |                                                       |                             | (792,550 | )      |             |   | (1,159,375 | )           |         |   | (436,875 | )     
|Maturities of available-for-sale
    short-term investments                                                                          |                                                       |                             | 774,700  |        |             |   | 1,150,125  |             |         |   | 403,675  |       
|Purchases of held-to-maturity
    short-term investments                                                                             |                                                       |                             | (20,988  | )      |             |   | (40,695    | )           |         |   | (33,035  | )     
|Maturities of held-to-maturity
    short-term investments                                                                            |                                                       |                             | 43,150   |        |             |   | 36,957     |             |         |   |         |       
|                                                                                                                                     |                                                       |                            
|Net cash used in investing
    activities                                                                                            |                                                       |                             | (104,862 | )      |             |   | (94,980    | )           |         |   | (115,803 | )     
|                                                                                                                                    
|CASH FLOWS FROM FINANCING
    ACTIVITIES:                                                                                            |                                                       |                             |          |        |             |   |            |             |         |   |          |       
|Repurchase and retirement of common
    stock                                                                                        |                                                       |                             | (65,643  | )      |             |   | (109,502   | )           |         |   |         |       
|Proceeds from exercise of stock
    options                                                                                          |                                                       |                             | 18,667   |        |             |   | 18,194     |             |         |   | 30,381   |       
|Principal payments under capital
    lease and long-term debt obligations                                                            |                                                       |                             | (1,550   | )      |             |   | (2,056     | )           |         |   | (2,347   | )     
|Cash paid in lieu of fractional
    shares due to 3-for-2 stock split                                                                |                                                       |                             |         |        |             |   |           |             |         |   | (33      | )     
|                                                                                                                                     |                                                       |                            
|Net cash (used in)/provided by
    financing activities                                                                              |                                                       |                             | (48,526  | )      |             |   | (93,364    | )           |         |   | 28,001   |       
|                                                                                                                                     |                                                       |                            
|                                                                                                                                    
|NET INCREASE (DECREASE) IN
    CASH AND CASH EQUIVALENTS:                                                                            |                                                       |                             | 30,877   |        |             |   | (45,332    | )           |         |   | 73,202   |       
|CASH AND CASH EQUIVALENTS,
    beginning of fiscal year                                                                              |                                                       |                             | 64,308   |        |             |   | 109,640    |             |         |   | 36,438   |       
|                                                                                                                                     |                                                       |                            
|CASH AND CASH EQUIVALENTS, end of
    fiscal year                                                                                    |                                                       | $                           | 95,185   |        |             | $ | 64,308     |             |         | $ | 109,640  |       
|                                                                                                                                     |                                                       |                            
|                                                                                                                                    
|SUPPLEMENTAL DISCLOSURES OF CASH
    FLOW INFORMATION:                                                                               |                                                       |                             |          |        |             |   |            |             |         |   |          |       
|Cash paid for interest                                                                                                               |                                                       | $                           | 47       |        |             | $ | 142        |             |         | $ | 226      |       
|Cash paid for income taxes                                                                                                           |                                                       | $                           | 63,313   |        |             | $ | 59,081     |             |         | $ | 20,670   |       
|SUPPLEMENTAL DISCLOSURES OF
    NON-CASH TRANSACTIONS:                                                                               |                                                       |                             |          |        |             |   |            |             |         |   |          |       
|Increase to additional paid-in
    capital related to the issuance of stock to satisfy certain
    deferred compensation liabilities |                                                       | $                           | 1,142    |        |             | $ | 5,471      |             |         | $ |         |       
|Increase in accrued property and
    equipment                                                                                       |                                                       | $                           | 5,856    |        |             | $ | 4,084      |             |         | $ | 5,440    |       
|Purchases of property pursuant to
    capital lease obligations                                                                      |                                                       | $                           |         |        |             | $ | 654        |             |         | $ |         |       









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##### Table of Contents

PACIFIC SUNWEAR OF CALIFORNIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Years Ended January 28, 2006,
January 29, 2005, and January 31, 2004

(all amounts in thousands, except share and per share
amounts, unless otherwise indicated)



1.
    Nature of Business and Summary of Significant Accounting
    PoliciesNature of Business  Pacific Sunwear of
California, Inc. and its 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 (PacSun) 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 teens and young
adults. d.e.m.o. specializes in fashion-focused street wear,
including casual apparel, footwear and related accessories
catering to teens and young adults. In addition, the Company
operates two websites (www.pacsun.com and
www.demostores.com) which sell PacSun and d.e.m.o.
merchandise online, respectively, provide content and community
for its target customers, and provide information about the
Company.

The Companys fiscal year is the 52- or
53-week period ending
on the Saturday closest to January 31. Fiscal year-end dates for
all periods presented or discussed herein are as follows:

|            |  |               |                  | 
|----------- |  | ------------- | ---------------- | 
|Fiscal Year |  | Year-End Date |                 
|            |  |               |                 
|2006        |  |               | February 3, 2007 | 
|2005        |  |               | January 28, 2006 | 
|2004        |  |               | January 29, 2005 | 
|2003        |  |               | January 31, 2004 | 

Principles of Consolidation


Basis of Presentation


Use of Estimates


Fair Value of Financial Instruments


Cash and Cash Equivalents


Marketable Securities held-to








---



##### Table of Contents

Auction rate securities have long-term stated contractual
maturities, but have variable interest rates that reset at each
auction period (typically 7 to 28 days). These securities
trade in a broad, highly liquid market and the Company has never
had difficulty liquidating part or all of its investment at the
end of a given auction period. The Company typically reinvests
these securities multiple times during each reporting period at
each new auction date. As a result of the resetting variable
rates, the Company had no cumulative gross unrealized or
realized gains or losses from these investments. All income from
these investments was recorded as interest income for each
period presented.

Marketable securities, other than auction rate securities, are
classified as
held-to-maturity and
consist of marketable corporate and U.S. agency debt
instruments with original maturities of three months to one year
and are carried at amortized cost, less other than temporary
impairments in value. At January 28, 2006, the fair value
of the Companys
held-to-maturity
portfolio was $15 million, consisting of corporate
debentures of $11 million and U.S. agency debentures
of $4 million. Cost is determined by specific
identification, which approximates fair value at
January 28, 2006 due to the relatively short maturity
period of such investments.

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 given 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 primarily upon the current rate of sale and age of a
specific item, among other factors.

Property and Equipment  All property and
equipment are stated at cost. Depreciation is recognized on a
straight-line basis over the following estimated useful lives:

|                                  |  |                                                                                                                      
|--------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------
|Property Category                 |  | Depreciation Term                                                                                                    
|                                  |  |                                                                                                                      
|Buildings                         |  | 39 years                                                                                                             
|Building improvements             |  | Lesser of remaining estimated
    useful life of the building or estimated useful life of the
    improvement        
|Leasehold improvements            |  | Lesser of remaining lease term (at
    inception, generally 10 years) or estimated useful life of
    the improvement
|Furniture, fixtures and equipment |  | Generally 5 years (ranging
    from 3 to 15 years), depending on the nature of the asset                             

Goodwill and Other Intangible Assets


Other Long-Lived Assets


Insurance Reserves








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##### Table of Contents

Income Taxes  Current income tax expense is
the amount of income taxes expected to be payable for the
current year. The combined federal and state income tax expense
was calculated using estimated effective annual tax rates. 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. Evaluating the value of these assets is necessarily
based on the Companys judgment. If the Company determines
that it is more likely than not that these assets will not be
realized, the Company would reduce the value of these assets to
their expected realizable value through a valuation allowance,
thereby decreasing net income. 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.

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 likely
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 probable litigation losses. At
January 28, 2006, litigation reserves were not material to
the consolidated financial statements taken as a whole (see
Note 7).

Deferred Lease Incentives  The Company
accounts for landlord allowances in accordance with
SFAS 13, Accounting for Leases, and FASB
Technical Bulletin 88-1, Issues Relating to
Accounting for Leases. Accordingly, all incentives
received from landlords to fund tenant improvements are recorded
as deferred liabilities and then amortized over the related
stores lease term.

Revenue Recognition  Sales are recognized upon
purchase by customers at the Companys retail store
locations or upon delivery to and acceptance by the customer for
orders placed through the Companys website. The Company
records the sale of gift cards as a current liability and
recognizes a sale when a customer redeems a gift card. The
amount of the gift card liability is determined taking into
account our estimate of the portion of gift cards that will not
be redeemed or recovered. The Company accrues for estimated
sales returns by customers based on historical sales return
results. Sales return accrual activity for each of the three
fiscal years in the period ended January 28, 2006 is as
follows:

|                  |  |             |         |             |  |             |         |   |  |   |         |  
|----------------- |  | ----------- | ------- | ----------- |  | ----------- | ------- | - |  | - | ------- | -
|                  |  | Fiscal 2005 |         | Fiscal 2004 |  | Fiscal 2003
|                  |  |            
|Beginning balance |  | $           | 763     |             |  | $           | 581     |   |  | $ | 460     |  
|Provisions        |  |             | 26,980  |             |  |             | 23,812  |   |  |   | 20,629  |  
|Usage             |  |             | (26,868 | )           |  |             | (23,630 | ) |  |   | (20,508 | )
|                  |  |            
|Ending balance    |  | $           | 875     |             |  | $           | 763     |   |  | $ | 581     |  
|                  |  |            

E-commerce Shipping and Handling Revenues and
Expenses 00-10,


Customer Loyalty Programs 00-22,








---



##### Table of Contents

Cost of Goods Sold, including Buying, Distribution and
Occupancy Costs  Cost of goods sold includes the
landed cost of merchandise and all expenses incurred by the
Companys buying and distribution functions. These costs
include inbound freight, purchasing and receiving costs,
inspection costs, warehousing costs, internal transfer costs,
and any other costs borne by the Companys buying
department and distribution center. Occupancy costs include
store rents, common area charges, as well as store expenses
related to telephone service, supplies, repairs and maintenance,
insurance, loss prevention, and taxes and licenses.

Straight-Line Rent  The Company accounts for
rent expense in accordance with SFAS 13, Accounting
for Leases, and FASB Technical Bulletin 85-3,
Accounting for Operating Leases with Scheduled Rent
Increases. Accordingly, rent expense under the
Companys store operating leases is recognized on a
straight-line basis over the original term of each stores
lease, inclusive of rent holiday periods during store
construction and excluding any lease renewal options. The
Company capitalizes rent expense attributable to the build-out
period of its stores as a component cost of construction and
amortizes this amount over the life of the related stores
lease term once construction has completed, generally upon the
commencement of store operations. The Company will begin
expensing rent during store construction periods during fiscal
2006 (see New Accounting Pronouncements within this
Note 1).

Selling, General and Administrative Expenses 
Selling, general and administrative expenses include payroll,
depreciation and amortization, advertising, credit authorization
charges, expenses associated with the counting of physical
inventories, and all other general and administrative expenses
not directly related to merchandise or operating the
Companys stores.

Advertising Costs  Costs associated with the
production or placement of advertising, such as photography,
design, creative talent, editing, magazine insertion fees and
other costs associated with such advertising, are expensed the
first time the advertising appears publicly. Advertising costs
were $15 million, $11 million, and $10 million in
fiscal 2005, 2004, and 2003, respectively.

Stock-Based Compensation  The Company accounts
for stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25 and related
interpretations. Accordingly, no compensation expense has been
recognized related to employee stock options for the periods
presented. The Company follows the disclosure provisions of
Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-Based
Compensation, as amended by SFAS 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure. The Company will expense stock
options in accordance with SFAS 123(R) beginning
January 29, 2006 (see New Accounting
Pronouncements within this Note 1). The Company has
provided the pro-forma disclosures required by SFAS 123 and
SFAS 148 for each of the most recent three fiscal years
below.

|                        |                                                                                                                                                     |             |         |         |             |   |         |             |   |   |        |        |  
|----------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------- | ------- | ----------- | - | ------- | ----------- | - | - | ------ | ------ | -
|                        |                                                                                                                                                     | Fiscal 2005 |         |         | Fiscal 2004 |   |         | Fiscal 2003 |  
|                        |                                                                                                                                                     |             |        
|Net income, as reported |                                                                                                                                                     | $           | 126,212 |         |             | $ | 106,904 |             |   | $ | 80,200 |       
|                        | Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of related tax effects |             |         | (7,141  | )           |   |         | (6,330      | ) |   |        | (5,785 | )
|                        |                                                                                                                                                     |            
|                        | Pro forma net income                                                                                                                                |             | $       | 119,071 |             |   | $       | 100,574     |   |   | $      | 74,415 |  
|                        |                                                                                                                                                     |            
|Earnings Per Share      |                                                                                                                                                     |             |         |         |             |   |         |             |   |   |        |       
|                        | Basic, as reported                                                                                                                                  |             | $       | 1.69    |             |   | $       | 1.41        |   |   | $      | 1.05   |  
|                        | Basic, pro forma                                                                                                                                    |             | $       | 1.59    |             |   | $       | 1.32        |   |   | $      | 0.98   |  
|                        | Diluted, as reported                                                                                                                                |             | $       | 1.67    |             |   | $       | 1.38        |   |   | $      | 1.02   |  
|                        | Diluted, pro forma                                                                                                                                  |             | $       | 1.58    |             |   | $       | 1.30        |   |   | $      | 0.96   |  







---



##### Table of Contents

Pro-forma net income and earnings per share related to the fair
value of the Companys stock option awards were determined
using the Black-Scholes option-pricing model with the following
weighted average assumptions:

|                         |  |      |               |  |      |  |               |      |  |  |               | 
|------------------------ |  | ---- | ------------- |  | ---- |  | ------------- | ---- |  |  | ------------- | 
|FISCAL YEAR              |  | 2005 |               |  | 2004 |  |               | 2003 | 
|                         | 
|Expected Option Life     |  |      | 5 years       |  |      |  | 5 years       |      |  |  | 5 years       | 
|Stock Volatility         |  |      | 36.9%  56.7% |  |      |  | 37.0%  37.9% |      |  |  | 37.1%  53.7% | 
|Risk-free Interest Rates |  |      | 3.9%  4.5%   |  |      |  | 3.3%  3.7%   |      |  |  | 2.9%  3.3%   | 
|Expected Dividends       |  |      | None          |  |      |  | None          |      |  |  | None          | 

Earnings per Share


|                      |  |      |           |  |      |  |           |      |  |  |           | 
|--------------------- |  | ---- | --------- |  | ---- |  | --------- | ---- |  |  | --------- | 
|FISCAL YEAR           |  | 2005 |           |  | 2004 |  |           | 2003 | 
|                      | 
|Incremental shares    |  |      | 954,919   |  |      |  | 1,638,218 |      |  |  | 2,253,893 | 
|Anti-dilutive options |  |      | 1,692,613 |  |      |  | 998,985   |      |  |  | 31,996    | 



Comprehensive Income


Vendor and Merchandise Concentrations


|                     |  |             |      |  |             |  |      |             |  |  |      | 
|-------------------- |  | ----------- | ---- |  | ----------- |  | ---- | ----------- |  |  | ---- | 
|Merchandise Category |  | Fiscal 2005 |      |  | Fiscal 2004 |  |      | Fiscal 2003 | 
|                     | 
|Guys apparel         |  |             | 36%  |  |             |  | 37%  |             |  |  | 38%  | 
|Girls apparel        |  |             | 31%  |  |             |  | 30%  |             |  |  | 31%  | 
|Accessories          |  |             | 19%  |  |             |  | 19%  |             |  |  | 19%  | 
|Footwear             |  |             | 14%  |  |             |  | 14%  |             |  |  | 12%  | 
|                     |  |            
|Total                |  |             | 100% |  |             |  | 100% |             |  |  | 100% | 
|                     |  |            

Segment Reporting e-commerce)








---



##### Table of Contents

Net Sales by Concept:

|            |  |        |           |  |   |  |     |          |  |   |         |  |  |       |     |  |   |   |           |  |  |  |      | 
|----------- |  | ------ | --------- |  | - |  | --- | -------- |  | - | ------- |  |  | ----- | --- |  | - | - | --------- |  |  |  | ---- | 
|Fiscal Year |  | PacSun |           |  | % |  |     | d.e.m.o. |  |   | %       |  |  | Total |     |  | % |  
|            | 
|2005        |  | $      | 1,205,937 |  |   |  | 87% |          |  | $ | 185,536 |  |  |       | 13% |  |   | $ | 1,391,473 |  |  |  | 100% | 
|2004        |  | $      | 1,080,653 |  |   |  | 88% |          |  | $ | 149,109 |  |  |       | 12% |  |   | $ | 1,229,762 |  |  |  | 100% | 
|2003        |  | $      | 931,117   |  |   |  | 89% |          |  | $ | 110,339 |  |  |       | 11% |  |   | $ | 1,041,456 |  |  |  | 100% | 

www.pacsun.com. www.demostores.com


New Accounting Pronouncements 13-1, 13-1 13-1 13-1








|   |                     
|-- | --------------------
|2. | Other Current Assets



|                               |  |             |        |             |  |   |        | 
|------------------------------ |  | ----------- | ------ | ----------- |  | - | ------ | 
|                               |  | January 28, |        | January 29,
|                               |  | 2006        |        | 2005       
|                               |  |            
|Prepaid expenses               |  | $           | 22,360 |             |  | $ | 19,943 | 
|Non-trade accounts receivable  |  |             | 12,679 |             |  |   | 8,129  | 
|Deferred income taxes          |  |             | 6,446  |             |  |   | 6,134  | 
|                               |  |            
|Total other current
    assets |  | $           | 41,485 |             |  | $ | 34,206 | 
|                               |  |            







---



##### Table of Contents

3. Property and Equipment, Net

As of the dates presented, property and equipment consisted of
the following categories:

|                                    |  |             |          |   |             |   |          |  
|----------------------------------- |  | ----------- | -------- | - | ----------- | - | -------- | -
|                                    |  | January 28, |          |   | January 29, |  
|                                    |  | 2006        |          |   | 2005        |  
|                                    |  |             |         
|Leasehold improvements              |  | $           | 307,875  |   |             | $ | 258,739  |  
|Furniture, fixtures and equipment   |  |             | 256,189  |   |             |   | 206,143  |  
|Buildings and building improvements |  |             | 26,742   |   |             |   | 26,707   |  
|Land                                |  |             | 12,156   |   |             |   | 12,156   |  
|                                    |  |            
|Total gross property and equipment  |  |             | 602,962  |   |             |   | 503,745  |  
|Less accumulated depreciation       |  |             | (247,140 | ) |             |   | (199,523 | )
|                                    |  |            
|Property and equipment,
    net     |  | $           | 355,822  |   |             | $ | 304,222  |  
|                                    |  |            



|   |                    
|-- | -------------------
|4. | New Credit Facility







|   |                          
|-- | -------------------------
|5. | Other Current Liabilities



|                                  |  |             |        |  |             |   |        | 
|--------------------------------- |  | ----------- | ------ |  | ----------- | - | ------ | 
|                                  |  | January 28, |        |  | January 29, |  
|                                  |  | 2006        |        |  | 2005        |  
|                                  |  |             |       
|Income taxes payable              |  | $           | 14,896 |  |             | $ | 5,993  | 
|Accrued gift cards                |  |             | 12,620 |  |             |   | 10,386 | 
|Accrued compensation and benefits |  |             | 12,250 |  |             |   | 13,284 | 
|Accrued capital expenditures      |  |             | 8,779  |  |             |   | 6,223  | 
|Sales taxes payable               |  |             | 7,895  |  |             |   | 6,647  | 
|Other current liabilities         |  |             | 18,481 |  |             |   | 14,024 | 
|                                  |  |            
|                                  |  | $           | 74,921 |  |             | $ | 56,557 | 
|                                  |  |            







---



##### Table of Contents

6.
    Income TaxesThe components of income tax expense for the periods presented
were as follows:

|                             |  |             |        |   |             |   |        |             |  |   |        |  
|---------------------------- |  | ----------- | ------ | - | ----------- | - | ------ | ----------- |  | - | ------ | -
|                             |  | Fiscal 2005 |        |   | Fiscal 2004 |   |        | Fiscal 2003 | 
|                             |  |             |       
|Current income taxes:        |  |             |        |   |             |   |        |             |  |   |        |  
|Federal                      |  | $           | 72,602 |   |             | $ | 51,252 |             |  | $ | 38,129 |  
|State                        |  |             | 7,992  |   |             |   | 7,038  |             |  |   | 5,369  |  
|                             |  |            
|                             |  |             | 80,594 |   |             |   | 58,290 |             |  |   | 43,498 |  
|Deferred income taxes:       |  |             |        |   |             |   |        |             |  |   |        |  
|Federal                      |  |             | (4,117 | ) |             |   | 6,486  |             |  |   | 5,315  |  
|State                        |  |             | 257    |   |             |   | 222    |             |  |   | (54    | )
|                             |  |            
|                             |  |             | (3,860 | ) |             |   | 6,708  |             |  |   | 5,261  |  
|                             |  |            
|Total income tax
    expense |  | $           | 76,734 |   |             | $ | 64,998 |             |  | $ | 48,759 |  
|                             |  |            



|                                                          |  |             |        |  |             |   |        |             |  |   |        | 
|--------------------------------------------------------- |  | ----------- | ------ |  | ----------- | - | ------ | ----------- |  | - | ------ | 
|                                                          |  | Fiscal 2005 |        |  | Fiscal 2004 |   |        | Fiscal 2003 | 
|                                                          |  |             |        |  |             |   |        |             | 
|Provision for income taxes at
    statutory rate          |  | $           | 71,031 |  |             | $ | 60,166 |             |  | $ | 45,136 | 
|State income taxes, net of federal
    income tax benefit |  |             | 5,362  |  |             |   | 4,719  |             |  |   | 3,455  | 
|Other                                                     |  |             | 341    |  |             |   | 113    |             |  |   | 168    | 
|                                                          |  |            
|Total income tax
    expense                              |  | $           | 76,734 |  |             | $ | 64,998 |             |  | $ | 48,759 | 
|                                                          |  |            



|                                       |  |             |         |   |             |   |         |  
|-------------------------------------- |  | ----------- | ------- | - | ----------- | - | ------- | -
|                                       |  | January 28, |         |   | January 29, |  
|                                       |  | 2006        |         |   | 2005        |  
|                                       |  |             |        
|Current net deferred tax asset         |  | $           | 6,446   |   |             | $ | 6,134   |  
|Long-term net deferred tax liability   |  |             | (12,584 | ) |             |   | (16,132 | )
|                                       |  |            
|Overall net deferred tax
    liability |  | $           | (6,138  | ) |             | $ | (9,998  | )
|                                       |  |            
|Components:                            |  |             |         |   |             |   |         |  
|Depreciation and amortization          |  | $           | (55,709 | ) |             | $ | (53,032 | )
|Deferred lease incentives              |  |             | 31,808  |   |             |   | 26,543  |  
|State income taxes                     |  |             | 1,416   |   |             |   | 1,176   |  
|Inventory cost capitalization          |  |             | 2,975   |   |             |   | 2,431   |  
|Sublease loss reserves                 |  |             | 592     |   |             |   | 957     |  
|Deferred rent                          |  |             | 5,407   |   |             |   | 4,986   |  
|Deferred compensation                  |  |             | 5,664   |   |             |   | 5,571   |  
|Other                                  |  |             | 1,709   |   |             |   | 1,370   |  
|                                       |  |            
|                                       |  | $           | (6,138  | ) |             | $ | (9,998  | )
|                                       |  |            



|   |                              
|-- | -----------------------------
|7. | Commitments and Contingencies

Operating Leases








---



##### Table of Contents

under a lease if specified sales levels are not achieved by a
specified date. None of the Companys retail store leases
contain purchase options.

As of January 28, 2006, minimum future rental commitments
under non-cancelable operating leases were as follows:

|                                             |  |   |         | 
|-------------------------------------------- |  | - | ------- | 
|Fiscal year ending:                          |  |  
|                                             |  |  
|February 3, 2007                             |  | $ | 100,268 | 
|February 2, 2008                             |  |   | 99,925  | 
|January 31, 2009                             |  |   | 95,925  | 
|January 30, 2010                             |  |   | 91,584  | 
|January 29, 2011                             |  |   | 82,598  | 
|Thereafter                                   |  |   | 209,099 | 
|                                             |  |   |        
|Total future operating lease
    commitments |  | $ | 679,399 | 
|                                             |  |   |        



Capital Leases


|                                                           |  |   |     |  
|---------------------------------------------------------- |  | - | --- | -
|Fiscal year ending:                                        |  |  
|                                                           |  |  
|February 3, 2007                                           |  | $ | 374 |  
|February 2, 2008                                           |  |   | 58  |  
|Total payments, including interest                         |  |   | 432 |  
|Less interest portion                                      |  |   | (43 | )
|                                                           |  |   |    
|Total principal payments remaining
    at January 28, 2006 |  | $ | 389 |  
|                                                           |  |   |    

Litigation


Indemnities, Commitments, and Guarantees


Letters of Credit








---



##### Table of Contents

Accrued Sublease Loss Charges  The Company
remains liable under an operating lease covering a former store
location. The term of the lease ends December 31, 2012. The
Company has subleased this location to third parties at rates
that are less than the Companys required lease payments.
Accordingly, the Company had approximately $1.1 million
accrued to recognize its net remaining contractual lease
obligation related to these premises at January 28, 2006.
To the extent any sublessee defaults upon its sublease
obligations, the Company may incur additional charges related to
this lease in the future. The Companys remaining
contractual obligation under the original lease, exclusive of
any sublease income, was approximately $5.6 million at
January 28, 2006.

Lease Guarantee  The Company remains
secondarily liable under a guarantee issued related to the
assignment of an operating lease covering another former store
location. The term of the lease ends December 31, 2014. The
Company had approximately $0.4 million accrued to recognize
the remaining estimated fair value of this guarantee, assuming
that another assignee would be found within one year should the
original assignee default. The aggregate payments remaining on
the master lease agreement at January 28, 2006, were
approximately $4.9 million.



8.
    Common StockCommon Stock Repurchase and Retirement  At the
beginning of fiscal 2005, the maximum value of Company shares
that could yet be repurchased under previously authorized and
publicly announced share repurchase plans was approximately
$15.5 million. On May 12, 2005, the Company announced
that its Board of Directors had authorized the Company to
repurchase up to an additional $100 million of the
Companys common stock in open market transactions. There
is no expiration date specified for this plan. During fiscal
2005 and through the date of this filing, the Company made the
following repurchases of shares subject to this plan:

|               |  |             |           |         |          |             |            |           |  |          |             |            |           |           |        |  |  |   |         | 
|-------------- |  | ----------- | --------- | ------- | -------- | ----------- | ---------- | --------- |  | -------- | ----------- | ---------- | --------- | --------- | ------ |  |  | - | ------- | 
|               |  |             |           |         |          |             |            |           |  | Maximum  |            
|               |  |             |           |         |          | # of Shares |            |           |  |          | Value of    |           
|               |  |             |           |         |          | Purchased   |            |           |  |          | Shares that |           
|               |  |             |           | Average |          |             | as Part of |           |  |          |             | May Yet be |          
|               |  |             |           | Price   |          |             | Publicly   |           |  | Value of |             |            | Purchased |          
|               |  | # of Shares |           |         | Paid Per |             |            | Announced |  |          | Shares      |            |           | Under the |       
|Period         |  | Purchased   |           |         | Share    |             |            | Plan      |  |          | Purchased   |            |           | Plan      |       
|               | 
|               |  |             |           |         |          |             |            |           |  |          |             |            |           |           |        |  |  | $ | 115,499 | 
|May 2005       |  |             | 490,000   |         |          | $           | 21.26      |           |  |          | 490,000     |            |           | $         | 10,415 |  |  | $ | 105,084 | 
|July 2005      |  |             | 417,500   |         |          | $           | 22.90      |           |  |          | 417,500     |            |           | $         | 9,563  |  |  | $ | 95,521  | 
|August 2005    |  |             | 528,100   |         |          | $           | 23.28      |           |  |          | 528,100     |            |           | $         | 12,296 |  |  | $ | 83,225  | 
|September 2005 |  |             | 250,000   |         |          | $           | 22.77      |           |  |          | 250,000     |            |           | $         | 5,692  |  |  | $ | 77,533  | 
|October 2005   |  |             | 250,000   |         |          | $           | 23.09      |           |  |          | 250,000     |            |           | $         | 5,773  |  |  | $ | 71,760  | 
|November 2005  |  |             | 272,700   |         |          | $           | 26.69      |           |  |          | 272,700     |            |           | $         | 7,279  |  |  | $ | 64,481  | 
|December 2005  |  |             | 300,000   |         |          | $           | 25.23      |           |  |          | 300,000     |            |           | $         | 7,468  |  |  | $ | 57,013  | 
|January 2006   |  |             | 300,000   |         |          | $           | 23.86      |           |  |          | 300,000     |            |           | $         | 7,157  |  |  | $ | 49,856  | 
|March 2006     |  |             | 1,100,000 |         |          | $           | 22.33      |           |  |          | 1,100,000   |            |           | $         | 24,563 |  |  | $ | 25,293  | 
|               |  |             |           |         |         
|Total          |  |             | 3,908,300 |         |          | $           | 23.08      |           |  |          | 3,908,300   |            |           | $         | 90,206 |  |  |   |         | 

Shareholder Rights Plan








---



##### Table of Contents

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 PlansUnder 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 respective grant dates.

At January 28, 2006, outstanding incentive and nonqualified
options had exercise prices ranging from $2.55 to
$28.90 per share, with an average exercise price of
$19.18 per share, and generally begin vesting one year
after the grant date. Options generally vest over three or four
years. The options generally expire seven or ten years from the
date of grant or three months after employment or services are
terminated.

At January 28, 2006, incentive and nonqualified options to
purchase 4,245,893 shares were outstanding and
6,105,123 shares were available for future grant under the
Companys stock option plans. During fiscal 2005, 2004 and
2003, the Company recognized tax benefits of $8 million,
$8 million, and $16 million, respectively, resulting
from the exercise of certain nonqualified stock options.

Stock option (incentive and nonqualified) activity for each of
the fiscal years in the three-year period ended January 28,
2006, was as follows:

|                                                                          |                   |             |           |             |   |             |           |            |   |   |           |            |  
|------------------------------------------------------------------------- | ----------------- | ----------- | --------- | ----------- | - | ----------- | --------- | ---------- | - | - | --------- | ---------- | -
|                                                                          |                   | Fiscal 2005 |           | Fiscal 2004 |   | Fiscal 2003
|                                                                          |                   |            
|Beginning options outstanding                                             |                   |             | 4,891,847 |             |   |             | 5,474,092 |            |   |   | 8,691,197 |           
|                                                                          | Options granted   |             |           | 1,568,425   |   |             |           | 1,613,700  |   |   |           | 1,101,351  |  
|                                                                          | Options canceled  |             |           | (626,948    | ) |             |           | (425,290   | ) |   |           | (253,916   | )
|                                                                          | Options exercised |             |           | (1,587,431  | ) |             |           | (1,770,655 | ) |   |           | (4,064,540 | )
|                                                                          |                   |            
|Ending options outstanding                                                |                   |             | 4,245,893 |             |   |             | 4,891,847 |            |   |   | 5,474,092 |           
|                                                                          |                   |            
|Ending options exercisable                                                |                   |             | 1,949,545 |             |   |             | 2,040,723 |            |   |   | 2,272,058 |           
|                                                                          |                   |            
|Beginning weighted average exercise
    price                             |                   | $           | 14.68     |             |   | $           | 10.47     |            |   | $ | 8.56      |           
|                                                                          | Options granted   |             |           | 25.98       |   |             |           | 23.69      |   |   |           | 13.92      |  
|                                                                          | Options canceled  |             |           | 21.58       |   |             |           | 15.51      |   |   |           | 10.65      |  
|                                                                          | Options exercised |             |           | 11.05       |   |             |           | 9.69       |   |   |           | 7.31       |  
|Ending weighted average exercise
    price                                |                   | $           | 19.18     |             |   | $           | 14.68     |            |   | $ | 10.47     |           
|Ending weighted average exercise
    price of exercisable options         |                   | $           | 14.45     |             |   | $           | 10.40     |            |   | $ | 9.68      |           
|Weighted average fair value of
    options granted during the fiscal year |                   | $           | 14.38     |             |   | $           | 9.26      |            |   | $ | 5.27      |           



|                         |  |                     |           |                     |  |                |      |                |  |                |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | -------------- | ---- | -------------- |  | -------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  | Options Outstanding |           | Options Exercisable
|                         |  |                     |           |                    
|                         |  | Number              |           | Weighted            |  |                |      | Number         |  |               
|                         |  | Outstanding         |           | Average             |  | Weighted       |      | Exercisable    |  | Weighted      
|                         |  | as of Jan. 28,      |           | Remaining           |  | Average        |      | as of Jan. 28, |  | Average       
|Range of Exercise Prices |  | 2006                |           | Contractual Life    |  | Exercise Price |      | 2006           |  | Exercise Price
|                        
|$ 2.55  $ 9.49          |  |                     | 657,605   |                     |  |                | 4.42 |                |  | $              | 8.35  |  |  |  | 627,459   |  |  | $ | 8.33  | 
|9.51   12.50            |  |                     | 713,571   |                     |  |                | 5.85 |                |  |                | 11.78 |  |  |  | 493,732   |  |  |   | 11.56 | 
|12.67   21.30           |  |                     | 558,951   |                     |  |                | 6.90 |                |  |                | 16.93 |  |  |  | 340,795   |  |  |   | 15.93 | 
|21.32   23.60           |  |                     | 620,341   |                     |  |                | 8.03 |                |  |                | 22.62 |  |  |  | 126,692   |  |  |   | 22.77 | 
|23.68   24.61           |  |                     | 115,400   |                     |  |                | 7.28 |                |  |                | 24.19 |  |  |  | 14,915    |  |  |   | 24.05 | 
|24.75   24.75           |  |                     | 609,650   |                     |  |                | 8.08 |                |  |                | 24.75 |  |  |  | 340,347   |  |  |   | 24.75 | 
|24.76   27.08           |  |                     | 663,375   |                     |  |                | 6.24 |                |  |                | 26.76 |  |  |  | 5,605     |  |  |   | 25.21 | 
|27.28   28.90           |  |                     | 307,000   |                     |  |                | 6.31 |                |  |                | 27.41 |  |  |  | 0         |  |  |   | N/A   | 
|                         |  |                     |           |                     |  |                |      |                |  |                |       |  |  |  |           |  |  |   |       | 
|$ 2.55  $28.90          |  |                     | 4,245,893 |                     |  |                | 6.54 |                |  | $              | 19.18 |  |  |  | 1,949,545 |  |  | $ | 14.45 | 
|                         |  |                     |           |                     |  |                |      |                |  |                |       |  |  |  |           |  |  |   |       | 









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##### Table of Contents

2005 and fiscal 2004, the Companys Board of Directors
verified that the scheduled cumulative annual earnings per share
growth targets for these awards had been met. Accordingly, the
CEO became vested in and received 42,187 shares and
239,063 shares during fiscal 2005 and 2004, respectively,
and, as a result, the Company reclassified previously recognized
accrued compensation of $1.1 million and $5.5 million
from accrued liabilities to additional paid-in capital. As of
January 28, 2006, the Company has no further obligations
remaining related to these awards.

The Company accounts for its stock-based awards issued to
employees 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 as
described above. Beginning with fiscal 2006, the Company will
begin expensing stock options in accordance with
SFAS 123(R) (see New Accounting Pronouncements
in Note 1).

The Company maintains an Employee Stock Purchase Plan (the
ESPP), which provides a method for Company employees
to voluntarily purchase Company common stock at a 10% discount
from fair market value as of the beginning or the end of each
six-month purchasing period, 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 has not recognized
compensation expense related to the ESPP. In fiscal 2005 and
2004, 55,345 and 59,016 shares were issued at an average
price of $20.41 and $17.52, respectively, under the ESPP.
Beginning with fiscal 2006, the Company will begin recognizing
compensation expense for the employee discount provision of the
Companys ESPP in accordance with SFAS 123(R) (see
New Accounting Pronouncements in Note 1).

The Company maintains an Executive Deferred Compensation Plan
(the Executive Plan) covering Company officers that
is funded by participant contributions and periodic Company
discretionary contributions. The Company had $18 million
and $14 million recorded in other assets at
January 28, 2006 and January 29, 2005, respectively,
representing investments held by the Company to cover the vested
participant balances in the Executive Plan. These deferred
compensation asset investments are classified as trading
securities and are stated at fair market value in accordance
with SFAS 115, Accounting for Certain Investments in
Debt and Equity Securities. Fair market value is
determined by the most recent publicly quoted market price of
the securities at the balance sheet date. Vested participant
balances are included in other long-term liabilities and were
$15 million and $13 million as of January 28,
2006 and January 29, 2005, respectively. The Company made
contributions to the Executive Plan of $0.3 million in each
of fiscal 2005, 2004 and 2003.

The Company also maintains an Employee Savings Plan (the
401(k) Plan). The 401(k) Plan is a defined
contribution plan 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 Company discretionary contributions, which are subject
to approval by the Companys Board of Directors. The
Company made contributions to the 401(k) Plan, net of
forfeitures, of $0.7 million for fiscal 2005 and
$0.5 million for each of fiscal 2004 and 2003.



F-18 / Pacific Sunwear of California, Inc. Annual
Report 2005



---



##### Table of Contents

10.
    Quarterly Financial Data (Unaudited)Summarized quarterly financial results for fiscal 2005 and 2004
are as follows:

|                                                   |  |         |            |  |         |   |            |         |  |   |            |  |  |   |            | 
|-------------------------------------------------- |  | ------- | ---------- |  | ------- | - | ---------- | ------- |  | - | ---------- |  |  | - | ---------- | 
|FISCAL YEAR ENDED JANUARY 28, 2006:                |  | First   |            |  | Second  |   |            | Third   |  |   | Fourth     | 
|(In thousands, except share and per share amounts) |  | Quarter |            |  | Quarter |   |            | Quarter |  |   | Quarter    | 
|                                                   | 
|Net sales                                          |  | $       | 279,985    |  |         | $ | 309,064    |         |  | $ | 377,491    |  |  | $ | 424,944    | 
|Gross margin                                       |  |         | 97,350     |  |         |   | 110,357    |         |  |   | 144,439    |  |  |   | 154,346    | 
|Operating income                                   |  |         | 27,227     |  |         |   | 32,765     |         |  |   | 63,534     |  |  |   | 73,747     | 
|Net income                                         |  |         | 17,607     |  |         |   | 21,112     |         |  |   | 40,484     |  |  |   | 47,009     | 
|Net income per share,
    basic                    |  | $       | 0.23       |  |         | $ | 0.28       |         |  | $ | 0.54       |  |  | $ | 0.63       | 
|Net income per share,
    diluted                  |  | $       | 0.23       |  |         | $ | 0.28       |         |  | $ | 0.54       |  |  | $ | 0.63       | 
|Wtd. avg. shares outstanding,
    basic (Note 1)   |  |         | 75,292,587 |  |         |   | 75,125,782 |         |  |   | 74,531,489 |  |  |   | 74,085,637 | 
|Wtd. avg. shares outstanding,
    diluted (Note 1) |  |         | 76,579,259 |  |         |   | 76,118,501 |         |  |   | 75,337,910 |  |  |   | 74,846,162 | 
|FISCAL YEAR ENDED JANUARY 29,
    2005:            |  |         |            |  |         |   |            |         |  |   |            |  |  |   |            | 
|Net sales                                          |  | $       | 245,501    |  |         | $ | 272,164    |         |  | $ | 332,422    |  |  | $ | 379,675    | 
|Gross margin                                       |  |         | 86,205     |  |         |   | 94,639     |         |  |   | 124,534    |  |  |   | 142,556    | 
|Operating income                                   |  |         | 23,613     |  |         |   | 27,774     |         |  |   | 53,850     |  |  |   | 64,775     | 
|Net income                                         |  |         | 14,969     |  |         |   | 17,467     |         |  |   | 33,739     |  |  |   | 40,728     | 
|Net income per share, basic                        |  | $       | 0.19       |  |         | $ | 0.23       |         |  | $ | 0.45       |  |  | $ | 0.55       | 
|Net income per share, diluted                      |  | $       | 0.19       |  |         | $ | 0.22       |         |  | $ | 0.44       |  |  | $ | 0.54       | 
|Wtd. avg. shares outstanding, basic
    (Note 1)   |  |         | 78,157,771 |  |         |   | 76,322,161 |         |  |   | 74,415,403 |  |  |   | 74,408,255 | 
|Wtd. avg. shares outstanding,
    diluted (Note 1) |  |         | 80,146,144 |  |         |   | 77,911,595 |         |  |   | 75,919,451 |  |  |   | 75,856,319 | 









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##### Table of Contents

INDEX TO EXHIBITS

|          |                        |  |  |                                                                                                                                                  
|--------- | ---------------------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit # | Description of Exhibit
|         
|3         | .1                     |  |  | Third Amended and Restated Articles
    of Incorporation of the
    Company(8)                                                                   
|3         | .2                     |  |  | Certificate of Determination of
    Preferences of Series A Junior Participating Preferred
    Stock of the
    Company(3)                       
|3         | .3                     |  |  | Third Amended and Restated Bylaws
    of the Company, as
    amended(17)                                                                         
|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                     |  |  | Amended and Restated 1992 Stock
    Award Plan dated June 8, 1999 (the Award
    Plan)(6)*                                                     
|10        | .3                     |  |  | Amended and Restated Pacific
    Sunwear of California, Inc. 1999 Stock Award Plan dated
    March 24,
    2004(7)*                              
|10        | .4                     |  |  | Pacific Sunwear of California, Inc.
    Executive Deferred Compensation Plan and Trust
    Agreement(2)*                                         
|10        | .5                     |  |  | Amended and Restated Pacific
    Sunwear of California, Inc. Employee Stock Purchase Plan dated
    November 17,
    2004(11)*                   
|10        | .6                     |  |  | Restricted Stock Award Agreement
    dated September 17, 1999, by and between the Company and
    Greg H.
    Weaver(5)*                         
|10        | .7                     |  |  | Restricted Stock Award Agreement
    dated January 3, 2001, by and between the Company and Greg
    H.
    Weaver(6)*                            
|10        | .8                     |  |  | Amended and Restated Employment
    Agreement dated February 5, 2001 between the Company and
    Greg H.
    Weaver(12)*                         
|10        | .9                     |  |  | Amendment No. 1 dated
    December 13, 2004, to the Amended and Restated Employment
    Agreement between the Company and Greg H.
    Weaver(12)*
|10        | .10                    |  |  | Amendment No. 2 dated
    October 25, 2005, to the Amended and Restated Employment
    Agreement between the Company and Greg H.
    Weaver(21)* 
|10        | .11                    |  |  | Employment Agreement dated
    October 11, 2004, between the Company and Seth R.
    Johnson(9)*                                                 
|10        | .12                    |  |  | Severance Agreement dated
    November 22, 2004, between the Company and Gerald M.
    Chaney(10)*                                               
|10        | .13                    |  |  | Form of Performance-Based Bonus
    Award
    Agreement(11)*                                                                                     
|10        | .14                    |  |  | Description of fiscal 2005 cash
    bonus
    agreements(13)*                                                                                    
|10        | .15                    |  |  | Employment Agreement dated
    April 1, 2005 between the Company and Thomas M.
    Kennedy(14)*                                                  
|10        | .16                    |  |  | Severance Agreement dated
    February 15, 2005, between the Company and Lou Ann
    Bett(15)*                                                   
|10        | .17                    |  |  | Pacific Sunwear of California, Inc.
    2005 Performance Incentive
    Plan(16)*                                                                 
|10        | .18                    |  |  | Offer of Employment dated
    October 3, 2005 between the Company and Wendy E.
    Burden(19)*                                                   
|10        | .19                    |  |  | Summary of Board of Directors
    Compensation(20)*                                                                                             
|10        | .20                    |  |  | Rights Agreement, dated as of
    December 16, 1998, between the Company and U.S. Stock
    Transfer
    Corporation(4)                          
|10        | .21                    |  |  | Amendment No. 1 to Rights
    Agreement dated June 18, 2004
    (8)                                                                              
|10        | .22                    |  |  | Credit Agreement, dated
    September 14, 2005, between the Company and the lenders
    thereto(18)                                              
|21        |                        |  |  | Subsidiaries of the Registrant                                                                                                                   
|23        | .1                     |  |  | Consent of Independent Registered
    Public Accounting Firm                                                                                     
|31        |                        |  |  | Written statements of Seth R.
    Johnson and Gerald M. Chaney pursuant to section 302 of the
    Sarbanes-Oxley Act of 2002                     
|32        |                        |  |  | Written statement of Seth R.
    Johnson and Gerald M. Chaney pursuant to section 906 of the
    Sarbanes-Oxley Act of 2002                      

Note References


S-1 33-57860)


10-K


8-K


8-A


10-K




---



##### Table of Contents

(6) 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.

(7) Incorporated by reference from the Companys
Quarterly Report on
Form 10-Q as filed
with the Securities and Exchange Commission on May 21, 2004.

(8) Incorporated by reference from the Companys
Quarterly Report on
Form 10-Q as filed
with the Securities and Exchange Commission on August 31,
2004.

(9) Incorporated by reference from the Companys
Current Report on
Form 8-K as filed
with the Securities and Exchange Commission on October 13,
2004.

(10) Incorporated by reference from the Companys
Current Report on
Form 8-K as filed
with the Securities and Exchange Commission on November 24,
2004.

(11) Incorporated by reference from the Companys
Quarterly Report on
Form 10-Q as filed
with the Securities and Exchange Commission on December 9,
2004.

(12) Incorporated by reference from the Companys
Current Report on
Form 8-K as filed
with the Securities and Exchange Commission on December 16,
2004.

(13) Incorporated by reference from the Companys
Current Report on
Form 8-K as filed
with the Securities and Exchange Commission on March 25,
2005.

(14) Incorporated by reference from the Companys
Annual Report on
Form 10-K as filed
with the Securities and Exchange Commission on April 12,
2005.

(15) Incorporated by reference from the Companys
Current Report on
Form 8-K as filed
with the Securities and Exchange Commission on May 6, 2005.

(16) Incorporated by reference from the Companys
Current Report on
Form 8-K as filed
with the Securities and Exchange Commission on May 24, 2005.

(17) Incorporated by reference from the Companys
Quarterly Report on
Form 10-Q as filed
with the Securities and Exchange Commission on September 2,
2005.

(18) Incorporated by reference from the Companys
Current Report on
Form 8-K as filed
with the Securities and Exchange Commission on
September 19, 2005.

(19) Incorporated by reference from the Companys
Current Report on
Form 8-K as filed
with the Securities and Exchange Commission on October 6,
2005.

(20) Incorporated by reference from the Companys
Current Report on
Form 8-K as filed
with the Securities and Exchange Commission on November 22,
2005.

(21) Incorporated by reference from the Companys
Current Report on
Form 8-K as filed
with the Securities and Exchange Commission on December 6,
2005.



*
    Management contract or compensatory plan or arrangement.