8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

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

Date of report (Date of earliest event reported): November 20, 2007

PACIFIC SUNWEAR OF CALIFORNIA, INC.

(Exact Name of Registrant as Specified in Charter)

California (State or Other Jurisdiction of Incorporation)	0-21296 (Commission File Number)	95-3759463 (IRS Employer Identification No.)
3450 East Miraloma Avenue Anaheim, CA (Address of principal executive offices)		92806-2101 (Zip Code)

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 2.02 Results of Operations and Financial Condition
	Item 9.01 Financial Statements and Exhibits.
SIGNATURES
EXHIBIT INDEX
EXHIBIT 99.1
EXHIBIT 99.2

Item 2.02 Results of Operations and Financial Condition

On November 20, 2007, Pacific Sunwear of California, Inc. (NASDAQ:PSUN) (the “Company”) announced financial results for the third quarter of fiscal 2007 ended November 3, 2007. The full text of the press release is furnished as Exhibit 99.1 to this report. A reconciliation of certain GAAP measures to non-GAAP disclosures contained in the Company’s press release and quarterly earnings conference call is furnished as Exhibit 99.2 to this report.

Item 9.01 Financial Statements and Exhibits.

     (c) Exhibits.

          99.1 Press Release issued by the Company on November 20, 2007

          99.2 Reconciliation of GAAP to non-GAAP disclosures

-2-

SIGNATURES

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

Dated: November 20, 2007

PACIFIC SUNWEAR OF CALIFORNIA, INC.
 

/s/ SALLY FRAME KASAKS  

Sally Frame Kasaks  

Chief Executive Officer 

-3-

EXHIBIT INDEX

Exhibit Nubmer	Description
99.1	Press Release issued by the Company on November 20, 2007
99.2	Reconciliation of GAAP to non-GAAP disclosures

EX-99.1

Exhibit 99.1

CONTACT:
Gar Jackson
Director of Investor Relations
(714) 414-4049

FOR IMMEDIATE RELEASE

PACIFIC SUNWEAR ANNOUNCES THIRD QUARTER
EARNINGS RESULTS

ANAHEIM, CA/November 20, 2007 -— Pacific Sunwear of California, Inc. (NASDAQ:PSUN) today announced that total sales for the third quarter (13 weeks) of fiscal 2007 ended November 3, 2007, were $373.1 million, a decrease of 0.6 percent from total sales of $375.4 million for the third quarter (13 weeks) of fiscal 2006 ended October 28, 2006.

Total Company same-store sales increased 5.0 percent during the third quarter of fiscal 2007. By concept, PacSun same-store sales increased 7.7 percent and demo same-store sales decreased 18.3 percent. Due to the 53rd week in fiscal 2006, same-store sales for the third quarter of fiscal 2007 are compared to the thirteen-week period ended November 4, 2006.

For the third quarter of fiscal 2007, the Company recorded a GAAP net loss of $20.0 million, or $(0.29) per diluted share, compared to GAAP net income of $9.0 million, or $0.13 per diluted share, for the third quarter of fiscal 2006. Store asset impairments and inventory reserves associated with the Company’s demo stores accounted for approximately $31 million in after-tax charges, or $(0.45) per diluted share. Excluding these charges and their related tax rate implications, the Company generated non-GAAP net income of $11.1 million, or $0.16 per diluted share, for the third quarter of fiscal 2007. A reconciliation of the GAAP to non-GAAP financial measures above is contained at the end of this press release.

“I am very pleased by the progress shown by our core PacSun business during the third quarter,” commented Sally Frame Kasaks, Chief Executive Officer. “We completed a strong back-to-school season, driven by continued progress in improving our juniors’ business and steady performance from our guys’ business.”

Total sales for the first three quarters (39 weeks) ended November 3, 2007 were $1,038.0 million, an increase of 4.9 percent over total sales of $989.0 million during the first three quarters (39 weeks) ended October 28, 2006.

Total Company same-store sales increased 2.0 percent during the first three quarters. By concept, PacSun same-store sales increased 4.0 percent and demo same-store sales decreased 13.7 percent. Due to the 53rd week in fiscal 2006, same-store sales for the first three quarters of fiscal 2007 are compared to the 39-week period ended November 4, 2006.

For the first three quarters of fiscal 2007, the Company recorded a GAAP net loss of $35.6 million, or $(0.51) per diluted share, compared to GAAP net income of $30.6

3450 East Miraloma Avenue · Anaheim, CA 92806 · (714) 414-4000

million, or $0.43 per diluted share, in the first three quarters of fiscal 2006 ended October 28, 2006. Store asset impairments, lease termination charges, inventory reserves and other liquidation charges associated with the Company’s demo and One Thousand Steps stores accounted for approximately $48 million in after-tax charges, or $0.69 per diluted share. Excluding these charges and their related tax rate implications, the Company generated non-GAAP net income of $12.8 million, or $0.18 per diluted share, for the first three quarters of fiscal 2007. A reconciliation of the GAAP to non-GAAP financial measures above is contained at the end of this press release.

Financial Outlook
Assuming a flat to low-single digit increase in total Company same-store sales for the fourth quarter, the Company expects fourth quarter earnings in the range of $0.26 to $0.29 per diluted share. This earnings range does not include any potential lease termination or other disposition-related charges that may occur associated with the demo or One Thousand Steps businesses at any time in the future.

As a result of the Company’s previously announced plans to explore strategic alternatives for its demo stores and to close its One Thousand Steps stores, and the uncertainty regarding the financial impact those plans may produce, the Company is also providing non-GAAP earnings guidance associated with its core PacSun business on a stand-alone basis. Accordingly, assuming a low-single digit increase in PacSun same-store sales for the fourth quarter, the Company is comfortable with fourth quarter non-GAAP earnings, excluding demo and One Thousand Steps and any associated potential lease termination or other disposition-related charges that may occur at any time in the future, in the range of $0.32 to $0.35 per diluted share.

About Pacific Sunwear of California, Inc.
Pacific Sunwear is a leading specialty retailer of everyday casual apparel, accessories and footwear designed to meet the needs of active teens and young adults. As of November 3, 2007, the Company operated 838 PacSun stores, 119 PacSun Outlet stores, 154 demo stores and 9 One Thousand Steps stores for a total of 1,120 stores in 50 states and Puerto Rico. PacSun’s website address is www.pacsun.com, merchandise carried at demo stores can be found at www.demostores.com and information about One Thousand Steps can be found at www.onethousandsteps.com. On October 24, 2007, the Company announced that it would be seeking strategic alternatives for its demo division and would be closing its One Thousand Steps division as soon as is practical.

The Company will be hosting a conference call today at 2:00 pm Pacific Time. A telephonic replay of the conference call will be available beginning approximately two hours following the call for one week and can be accessed in the United States/Canada at (800) 642-1687 or internationally at (706) 645-9291; pass code: 24025382. For those unable to listen to the live Web broadcast on the Company’s investor relations website www.pacsun.com, or utilize the call-in replay, an archived version will be available on the Company’s investor relations Web site through midnight, November 20, 2008.

Pacific Sunwear Safe Harbor
This press release contains “forward-looking statements” including, without limitation, statements regarding the Company’s earnings projections for the fourth quarter of fiscal 2007, its assumptions of a flat to low-single digit increase in total Company same-store sales and a low-single digit same-store sales increase for its PacSun business in

3450 East Miraloma Avenue · Anaheim, CA 92806 · (714) 414-4000

the fourth quarter, the Company’s plans to explore strategic alternatives for its demo stores and to close its One Thousand Steps stores, and the Company’s continued progress in improving its juniors’ business. In each case, these statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company intends that these forward-looking statements be subject to the safe harbors created thereby. These statements are not historical facts and involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those expressed in such forward-looking statements. Such uncertainties which could adversely affect our business and results include, among others, the following factors: our assumption of comparable same store sales during the fourth quarter of fiscal 2007 may be wrong and actual comparable same store sales may be higher or lower; changes in consumer demands and preferences may adversely affect our performance; higher than anticipated markdowns and/or higher than estimated selling, general and administrative costs; higher than anticipated lease termination costs or inventory liquidation charges associated with the Company’s demo and One Thousand Steps stores; competition from other retailers and uncertainties generally associated with apparel retailing; merchandising/fashion sensitivity; sales from private label merchandise, expansion and management of growth; reliance on key personnel; economic impact of natural disasters, terrorist attacks or war/threat of war; shortages of supplies and/or contractors, as a result of natural disasters or terrorist acts, could cause unexpected delays in new store openings, relocations or expansions; reliance on foreign sources of production; credit facility financial covenants and other risks outlined in the company’s SEC filings, including but not limited to the Annual Report on Form 10-K for the year ended February 3, 2007 and subsequent periodic reports filed with the Securities and Exchange Commission. Historical results achieved are not necessarily indicative of future prospects of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company assumes no obligation to update or revise any such forward-looking statements to reflect events or circumstances that occur after such statements are made. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this press release. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

***MORE***

3450 East Miraloma Avenue · Anaheim, CA 92806 · (714) 414-4000

PACIFIC SUNWEAR OF CALIFORNIA, INC.
SUMMARY STATEMENTS OF INCOME
(unaudited, in thousands except share and per share data)

	Third Quarter Ended					First Three Quarters Ended
	NOV. 3, 2007			OCT. 28, 2006		NOV. 3, 2007			OCT. 28, 2006
Net sales	$	373,148		$	375,427	$	1,037,951		$	988,996
Gross margin		111,099			106,342		284,988			301,049
Selling, G&A expenses		148,849			92,562		350,491			255,355
Operating (loss)/income		(37,750	)		13,780		(65,503	)		45,694
Interest income, net		652			709		2,162			3,594
(Loss)/Income before taxes		(37,098	)		14,489		(63,341	)		49,288
Income tax (benefit)/expense		(17,061	)		5,506		(27,744	)		18,729
Net (loss)/income	$	(20,037	)	$	8,983	$	(35,597	)	$	30,559
Net (loss)/income per share, basic	$	(0.29	)	$	0.13	$	(0.51	)	$	0.43
Net (loss)/income per share, diluted	$	(0.29	)	$	0.13	$	(0.51	)	$	0.43
Wtd avg shares outstanding, basic		69,765,113			69,344,402		69,678,733			71,274,716
Wtd avg shares outstanding, diluted		69,765,113			69,561,420		69,678,733			71,657,385

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

	NOV. 3, 2007		FEB. 3, 2007		OCT. 28, 2006
ASSETS
Current assets:
Cash & cash equivalents	$	37,179	$	52,267	$	55,453
Short-term investments		—		31,500		—
Inventories		242,210		205,213		252,680
Other current assets		71,604		46,255		32,120
Total current assets		350,993		335,235		340,253
Property and equipment, net		394,785		420,886		419,396
Other long-term assets		43,515		17,122		16,350
Total assets	$	789,293	$	773,243	$	775,999
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	106,352	$	66,581	$	77,911
Other current liabilities		66,113		73,952		67,807
Total current liabilities		172,465		140,533		145,718
Deferred lease incentives		78,201		89,371		86,377
Deferred rent		28,408		30,619		31,039
Other long-term liabilities		35,411		9,367		21,383
Total liabilities		314,485		269,890		284,517
Total shareholder’s equity		474,808		503,353		491,482
Total liabilities and shareholders’ equity	$	789,293	$	773,243	$	775,999

3450 East Miraloma Avenue · Anaheim, CA 92806 · (714) 414-4000

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

	THREE QUARTERS ENDED
	NOV. 3, 2007			OCT. 28, 2006
Cash flows from operating activities:
Net (loss)/income	$	(35,597	)	$	30,559
Depreciation & amortization		58,295			52,632
Non-cash stock based compensation		5,119			5,392
Tax benefits related to exercise of stock options		320			1,556
Excess tax benefits related to stock-based compensation		(292	)		(963	)
Loss on disposal of property and equipment		63,001			373
Changes in operating assets and liabilities:
Inventories		(36,997	)		(37,540	)
Accounts payable and other current liabilities		31,724			11,482
Other assets and liabilities		(39,709	)		21,124
Net cash provided by operating activities		45,864			84,615
Cash flows from investing activities:
Purchases of short-term investments		(171,400	)		(226,503	)
Maturities of short-term investments		202,900			301,414
Purchases of long-term investments		(23,300	)		—
Capital expenditures		(94,939	)		(107,087	)
Net cash used in investing activities		(86,739	)		(32,176	)
Cash flows from financing activities:
Repurchases of common stock		—			(99,347	)
Excess tax benefits related to stock-based compensation		292			963
Proceeds from exercise of stock options		2,237			6,532
Net borrowings under long-term leases		23,258			(319	)
Net cash provided by/(used in) financing activities		25,787			(92,171	)
Net (decrease) in cash and cash equivalents		(15,088	)		(39,732	)
Cash and cash equivalents, beginning of period		52,267			95,185
Cash and cash equivalents, end of period	$	37,179		$	55,453

PACIFIC SUNWEAR OF CALIFORNIA, INC.
SELECTED STORE OPERATING DATA

	NOV. 3, 2007			OCT. 28, 2006
Stores open at beginning of fiscal year		1,199			1,105
Stores opened during the fiscal year		14			67
Stores closed during the fiscal year		(93	)		(3	)
Stores open at end of period		1,120			1,169

	NOV. 3, 2007				OCT. 28, 2006
			Square Footage				Square Footage
	# of Stores		(000’s)		# of Stores		(000’s)
PacSun stores		838		3,186		835		3,136
Outlet stores		119		481		110		446
d.e.m.o. stores		154		439		215		603
One Thousand Steps stores		9		24		9		24
Total stores		1,120		4,130		1,169		4,209

3450 East Miraloma Avenue · Anaheim, CA 92806 · (714) 414-4000

Reconciliation of GAAP to non-GAAP financial measures

This earnings release for the third quarter ended November 3, 2007 contains certain non-GAAP financial measures. Provided in the tables below is a reconciliation of the relevant GAAP measure to the non-GAAP measure contained in this earnings release. Only line items affected by these non-GAAP adjustments are included in the tables below. All amounts are expressed in millions of dollars, except earnings per share. Non-GAAP earnings are derived by starting with the GAAP number on the left and subtracting the relevant non-GAAP adjustments while moving to the right by line item.

The Company believes that the non-GAAP measures presented in the earnings release and below in the reconciliation tables are useful to investors, as they provide an alternative method for measuring the Company’s operating performance and comparing it against prior periods’ performance without reference to the income statement impact of store asset impairment charges associated with demo stores and inventory reserve charges associated with both demo and One Thousand Steps stores. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. As used herein, “GAAP” refers to accounting principles generally accepted in the United States.

Reconciliation of fiscal 2007 third quarter GAAP earnings to non-GAAP earnings:

Non-GAAP earnings for the third quarter of fiscal 2007 exclude the income statement impact of store asset impairment charges associated with demo stores and inventory reserve charges associated with both demo and One Thousand Steps.

				Non-GAAP
				Adjustments
				Attributable
				to demo and
				One
	GAAP			Thousand			Non-GAAP
	Amounts			Steps			Amounts
Gross Margin/(Loss)	$	111.1		$	(4.5	)	$	115.6
SG&A		148.8			49.5			99.3
Operating (Loss)/Income		(37.8	)		(54.1	)		16.3
Income Tax (Benefit)/Expense		(17.1	)		(22.9	)		5.8
Net (Loss)/Income		(20.0	)		(31.1	)		11.1
(Loss)/Earnings Per Share	$	(0.29	)	$	(0.45	)	$	0.16

3450 East Miraloma Avenue · Anaheim, CA 92806 · (714) 414-4000

Reconciliation of fiscal 2007 first three quarters’ GAAP earnings to non-GAAP earnings:

Non-GAAP earnings for the first three quarters of fiscal 2007 exclude the income statement impact from the liquidation of 74 demo store closures and store asset impairment and inventory reserve charges associated with both demo and One Thousand Steps stores.

							Non-GAAP
				Non-GAAP			Adjustments
				Adjustments			Attributable
				Attributable			to demo
				to 74 demo			and One
				Store			Thousand			Non-GAAP
	GAAP Amounts			Closures			Steps			Amounts
Net Sales	$	1,038.0		$	13.3		$	—		$	1,024.6
Gross Margin/(Loss)		285.0			(15.2	)		(4.5	)		304.7
SG&A		350.5			4.6			59.2			286.7
Operating (Loss)/Income		(65.5	)		(19.8	)		(63.7	)		18.0
Income Tax (Benefit)/Expense		(27.7	)		(7.9	)		(27.2	)		7.4
Net (Loss)/Income		(35.6	)		(11.9	)		(36.5	)		12.8
(Loss)/Earnings Per Share	$	(0.51	)	$	(0.17	)	$	(0.52	)	$	0.18

3450 East Miraloma Avenue · Anaheim, CA 92806 · (714) 414-4000

EX-99.2

EXHIBIT 99.2 — GAAP to Non-GAAP Reconciliations

The earnings release and conference call of Pacific Sunwear of California, Inc. (the “Company”) for the third quarter ended November 3, 2007 contain certain non-GAAP financial measures. Provided in the tables below is a reconciliation of the relevant measures to the non-GAAP measures. Only line items affected by these non-GAAP adjustments are included in the tables below. All amounts are expressed in millions of dollars, except earnings per share. Non-GAAP earnings are derived by starting with the GAAP number on the left and subtracting the relevant non-GAAP adjustments while moving to the right by line item.

The Company believes that the non-GAAP measures presented in the earnings release, conference call, and/or below in the reconciliation tables are useful to investors, as they provide an alternative method for measuring the Company’s operating performance and comparing it against prior periods’ performance without reference to the income statement impact of store asset impairment charges associated with demo stores and inventory reserve charges associated with both demo and One Thousand Steps (“OTS”) stores. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. As used herein, “GAAP” refers to accounting principles generally accepted in the United States.

Reconciliation of GAAP Measures to Non-GAAP Measures That Exclude Store Asset Impairment Charges
and Inventory Reserve Charges

Reconciliation of fiscal 2007 third quarter GAAP earnings to non-GAAP earnings:

Non-GAAP earnings for the third quarter of fiscal 2007 exclude the income statement impact of store asset impairment charges associated with demo stores and inventory reserve charges associated with both demo and OTS.

				Non-GAAP
				Adjustments
				Attributable
	GAAP			to demo			Non-GAAP
	Amounts			and OTS			Amounts
Gross Margin/(Loss)	$	111.1		$	(4.5	)	$	115.6
SG&A		148.8			49.5			99.3
Operating (Loss)/Income		(37.8	)		(54.1	)		16.3
Income Tax (Benefit)/Expense		(17.1	)		(22.9	)		5.8
Net (Loss)/Income		(20.0	)		(31.1	)		11.1
(Loss)/Earnings Per Share	$	(0.29	)	$	(0.45	)	$	0.16

Reconciliation of fiscal 2007 first three quarters’ GAAP earnings to non-GAAP earnings:

Non-GAAP earnings for the first three quarters of fiscal 2007 exclude the income statement impact from the liquidation of 74 demo store closures and store asset impairment and inventory reserve charges associated with both demo and OTS stores.

				Non-GAAP
				Adjustments			Non-GAAP
				Attributable			Adjustments
				to 74 demo			Attributable
	GAAP			Store			to demo			Non-GAAP
	Amounts			Closures			and OTS			Amounts
Net Sales	$	1,038.0		$	13.3		$	—		$	1,024.6
Gross Margin/(Loss)		285.0			(15.2	)		(4.5	)		304.7
SG&A		350.5			4.6			59.2			286.7
Operating (Loss)/Income		(65.5	)		(19.8	)		(63.7	)		18.0
Income Tax (Benefit)/Expense		(27.7	)		(7.9	)		(27.2	)		7.4
Net (Loss)/Income		(35.6	)		(11.9	)		(36.5	)		12.8
(Loss)/Earnings Per Share	$	(0.51	)	$	(0.17	)	$	(0.52	)	$	0.18

Reconciliation of fiscal 2006 third quarter GAAP earnings to non-GAAP earnings:

In the Company’s third quarter earnings conference call, certain references may be made to non-GAAP financial measures related to the third quarter of fiscal 2006. Provided in the table below is a reconciliation of the GAAP measure for the third quarter of fiscal 2006 to the non-GAAP measure included in the Company’s conference call. Only line items affected by these non-GAAP adjustments are included in the tables below.

			Non-GAAP
			Adjustments
			Attributable
			to 74 demo
	GAAP		Store			Non-GAAP
	Amounts		Closures			Amounts
Net Sales	$	375.4	$	12.5		$	363.0
Gross Margin		106.3		2.7			103.6
SG&A		92.6		4.2			88.4
Operating Income		13.8		(1.5	)		15.3
Income Tax Expense		5.5		(0.6	)		6.1
Net Income	$	9.0	$	(0.9	)	$	9.9
Earnings/(Loss) Per Share	$	0.13	$	(0.01	)	$	0.14

Reconciliation of GAAP Measures to Non-GAAP PacSun-Only Measures That
Exclude Financial Impact of Demo and One Thousand Steps Stores

Reconciliation of historical GAAP earnings to non-GAAP, PacSun-only earnings:

As a result of the Company’s previously announced plans to explore strategic alternatives for its demo stores and to close its OTS stores, and the uncertainty regarding the financial impact those plans may produce, the Company is providing non-GAAP earnings guidance associated with its core PacSun business. The Company is also providing comparable historical financial results for its PacSun business on a stand-alone basis. The comparable historical financial results presented below represent non-GAAP financial measures because they exclude the impact of the Company’s demo stores and OTS stores from the Company’s financial results. These non-GAAP results include only the operational results for PacSun stores, PacSun Outlet stores, and PacSun e-commerce. All corporate functions are assumed to continue on with the PacSun business in their existing form. The Company believes that the non-GAAP measures presented in the reconciliation tables below are useful to investors because they will allow investors to compare the Company’s historical financial results for its PacSun business on a stand-alone basis with the earnings guidance for the Company’s core PacSun business that it plans to provide on a going-forward basis. The non-GAAP financial measures provided below may be different from the non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. As used herein, “GAAP” refers to accounting principles generally accepted in the United States.

Provided in the tables below is a reconciliation of the relevant historical GAAP financial measure to the comparable historical non-GAAP financial measure for each of the Company’s previous seven fiscal quarters. The line items affected by these non-GAAP adjustments are included in the tables below and are intended to demonstrate the Company’s historical financial results associated with the Company’s core PacSun business only and without reference to the Company’s demo or OTS stores. All amounts are expressed in millions of dollars, except earnings per share. Non-GAAP earnings are derived by starting with the GAAP number on the left and subtracting the relevant non-GAAP adjustments while moving to the right by line item.

Reconciliation of fiscal 2007 quarterly GAAP earnings to non-GAAP, PacSun-only earnings:

				Non-GAAP
				Adjustments
				Attributable
	GAAP			to demo			Non-GAAP
	Amounts			and OTS			Amounts
Fiscal 2007 Third Quarter:
Net Sales	$	373.1		$	31.3		$	341.9
Gross Margin/(Loss)		111.1			(3.6	)		114.7
SG&A		148.8			60.4			88.4
Operating (Loss)/Income		(37.8	)		(64.0	)		26.3
Interest Income		0.7			—			0.7
Pre-tax (Loss)/Income		(37.1	)		(64.0	)		27.0
Income Tax (Benefit)/Expense		(17.1	)		(26.9	)		9.8
Net (Loss)/Income		(20.0	)		(37.2	)		17.1
(Loss)/Earnings Per Share	$	(0.29	)	$	(0.53	)	$	0.24
Fiscal 2007 Second Quarter:
Net Sales	$	344.2		$	32.4		$	311.8
Gross Margin/(Loss)		91.0			(10.8	)		101.8
SG&A		109.6			22.7			86.9
Operating (Loss)/Income		(18.6	)		(33.5	)		14.9
Interest Income		0.5			—			0.5
Pre-tax (Loss)/Income		(18.0	)		(33.5	)		15.5
Income Tax (Benefit)/Expense		(7.5	)		(14.0	)		6.5
Net (Loss)/Income		(10.5	)		(19.5	)		9.0
(Loss)/Earnings Per Share	$	(0.15	)	$	(0.28	)	$	0.13
Fiscal 2007 First Quarter:
Net Sales	$	320.6		$	52.5		$	268.1
Gross Margin/(Loss)		82.9			7.7			75.2
SG&A		92.0			15.3			76.7
Operating Loss		(9.2	)		(7.7	)		(1.5	)
Interest Income		1.0			—			1.0
Pre-tax Loss		(8.2	)		(7.7	)		(0.5	)
Income Tax Benefit		(3.1	)		(2.9	)		(0.2	)
Net Loss		(5.1	)		(4.7	)		(0.3	)
Loss Per Share	$	(0.07	)	$	(0.07	)	$	(0.00	)

Reconciliation of fiscal 2006 quarterly GAAP earnings to non-GAAP, PacSun-only earnings:

The fourth quarter of fiscal 2006 was a 14-week quarter due to the impact of the 53^rd week in the retail calendar for fiscal 2006. The table below reconciles the 14-week fourth quarter GAAP earnings to a 13-week non-GAAP, PacSun-only earnings result.

			Non-GAAP			Non-GAAP
			Adjustments			Adjustments
			Attributable			Attributable
	GAAP		to demo			to the		Non-GAAP
	Amounts		and OTS			53rd Week		Amounts
Fiscal 2006 Fourth Quarter:
Net Sales	$	458.2	$	72.4		$	18.2	$	367.6
Gross Margin/(Loss)		144.3		13.1			8.5		122.7
SG&A		130.4		40.9			3.1		86.4
Operating Income/(Loss)		13.9		(27.8	)		5.4		36.3
Interest Income		1.0		—			—		1.0
Pre-tax Income/(Loss)		14.9		(27.8	)		5.4		37.3
Income Tax Expense/(Benefit)		5.9		(10.9	)		2.1		14.7
Net Income/(Loss)		9.1		(16.9	)		3.3		22.6
Earnings/(Loss) Per Share	$	0.13	$	(0.24	)	$	0.05	$	0.32

			Non-GAAP
			Adjustments
			Attributable
	GAAP		to demo			Non-GAAP
	Amounts		and OTS			Amounts
Fiscal 2006 Third Quarter:
Net Sales	$	375.4	$	48.2		$	327.2
Gross Margin/(Loss)		106.3		10.4			96.0
SG&A		92.6		14.4			78.2
Operating Income/(Loss)		13.8		(4.0	)		17.8
Interest Income		0.7		—			0.7
Pre-tax Income/(Loss)		14.5		(4.0	)		18.5
Income Tax Expense/(Benefit)		5.5		(1.5	)		7.0
Net Income/(Loss)	$	9.0		(2.5	)		11.4
Earnings/(Loss) Per Share	$	0.13	$	(0.04	)	$	0.16

			Non-GAAP
			Adjustments
			Attributable
	GAAP		to demo			Non-GAAP
	Amounts		and OTS			Amounts
Fiscal 2006 Second Quarter:
Net Sales	$	313.7	$	37.1		$	276.6
Gross Margin/(Loss)		97.4		2.5			94.9
SG&A		82.9		13.1			69.7
Operating Income/(Loss)		14.6		(10.6	)		25.2
Interest Income		1.1		—			1.1
Pre-tax Income/(Loss)		15.7		(10.6	)		26.3
Income Tax Expense/(Benefit)		6.0		(4.0	)		10.0
Net Income/(Loss)	$	9.7		(6.6	)		16.3
Earnings/(Loss) Per Share	$	0.14	$	(0.09	)	$	0.23
Fiscal 2006 First Quarter:
Net Sales	$	299.9	$	48.3		$	251.6
Gross Margin/(Loss)		97.3		12.9			84.3
SG&A		79.9		12.2			67.7
Operating Income/(Loss)		17.3		0.7			16.6
Interest Income		1.8		—			1.8
Pre-tax Income/(Loss)		19.1		0.7			18.4
Income Tax Expense/(Benefit)		7.3		0.3			7.0
Net Income/(Loss)	$	11.9		0.5			11.4
Earnings/(Loss) Per Share	$	0.16	$	0.01		$	0.15