UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
⌧
(cid:2)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2013
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-49850
BIG 5 SPORTING GOODS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
2525 East El Segundo Boulevard
El Segundo, California
(Address of Principal Executive Offices)
95-4388794
(I.R.S. Employer
Identification No.)
90245
(Zip Code)
Registrant’s telephone number, including area code:
(310) 536-0611
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
Common Stock, par value $0.01 per share
Name of Each Exchange on which Registered:
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
No
(cid:0)
(cid:0)
(cid:2)
(cid:2)
Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
No
(cid:2)
(cid:0)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period
to submit and post such
that
files). Yes
the registrant was required
No
(cid:2)
(cid:0)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 on Regulation S-K is not contained herein, and will
not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
(cid:2)
Part III of this Form 10-K or in any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
Accelerated filer
(cid:0)
(cid:2)
(cid:0)
Non-accelerated filer
(Do not check if a smaller
reporting company)
Smaller reporting company
(cid:0)
(cid:0)
(cid:2)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the voting stock held by non-affiliates of the registrant was $365,551,678 as of June 30, 2013 (the
last business day of the registrant’s most recently completed second fiscal quarter) based upon the closing price of the registrant’s
common stock on the NASDAQ Stock Market LLC reported for June 28, 2013. Shares of common stock held by each executive
No
officer and director and by each person who, as of such date, may be deemed to have beneficially owned more than 5% of the
outstanding voting stock have been excluded in that such persons may be deemed to be affiliates of the registrant under certain
circumstances. This determination of affiliate status is not necessarily a conclusive determination of affiliate status for any other
purpose.
The registrant had 22,305,601 shares of common stock outstanding at February 19, 2014.
Documents Incorporated by Reference
Part III of this Form 10-K incorporates by reference certain information from the registrant’s 2014 definitive proxy statement (the
“Proxy Statement”) to be filed with the Securities and Exchange Commission no later than 120 days after the end of the registrant’s
fiscal year.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
EXHIBIT INDEX
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F-1
E-1
Forward-Looking Statements
This document includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements relate to, among other things, our financial condition, our results of operations, our
growth strategy and the business of our company generally. In some cases, you can identify such statements by terminology such as
“may,” “could,” “project,” “estimate,” “potential,” “continue,” “should,” “expects,” “plans,” “anticipates,” “believes,” “intends” or
other such terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may
cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among
other things, continued or worsening weakness in the consumer spending environment and the U.S. financial and credit markets,
fluctuations in consumer holiday spending patterns, breach of data security or other unauthorized disclosure of sensitive personal or
confidential information, the competitive environment in the sporting goods industry in general and in our specific market areas,
inflation, product availability and growth opportunities, changes in the current market for (or regulation of) firearms, ammunition and
certain related accessories, seasonal fluctuations, weather conditions, changes in cost of goods, operating expense fluctuations,
higher-than-expected costs related to the development of an e-commerce platform, delay in completing the e-commerce platform or
lower-than-expected profitability of the e-commerce platform, litigation risks, disruption in product flow, changes in interest rates,
credit availability, higher expense associated with sources of credit resulting from uncertainty in financial markets and economic
conditions in general. Those and other risks and uncertainties are more fully described in Part I, Item 1A, Risk Factors, in this report.
We caution that the risk factors set forth in this report are not exclusive. In addition, we conduct our business in a highly competitive
and rapidly changing environment. Accordingly, new risk factors may arise. It is not possible for management to predict all such risk
factors, nor to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or
combination of factors, may cause results to differ materially from those contained in any forward-looking statement. We undertake
no obligation to revise or update any forward-looking statement that may be made from time to time by us or on our behalf.
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ITEM 1. BUSINESS
General
PART I
Big 5 Sporting Goods Corporation (“we,” “our,” “us” or the “Company”) is a leading sporting goods retailer in the western
United States, operating 429 stores in 12 states under the “Big 5 Sporting Goods” name as of December 29, 2013. We provide a full-
line product offering in a traditional sporting goods store format that averages approximately 11,000 square feet. Our product mix
includes athletic shoes, apparel and accessories, as well as a broad selection of outdoor and athletic equipment for team sports, fitness,
camping, hunting, fishing, tennis, golf, snowboarding and roller sports.
We believe that over our 59-year history we have developed a reputation with the competitive and recreational sporting goods
customer as a convenient neighborhood sporting goods retailer that consistently delivers value on quality merchandise. Our stores
carry a wide range of products at competitive prices from well-known brand name manufacturers, including adidas, Coleman, Easton,
New Balance, Nike, Reebok, Spalding, Under Armour and Wilson. We also offer brand name merchandise produced exclusively for
us, private label merchandise and specials on quality items we purchase through opportunistic buys of vendor over-stock and close-
out merchandise. We reinforce our value reputation through weekly print advertising in major and local newspapers, direct mailers
and digital marketing programs designed to generate customer traffic, drive net sales and build brand awareness. We also maintain
social media sites to enhance distribution capabilities for our promotional offers and to enable communication with our customers.
Robert W. Miller co-founded our company in 1955 with the establishment of five retail locations in California. We sold World
War II surplus items until 1963, when we began focusing exclusively on sporting goods and changed our trade name to “Big 5
Sporting Goods.” In 1971, we were acquired by Thrifty Corporation, which was subsequently purchased by Pacific Enterprises. In
1992, management bought our company in conjunction with Green Equity Investors, L.P., an affiliate of Leonard Green & Partners,
L.P. In 1997, Robert W. Miller, Steven G. Miller and Green Equity Investors, L.P. recapitalized our company so that the majority of
our common stock would be owned by our management and employees.
In 2002, we completed an initial public offering of our common stock and used the proceeds from that offering, together with
credit facility borrowings, to repurchase outstanding high-yield debt and preferred stock, fund management bonuses and repurchase
common stock from non-executive employees.
Our accumulated management experience and expertise in sporting goods merchandising, advertising, operations and store
development have enabled us to historically generate profitable growth. We believe our historical success can be attributed to a value-
based and execution-driven operating philosophy, a controlled growth strategy and a proven business model. Additional information
regarding our management experience is available in Item 1, Business, under the sub-heading “Management Experience,” of this
Annual Report on Form 10-K. In fiscal 2013, we generated net sales of $993.3 million, operating income of $47.4 million, net income
of $27.9 million and diluted earnings per share of $1.27.
We are a holding company incorporated in Delaware on October 31, 1997. We conduct our business through Big 5 Corp., a
wholly-owned subsidiary incorporated in Delaware on October 27, 1997. We conduct our gift card operations through Big 5 Services
Corp., a wholly-owned subsidiary of Big 5 Corp. incorporated in Virginia on December 19, 2003.
Our corporate headquarters are located at 2525 East El Segundo Boulevard, El Segundo, California 90245. Our Internet address
is www.big5sportinggoods.com. Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on
Form 8-K and amendments, if any, to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act, are available on our website, free of charge, as
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soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange
Commission (“SEC”).
Expansion and Store Development
Throughout our operating history, we have sought to expand our business with the addition of new stores through a disciplined
strategy of controlled growth. Our expansion within the western United States has been systematic and designed to capitalize on our
name recognition, economical store format and economies of scale related to distribution and advertising. Over the past five fiscal
years, we have opened 62 stores, an average of approximately 12 new stores annually, of which 44% were in California. Uncertainty
resulting from the economic recession slowed our store expansion efforts in fiscal 2009, but we have since resumed our expansion
program. The following table illustrates the results of our expansion program during the periods indicated:
Year
2009
2010
2011
2012
2013
California
1
7
7
4
8
Other
Markets
2
8
6
10
9
Total
3
15
13
14
17
Stores
Relocated
Stores
Closed
–
(1)
(5)
(2)
(2)
–
–
–
(4)
–
Number of Stores
at Period End
384
398
406
414
429
Our store format enables us to have substantial flexibility regarding new store locations. We have successfully operated stores in
major metropolitan areas and in areas with as few as 35,000 people. Our 11,000 average square foot store format differentiates us
from superstores that typically average over 35,000 square feet, require larger target markets, are more expensive to operate and
require higher net sales per store for profitability.
New store openings normally represent attractive investment opportunities due to the relatively low investment required and the
relatively short time necessary before our stores typically become profitable. Our store format typically requires investments of
approximately $0.4 million in fixtures, equipment and leasehold improvements, net of landlord allowances, and approximately $0.2
million in net working capital with limited pre-opening and real estate expense related to leased locations that are built to our
specifications. We seek to maximize new store performance by staffing new store management with experienced personnel from our
existing stores.
Our in-house store development personnel analyze new store locations with the assistance of real estate firms that specialize in
retail properties. We seek expansion opportunities to further penetrate our established markets, develop recently entered markets and
expand into new, contiguous markets with attractive demographic, competitive and economic profiles.
Management Experience
We believe the experience and tenure of our professional staff in the retail industry gives us a competitive advantage. The table
below indicates the tenure of our professional staff in some of our key functional areas as of December 29, 2013:
Senior Management
Vice Presidents
Buyers
Store District / Regional Supervisors
Store Managers
5
Number of
Employees
7
8
22
49
429
Average
Number of
Years With Us
29
24
16
22
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Merchandising
We target the competitive and recreational sporting goods customer with a full-line product offering at a wide variety of price
points. We offer a product mix that includes athletic shoes, apparel and accessories, as well as a broad selection of outdoor and
athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, snowboarding and roller sports. We believe we
offer consistent value to consumers by offering a distinctive merchandise mix that includes a combination of well-known brand name
merchandise, merchandise produced exclusively for us under a manufacturer’s brand name, private label merchandise and specials on
quality items we purchase through opportunistic buys of vendor over-stock and close-out merchandise.
Through our 59 years of experience across different demographic, competitive and economic markets, we have refined our
merchandising strategy in an effort to offer a selection of products that meets customer demand. Specifically, during fiscal 2012 and
fiscal 2013 we were actively involved in strategically refining our merchandise and marketing strategies in order to better align our
product mix and promotional efforts with today’s consumer. We have not made wholesale changes to our model, but rather have
adjusted the model in an effort to broaden both our product offering and customer base. We have selectively downsized certain
underperforming product categories, and have expanded our assortment of branded products and introduced new products, some at
higher price points, in an effort to better appeal to those consumers who might be in a position to engage in more discretionary
spending in this economic environment.
The following table illustrates our mix of soft goods, which are non-durable items such as shirts and shoes, and hard goods,
which are durable items such as exercise equipment and baseball gloves, as a percentage of net sales:
Soft goods
Athletic and sport apparel
Athletic and sport footwear
Total soft goods
Hard goods
Total
2013
2012
Fiscal Year
2011
2010
2009
17.6%
27.8
45.4
54.6
100.0%
16.3%
28.9
45.2
54.8
100.0%
16.1%
29.2
45.3
54.7
100.0%
16.1%
29.0
45.1
54.9
100.0%
16.3%
29.1
45.4
54.6
100.0%
We purchase our popular branded merchandise from an extensive list of major sporting goods equipment, athletic footwear and
apparel manufacturers. Below is a selection of some of the brands we carry:
adidas
Asics
Bearpaw
Bushnell
Carhart
Coleman
Crocs
Crosman
Dickies
Easton
Everlast
Fila
Footjoy
Head
Heelys
Lifetime
Hillerich & Bradsby Mizuno
Icon (Proform)
Impex
JanSport
K2
K-Swiss
Mossberg
Mueller Sports Medicine
New Balance
Nike
Rawlings
Razor
Reebok
Remington
Rollerblade
Russell Athletic
Saucony
Shimano
Skechers
Spalding
Speedo
Timex
Titleist
Under Armour
Wilson
We believe we enjoy significant advantages in making opportunistic buys of vendor over-stock and close-out merchandise
because of our strong vendor relationships, purchasing volume and rapid decision-making process. Vendor over-stock and close-out
merchandise typically represent approximately 5% of our net sales. Our strong vendor relationships and purchasing volume also
enable us to purchase merchandise produced exclusively for us under a manufacturer’s brand name which allows us to differentiate
our product selection from competition, obtain volume pricing discounts from vendors and offer unique value to our customers. Our
weekly advertising highlights our opportunistic buys together with merchandise produced exclusively for us in order to reinforce our
reputation as a retailer that offers attractive values to our customers.
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In order to complement our branded product offerings, we offer a variety of private label merchandise, which represents
approximately 3% of our net sales. Our sale of private label merchandise enables us to provide our customers with a broader selection
of quality merchandise at a wider range of price points and allows us the opportunity to achieve higher margins than on sales of
comparable name brand products. Our private label items include shoes, apparel, binoculars, camping equipment, fishing supplies and
snowsport equipment. Private label merchandise is sold under trademarks owned by us or licensed by us from third parties. Our
owned trademarks include Court Casuals, Golden Bear, Harsh, Pacifica, Rugged Exposure and Triple Nickel, all of which are
registered as federal trademarks. The renewal dates for these trademark registrations range from 2014 to 2021. Our licensed
trademarks include Avet, Beach Feet, Bearpaw, Body Glove, GoFit, Hi-Tec, Maui and Sons, Morrow and The Realm. The license
agreements for these trademarks generally renew automatically on an annual basis unless terminated by either party upon prior
written notice. Of the remaining license agreements, one expires in 2015 and the other is currently in the process of being renewed.
We intend to renew these trademark registrations and license agreements if we are still using the trademarks in commerce and they
continue to provide value to us at the time of renewal.
Seasonality influences our buying patterns and we purchase merchandise for seasonal activities in advance of a season. We tailor
our merchandise selection on a store-by-store basis in an effort to satisfy each region’s specific needs and seasonal buying habits. In
the fourth fiscal quarter we normally experience higher inventory purchase volumes in anticipation of the winter and holiday selling
season.
Our buyers, who average 16 years of experience with us, work closely with senior management to determine and enhance
product selection, promotion and pricing of our merchandise mix. Management utilizes integrated merchandising, business
intelligence analytics, distribution, point-of-sale and financial information systems to continuously refine our merchandise mix,
pricing strategy, advertising effectiveness and inventory levels to best serve the needs of our customers.
Advertising and Marketing
Through years of targeted advertising, we have solidified our reputation for offering quality products at attractive prices. We
have advertised almost exclusively through weekly print advertisements since 1955. We typically utilize four-page color
advertisements to highlight promotions across our merchandise categories. We believe our print advertising, which includes an
average weekly distribution of approximately 16.5 million newspaper inserts or mailers, consistently reaches more households in our
established markets than that of our full-line sporting goods competitors. For non-subscribers of newspapers, we provide our print
advertisements through carrier delivery and direct mail. The consistency and reach of our print advertising programs drive sales and
create high customer awareness of the name “Big 5 Sporting Goods.”
We use our own professional in-house advertising staff to generate our advertisements, including design, layout, production and
media management. Our in-house advertising department provides management with the flexibility to react quickly to merchandise
trends and to maximize the effectiveness of our weekly inserts and mailers. We are able to effectively target different population
zones for our advertising expenditures. We place inserts in over 200 newspapers throughout our markets, supplemented in many areas
by mailer distributions to create market saturation.
Though print advertising is the core of our promotional advertising, we also promote our products through digital marketing
programs that include e-mail marketing (the “E-Team”), search engine marketing, social media including Facebook, Twitter and
Pinterest, mobile programs and other website initiatives.
Our digital promotional strategy is designed to provide additional opportunities to connect with potential customers and enable
us to promote the Big 5 brand. Our e-mail marketing program invites our customers to subscribe to our E-Team for weekly
advertisements, special deals and product information disseminated on a regular basis. We use search engine marketing methods as a
means to reach those customers searching the
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Internet to gather information about our products. Within our social media program, our customers have the opportunity to engage in
conversations with other sports-minded people and receive exclusive information about new products and unique weekly offers. All
of these marketing methods are intended to simplify the shopping experience for our customers and further demonstrate our
commitment to provide great brands at great values.
Our website features a broad representation of our product assortment and provides visibility of store inventory to our
customers, thereby enabling them to determine if items featured on our website are in-stock in one or more of our store locations. We
are in the process of developing an e-commerce platform, and expect to commence e-commerce sales in fiscal 2014.
We have developed a strong cause marketing platform through our 14-year support of the March of Dimes annual fundraising
campaign and other charities. We also build brand awareness by providing sponsorship support of established, high profile events that
benefit our customers’ active lifestyles, such as the “LA Marathon” in Los Angeles, California, and the “Duke City Marathon” in
Albuquerque, New Mexico, for which we are the title sponsor. Additionally, in fiscal 2013, we entered into a sponsorship agreement
with the Los Angeles Lakers, Inc. (“Lakers”) to be the “Official Sporting Goods Retailer of the Lakers” within the Lakers’ marketing
territory.
We offer a loyalty program that provides youth-league organizations the ability to earn cash rebates and team discounts through
their supporters’ purchases at our stores.
Vendor Relationships
We have developed strong vendor relationships over the past 59 years. We currently purchase merchandise from approximately
800 vendors. In fiscal 2013, only one vendor represented greater than 5% of total purchases, at 8.3%. We believe current relationships
with our vendors are good. We benefit from the long-term working relationships with vendors that our senior management and our
buyers have carefully nurtured throughout our history.
Management Information Systems
We have fully integrated management information systems that report aggregated sales information throughout the day, support
merchandise management, inventory receiving and distribution functions and provide pertinent information for financial reporting, as
well as robust business intelligence and retail analytics tools. The management information systems also include networks that
connect all system users to the main host system, electronic mail and other related enterprise applications. The main host system and
our stores’ point-of-sale registers are linked by a network that provides managed DSL primary communications with satellite backup
for purchasing card (i.e., credit and debit card) tokenization, authorization and processing, as well as daily polling of sales and
merchandise movement at the store level. This wide area network also provides stable communications for the stores to access
valuable tools for collaboration, online training, workforce management, online hiring and corporate communications. Our disaster
recovery site, which is located in Phoenix, Arizona, houses redundant network and application systems to be used in the event of an
emergency or unplanned outage to our production systems. We believe our management information systems are effectively
supporting our current operations and provide a foundation for future growth.
Distribution
We operate a distribution center located in Riverside, California, that services all of our stores. The facility has approximately
953,000 square feet of storage and office space. The distribution center warehouse management system is fully integrated with our
management information systems and provides comprehensive warehousing and distribution capabilities. We distribute merchandise
from our distribution center to our stores at least once per week, using our fleet of leased tractors, as well as contract carriers. Our
lease for the distribution center is scheduled to expire on August 31, 2015, and includes three additional five-year renewal options.
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In fiscal 2011, we opened a small distribution hub in Oregon to help mitigate fuel costs. This approximately 12,000 square-foot
facility enables us to ship full trailers of product from our Riverside distribution center to the Pacific Northwest, where we separate
products for regional delivery. This distribution point has greatly reduced the number of transportation miles logged to distribute our
product to the Pacific Northwest. Our lease for the Oregon hub is scheduled to expire on January 31, 2019, and includes four
additional five-year renewal options.
Industry and Competition
The retail market for sporting goods is highly competitive. In general, competition tends to fall into the following five basic
categories:
Sporting Goods Superstores. Stores in this category typically are larger than 35,000 square feet and tend to be free-standing
locations. These stores emphasize high volume sales and a large number of stock-keeping units. Examples include Academy Sports &
Outdoors, Dick’s Sporting Goods, The Sports Authority and Sport Chalet.
Traditional Sporting Goods Stores. This category consists of traditional sporting goods chains, including us. These stores
range in size from 5,000 to 20,000 square feet and are frequently located in regional malls and multi-store shopping centers. The
traditional chains typically carry a varied assortment of merchandise and attempt to position themselves as convenient neighborhood
stores. Sporting goods retailers operating stores within this category include Hibbett Sports and Modell’s.
Specialty Sporting Goods Stores. Specialty sporting goods retailers are stores that typically carry a wide assortment of one
specific product category, such as athletic shoes, golf, or outdoor equipment. Examples of these retailers include Bass Pro Shops,
Cabela’s, Foot Locker, Gander Mountain, Golfsmith and REI. This category also includes pro shops that often are single-store
operations.
Mass Merchandisers. This category includes discount retailers such as Kmart, Target and Wal-Mart and department stores
such as JC Penney, Kohl’s and Sears. These stores range in size from 50,000 to 200,000 square feet and are primarily located in
regional malls, shopping centers or on free-standing sites. Sporting goods merchandise and apparel represent a small portion of the
total merchandise in these stores and the selection is often more limited than in other sporting goods retailers.
E-commerce and Catalog Retailers. This category consists of numerous retailers that sell a broad array of new and used
sporting goods products via e-commerce or catalogs. The types of retailers mentioned above may also sell their products through e-
commerce. E-commerce has been a rapidly growing sales channel, particularly with younger consumers, and an increasing source of
competition in the retail industry.
In competing with the retailers discussed above, we focus on what we believe are the primary factors of competition in the
sporting goods retail industry, including experienced and knowledgeable personnel; customer service; breadth, depth, price and
quality of merchandise offered; advertising; purchasing and pricing policies; effective sales techniques; direct involvement of senior
officers in monitoring store operations; management information systems and store location and format.
Employees
As of December 29, 2013, we had over 9,000 active full and part-time employees. The General Teamsters, Aerospace and Allied
Employees, Warehousemen, Drivers, Construction, Rock and Sand; Airline Employees, Local Union No. 986, affiliated with the
International Brotherhood of Teamsters (“Local 986”) represents approximately 450 hourly employees in our distribution center and
select stores. In October 2012, we negotiated a five-year contract with Local 986 for our distribution center bargaining unit
employees, and in November 2012, we negotiated a five-year contract with Local 986 for our store bargaining unit employees. Both
contracts were retroactive to September 1, 2012 and expire on August 31, 2017. We have not had a strike or work stoppage in over 30
years, although such a disruption could have a significant negative impact on our business operations and
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financial results. We believe we provide working conditions and wages that are comparable to those offered by other retailers in the
sporting goods industry and that employee relations are good.
Employee Training
We have developed a comprehensive training program that is tailored for each store position. All new employees are given an
orientation and reference materials that stress excellence in customer service and selling skills. All full-time store employees,
including salespeople, cashiers and management trainees, receive additional training specific to their job responsibilities. Our tiered
curriculum includes seminars, individual instruction and performance evaluations designed to promote employee development. The
manager trainee program includes classroom style, self-directed and one-on-one training designed to teach key operational
responsibilities such as product merchandising strategy, loss prevention and inventory control. Moreover, each manager trainee must
receive, or complete, a progressive series of outlines and evaluations in order to be considered for the next successive level of
advancement. Ongoing store management training includes advanced merchandising, delegation, personnel management, scheduling,
payroll control, harassment prevention and loss prevention. We also provide unique opportunities for our employees to gain first-hand
knowledge about our products through periodic “hands-on” training and seminars, and we have implemented a learning management
system that provides us with the ability to manage and monitor employee training online.
Description of Service Marks and Trademarks
We use the “Big 5” and “Big 5 Sporting Goods” names as service marks in connection with our business operations and have
registered these names as federal service marks. The renewal dates for these service mark registrations are in 2015 and 2023,
respectively. We have also registered the names Court Casuals, Golden Bear, Harsh, Pacifica, Rugged Exposure and Triple Nickel as
federal trademarks under which we sell a variety of merchandise. The renewal dates for these trademark registrations range from 2014
to 2021. We intend to renew these service mark and trademark registrations if we are still using the marks in commerce and they
continue to provide value to us at the time of renewal.
ITEM 1A. RISK FACTORS
An investment in the Company entails risks and uncertainties including the following. You should carefully consider these risk
factors when evaluating any investment in the Company. Any of these risks and uncertainties could cause our actual results to differ
materially from the results contemplated by the forward-looking statements set forth herein, and could otherwise have a significant
adverse impact on our business, prospects, financial condition or results of operations or on the price of our common stock.
Risks Related to Our Business and Industry
Disruptions in the overall economy and the financial markets may adversely impact our business and results of operations, as well
as our lenders.
The retail industry can be greatly affected by macroeconomic factors, including changes in national, regional and local economic
conditions, as well as consumers’ perceptions of such economic factors. In general, sales represent discretionary spending by our
customers. Discretionary spending is affected by many factors, including general business conditions, interest rates, inflation,
consumer debt levels, the availability of consumer credit, currency exchange rates, taxation, gasoline prices, income, unemployment
trends, home values and other matters that influence consumer confidence and spending, among others. Many of these factors are
outside of our control. We have experienced and may continue to experience increased inflationary pressure on our product costs. Our
customers’ purchases of discretionary items, including our products, generally decline during periods when disposable income is
lower, when prices increase in response to rising costs, or in periods of actual or perceived unfavorable economic conditions.
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As discussed in this and prior reports, the consumer environment has been challenging over the last several years. The economic
recession deteriorated the consumer spending environment and reduced consumer income, liquidity, credit and confidence in the
economy, and resulted in substantial reductions in consumer spending. Continued weakness or further deterioration of the consumer
spending environment would be harmful to our financial position and results of operations, could adversely affect our ability to
comply with covenants under our credit facility and, as a result, may negatively impact our ability to continue payment of our
quarterly dividend, to repurchase our stock and to open additional stores in the manner that we have in the past. Government
responses to the disruptions in the financial markets may not restore consumer confidence, stabilize such markets or increase liquidity
and the availability of credit to consumers and businesses.
Volatility in capital and credit markets can impact the ability of financial institutions to meet their lending obligations. Based on
information available to us, all of the lenders under our revolving credit facility are currently able to fulfill their commitments
thereunder. However, circumstances could arise that may impact their ability to fund their obligations in the future. Although we
believe the commitments from our lenders under the revolving credit facility, together with our cash and cash equivalents on hand and
anticipated operating cash flows, should be sufficient to meet our near-term borrowing requirements, if Wells Fargo Bank, National
Association, our principal lender, or any other lender, is for any reason unable to perform its lending or administrative commitments
under the facility, then disruptions to our business could result and may require us to replace this facility with a new facility or to raise
capital from alternative sources on less favorable terms, including higher rates of interest.
Intense competition in the sporting goods industry could limit our growth and reduce our profitability.
The retail market for sporting goods is highly fragmented and intensely competitive. We compete directly or indirectly with the
following categories of companies:
• sporting goods superstores, such as Academy Sports & Outdoors, Dick’s Sporting Goods, The Sports Authority and Sport
Chalet;
• traditional sporting goods stores and chains, such as Hibbett Sports and Modell’s;
• specialty sporting goods shops and pro shops, such as Bass Pro Shops, Cabela’s, Foot Locker, Gander Mountain, Golfsmith
and REI;
• mass merchandisers, discount stores and department stores, such as JC Penney, Kmart, Kohl’s, Sears, Target and Wal-Mart;
and
• e-commerce and catalog retailers, such as Amazon.com, and mass merchandisers and other sporting goods stores that also
have substantial e-commerce sales operations.
Some of our competitors have a larger number of stores and greater financial, distribution, marketing and other resources than
we have. If our competitors reduce their prices, it may be difficult for us to reach our net sales goals without reducing our prices,
which could impact our margins. As a result of this competition, we may also need to spend more on advertising and promotion than
we anticipate. Increased competition in our current markets or the adoption or proliferation by competitors of innovative store
formats, aggressive pricing strategies and retail sales methods, such as e-commerce, could cause us to lose market share and could
have a material adverse effect on our business.
We currently do not sell our products through e-commerce, which has been a rapidly growing sales channel, particularly with
younger consumers, and an increasing source of competition in the retail industry. Although we are developing an e-commerce
platform, we have no assurance that these efforts will prove profitable, whether due to product preferences of online buyers, ability to
compete with other (often more established) online retailers, or for other reasons, such as the cannibalization of sales from our
existing store base. Additionally, we may incur higher-than-expected costs related to the development of an e-commerce platform or
delays in completing an e-commerce platform. If we are unable to compete successfully, our operating results may suffer.
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If we fail to anticipate changes in consumer preferences, we may experience lower net sales, higher inventory, higher inventory
markdowns and lower margins.
Our products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty. These
preferences are also subject to change and can be impacted by sports participation levels in our market areas. Our success depends
upon our ability to anticipate and respond in a timely manner to trends in sporting goods merchandise and consumers’ participation in
sports. If we fail to identify and respond to these changes, our net sales may decline. In addition, because we often make
commitments to purchase products from our vendors up to six months in advance of the proposed delivery, if we misjudge the market
for our merchandise, we may over-stock unpopular products and be forced to take inventory markdowns that could have a negative
impact on profitability.
Our quarterly net sales and operating results, reported and expected, can fluctuate substantially, which may adversely affect the
market price of our common stock.
Our net and same store sales and results of operations, reported and expected, have fluctuated in the past and will vary from
quarter to quarter in the future. These fluctuations may adversely affect our financial condition and the market price of our common
stock. A number of factors, many of which are outside our control, have historically caused and will continue to cause variations in
our quarterly net and same store sales and operating results, including changes in consumer demand for our products, competition in
our markets, inflation, changes in pricing or other actions taken by our competitors, weather conditions in our markets, natural
disasters, litigation, political events, government regulation, changes in accounting standards, changes in management’s accounting
estimates or assumptions and economic conditions, including those specific to our western markets.
Increased costs or declines in the effectiveness of print advertising, or a reduction in publishers of print advertising, could cause
our operating results to suffer.
Our business relies heavily on print advertising. We utilize print advertising programs that include newspaper inserts, direct
mailers and courier-delivered inserts in order to effectively deliver our message to our targeted markets. Newspaper circulation and
readership has been declining, which could limit the number of people who receive or read our advertisements. Additionally,
declining newspaper demand and the weak macroeconomic environment are adversely impacting newspaper publishers and could
jeopardize their ability to operate, which could restrict our ability to advertise in the manner we have in the past. If we are unable to
develop other effective strategies to reach potential customers within our desired markets, awareness of our stores, products and
promotions could decline and our net sales could suffer. In addition, an increase in the cost of print advertising, paper or postal or
other delivery fees could increase the cost of our advertising and adversely affect our operating results.
Because our stores are concentrated in the western United States, we are subject to regional risks.
Our stores are located in the western United States. Because of this, we are subject to regional risks, such as the economy,
including downturns in the housing market, state financial conditions, unemployment and gas prices. Other regional risks include
adverse weather conditions, power outages, earthquakes and other natural disasters specific to the states in which we operate. For
example, particularly in southern California where we have a high concentration of stores, seasonal factors such as unfavorable snow
conditions, inclement weather or other localized conditions such as flooding, drought, fires, earthquakes or electricity blackouts could
harm our operations. State and local regulatory compliance also can impact our financial results. Economic downturns or other
adverse regional events could have an adverse impact upon our net sales and profitability and our ability to open additional stores in
the manner that we have in the past.
A significant amount of our sales is impacted by seasonal weather conditions in our markets.
Because many of the products we sell are used for seasonal outdoor sporting activities, our business is significantly impacted by
unseasonable weather conditions in our markets. For example, our winter sports and
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apparel sales are dependent on cold winter weather and snowfall in our markets, and can be negatively impacted by unseasonably
warm or dry weather in our markets. Conversely, sales of our spring products and summer products, such as baseball gear and
camping and water sports equipment, can be adversely impacted by unseasonably cold or wet weather in those periods. Accordingly,
our sales results and financial condition will typically suffer when weather patterns don’t conform to seasonal norms.
Our business is subject to seasonal fluctuations, and unanticipated changes in our customers’ seasonal buying patterns can
impact our business.
We experience seasonal fluctuations in our net sales and operating results. In the fourth fiscal quarter, which includes the
holiday selling season, we normally experience higher inventory purchase volumes and increased expense for staffing and
advertising. Seasonality influences our buying patterns which directly impacts our merchandise and accounts payable levels and cash
flows. We purchase merchandise for seasonal activities in advance of a season. If we miscalculate the demand for our products
generally or for our product mix during the fourth fiscal quarter, our net sales can decline, which can harm our financial performance.
A significant shortfall from expected fourth fiscal quarter net sales can negatively impact our annual operating results, as occurred in
fiscal 2011.
If we lose key management or are unable to attract and retain the talent required for our business, our operating results could
suffer.
Our future success depends to a significant degree on the skills, experience and efforts of Steven G. Miller, our Chairman,
President and Chief Executive Officer, and other key personnel with longstanding tenure who are not obligated to stay with us. The
loss of the services of any of these individuals for any reason could harm our business and operations. In addition, as our business
grows, we will need to attract and retain additional qualified personnel in a timely manner and develop, train and manage an
increasing number of management-level sales associates and other employees. Competition for qualified employees could require us
to pay higher wages and benefits to attract a sufficient number of qualified employees, and increases in the minimum wage or other
employee benefit costs could increase our operating expense. If we are unable to attract and retain personnel as needed in the future,
our net sales growth and operating results may suffer.
All of our stores rely on a single distribution center. Any disruption or other operational difficulties at this distribution center
could reduce our net sales or increase our operating expense.
We rely on a single distribution center located in Riverside, California to service our business. Any natural disaster or other
serious disruption to the distribution center due to fire, earthquake or any other cause could damage a significant portion of our
inventory and could materially impair both our ability to adequately stock our stores and our net sales and profitability. If the security
measures used at our distribution center do not prevent inventory theft, our gross margin may significantly decrease. Our distribution
center is staffed in part by employees represented by the General Teamsters, Aerospace and Allied Employees, Warehousemen,
Drivers, Construction, Rock and Sand; Airline Employees, Local Union No. 986, affiliated with the International Brotherhood of
Teamsters. We have not had a strike or work stoppage in over 30 years, although such a disruption could have a significant negative
impact on our business operations and financial results. Further, in the event that we are unable to grow our net sales sufficiently to
allow us to leverage the costs of this distribution center in the manner we anticipate, our financial results could be negatively
impacted.
If we are unable to successfully implement our controlled growth strategy or manage our growing business, our future operating
results could suffer.
One of our strategies includes opening profitable stores in new and existing markets. As a result, at the end of fiscal 2013 we
operated approximately 13% more stores than we did at the end of fiscal 2008. In response to the economic recession, we slowed our
store expansion program substantially in fiscal 2009, and resumed our expansion thereafter, in anticipation of an improved economic
environment.
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Our ability to successfully implement and capitalize on our growth strategy could be negatively affected by various factors
including:
• we may again slow our expansion efforts, or close underperforming stores, as a result of challenging conditions in the retail
industry and the economy overall;
• we may not be able to find suitable sites available for leasing;
• we may not be able to negotiate acceptable lease terms;
• we may not be able to hire and retain qualified store personnel; and
• we may not have the financial resources necessary to fund our expansion plans.
In addition, our expansion in new and existing markets may present competitive, merchandising, marketing and distribution
challenges that differ from our current challenges. These potential new challenges include competition among our stores, added strain
on our distribution center, additional information to be processed by our management information systems, diversion of management
attention from ongoing operations and challenges associated with managing a substantially larger enterprise. We face additional
challenges in entering new markets, including consumers’ lack of awareness of us, difficulties in hiring personnel and problems due
to our unfamiliarity with local real estate markets and demographics. New markets may also have different competitive conditions,
consumer tastes, responsiveness to print advertising and discretionary spending patterns than our existing markets. To the extent that
we are not able to meet these new challenges, our net sales could decrease and our operating expense could increase.
Our hardware and software systems are vulnerable to damage, theft or intrusion that could harm our business.
Our success, in particular our ability to successfully manage inventory levels and process customer transactions, largely depends
upon the efficient operation of our computer hardware and software systems. We use management information systems to track
inventory at the store level and aggregate daily sales information, communicate customer information and process purchasing card
transactions, process shipments of goods and report financial information. These systems and our operations are vulnerable to damage
or interruption from:
• earthquake, fire, flood and other natural disasters;
• power loss, computer systems failures, Internet and telecommunications or data network failures, operator negligence,
improper operation by or supervision of employees;
• physical and electronic loss of data, security breaches, misappropriation, data theft and similar events; and
• computer viruses, worms, Trojan horses, intrusions, or other external threats.
Any failure of our computer hardware or software systems that causes an interruption in our operations or a decrease in
inventory tracking could result in reduced net sales and profitability. Additionally, if any data intrusion, security breach,
misappropriation or theft were to occur, we could incur significant costs in responding to such event, including responding to any
resulting claims, litigation or investigations, which could harm our operating results.
Breach of data security or other unauthorized disclosure of sensitive or confidential information could harm our business and
standing with our customers.
The protection of our customer, employee and business data is critical to us. We rely on commercially available systems,
software, tools and monitoring to provide security for processing, transmission and storage of all such data, including confidential
information such as payment card and personal information. Despite the security measures we have in place, our facilities and
systems, and those of our third-party service providers,
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may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or
other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential
information, whether by us or our vendors, could damage our reputation, expose us to risk of litigation and liability, disrupt our
operations, harm our business and have an adverse impact upon our net sales and profitability.
If our suppliers do not provide sufficient quantities of products, our net sales and profitability could suffer.
We purchase merchandise from approximately 800 vendors. Although only one vendor represented more than 5.0% of our total
purchases during fiscal 2013, our dependence on principal suppliers involves risk. Our 20 largest vendors collectively accounted for
39.2% of our total purchases during fiscal 2013. If there is a disruption in supply from a principal supplier or distributor, we may be
unable to obtain merchandise that we desire to sell and that consumers desire to purchase. A vendor could discontinue selling
products to us at any time for reasons that may or may not be within our control. Our net sales and profitability could decline if we are
unable to promptly replace a vendor who is unwilling or unable to satisfy our requirements with a vendor providing equally appealing
products. Moreover, many of our suppliers provide us with incentives, such as return privileges, volume purchase allowances and co-
operative advertising. A decline or discontinuation of these incentives could reduce our profits.
Because many of the products that we sell are manufactured abroad, we may face delays, increased cost or quality control
deficiencies in the importation of these products, which could reduce our net sales and profitability.
Like many other sporting goods retailers, a significant portion of the products that we purchase for resale, including those
purchased from domestic suppliers, is manufactured abroad in countries such as China, Taiwan and South Korea. In addition, we
believe most, if not all, of our private label merchandise is manufactured abroad. Foreign imports subject us to the risks of changes in
import duties or quotas, new restrictions on imports, loss of “most favored nation” status with the United States for a particular
foreign country, work stoppages, delays in shipment, freight expense increases, product cost increases due to foreign currency
fluctuations or revaluations and economic uncertainties (including the United States imposing antidumping or countervailing duty
orders, safeguards, remedies or compensation and retaliation due to illegal foreign trade practices). If any of these or other factors
were to cause a disruption of trade from the countries in which the suppliers of our vendors are located, we may be unable to obtain
sufficient quantities of products to satisfy our requirements or our cost of obtaining products may increase. In addition, to the extent
that any foreign manufacturers which supply products to us directly or indirectly utilize quality control standards, labor practices or
other practices that vary from those legally mandated or commonly accepted in the United States, we could be hurt by any resulting
negative publicity or, in some cases, face potential liability. Historically, instability in the political and economic environments of the
countries in which our vendors or we obtain our products has not had a material adverse effect on our operations. However, we cannot
predict the effect that future changes in economic or political conditions in such foreign countries may have on our operations. In the
event of disruptions or delays in supply due to economic or political conditions in foreign countries, such disruptions or delays could
adversely affect our results of operations unless and until alternative supply arrangements could be made. In addition, merchandise
purchased from alternative sources may be of lesser quality or more expensive than the merchandise we currently purchase abroad.
Disruptions in transportation, including disruptions at shipping ports through which our products are imported, could prevent us
from timely distribution and delivery of inventory, which could reduce our net sales and profitability.
A substantial amount of our inventory is manufactured abroad. From time to time, shipping ports experience capacity
constraints, labor strikes, work stoppages or other disruptions that may delay the delivery of imported products. In addition, other
conditions outside of our control, such as adverse weather conditions or acts of terrorism, could significantly disrupt operations at
shipping ports or otherwise impact transportation of the imported merchandise we sell.
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Future disruptions in transportation services or at a shipping port at which our products are received may result in delays in the
transportation of such products to our distribution center and may ultimately delay the stocking of our stores with the affected
merchandise. As a result, our net sales and profitability could decline.
Our costs may change as a result of currency exchange rate fluctuations or inflation in the purchase cost of merchandise
manufactured abroad.
We source goods from various countries, including China, and thus changes in the value of the U.S. dollar compared to other
currencies, or foreign labor and raw material cost inflation, may affect the cost of goods that we purchase. If the cost of goods that we
purchase increases, we may not be able to similarly increase the retail prices of goods that we charge consumers without impacting
our sales and our operating profits may suffer.
Increases in transportation costs due to rising fuel costs, climate change regulation and other factors may negatively impact our
operating results.
We rely upon various means of transportation, including ship and truck, to deliver products from vendors to our distribution
center and from our distribution center to our stores. Consequently, our results can vary depending upon the price of fuel. The price of
oil has fluctuated drastically over the last few years, creating volatility in our fuel costs. In addition, efforts to combat climate change
through reduction of greenhouse gases may result in higher fuel costs through taxation or other means. Any such future increases in
fuel costs would increase our transportation costs for delivery of product to our distribution center and distribution to our stores, as
well as our vendors’ transportation costs, which could decrease our operating profits.
In addition, labor shortages or other factors in the transportation industry could negatively affect transportation costs and our
ability to supply our stores in a timely manner. In particular, our business is highly dependent on the trucking industry to deliver
products to our distribution center and our stores. Our operating results may be adversely affected if we or our vendors are unable to
secure adequate trucking resources at competitive prices to fulfill our delivery schedules to our distribution center or stores.
Terrorism and the uncertainty of war may harm our operating results.
Terrorist attacks or acts of war may cause damage or disruption to us and our employees, facilities, information systems,
vendors and customers, which could significantly impact our net sales, profitability and financial condition. Terrorist attacks could
also have a significant impact on ports or international shipping on which we are substantially dependent for the supply of much of
the merchandise we sell. Our corporate headquarters is located near Los Angeles International Airport and the Port of Los Angeles,
which have been identified as potential terrorism targets. The potential for future terrorist attacks, the national and international
responses to terrorist attacks and other acts of war or hostility may cause greater uncertainty and cause our business to suffer in ways
that we cannot currently predict. Military action taken in response to such attacks could also have a short or long-term negative
economic impact upon the financial markets, international shipping and our business in general.
Risks Related to Our Capital Structure
We are leveraged, future cash flows may not be sufficient to meet our obligations and we might have difficulty obtaining more
financing or refinancing our existing indebtedness on favorable terms.
As of December 29, 2013, the aggregate amount of our outstanding indebtedness, including capital lease obligations, was $46.2
million. Our leveraged financial position means:
• our ability to obtain financing in the future for working capital, capital expenditures and general corporate purposes might be
impeded;
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• we are more vulnerable to economic downturns and our ability to withstand competitive pressures is limited; and
• we are more vulnerable to increases in interest rates, which may affect our interest expense and negatively impact our
operating results.
If our business declines, our future cash flows might not be sufficient to meet our obligations and commitments.
If we fail to make any required payment under our revolving credit facility, our debt payments may be accelerated under this
agreement. In addition, in the event of bankruptcy, insolvency or a material breach of any covenant contained in our revolving credit
facility, our debt may be accelerated. This acceleration could also result in the acceleration of other indebtedness that we may have
outstanding at that time.
The level of our indebtedness, and our ability to service our indebtedness, is directly affected by our cash flows from operations.
If we are unable to generate sufficient cash flows from operations to meet our obligations, commitments and covenants of our
revolving credit facility, we may be required to refinance or restructure our indebtedness, raise additional debt or equity capital, sell
material assets or operations, delay or forego expansion opportunities, or cease or curtail our quarterly dividends or share repurchase
plans. These alternative strategies might not be effected on satisfactory terms, if at all.
The terms of our revolving credit facility impose operating and financial restrictions on us, which may impair our ability to
respond to changing business and economic conditions.
The terms of our revolving credit facility impose operating and financial restrictions on us, including, among other things,
covenants that require us to maintain a fixed-charge coverage ratio of not less than 1.0 to 1.0 in certain circumstances, restrictions on
our ability to incur liens, incur additional indebtedness, transfer or dispose of assets, change the nature of the business, guarantee
obligations, pay dividends or make other distributions or repurchase stock, and make advances, loans or investments. For example,
our ability to engage in the foregoing transactions will depend upon, among other things, our level of indebtedness at the time of the
proposed transaction and whether we are in default under our revolving credit facility. As a result, our ability to respond to changing
business and economic conditions and to secure additional financing, if needed, may be significantly restricted, and we may be
prevented from engaging in transactions that might further our growth strategy or otherwise benefit us and our stockholders without
obtaining consent from our lenders. In addition, our revolving credit facility is secured by a perfected security interest in our assets. In
the event of our insolvency, liquidation, dissolution or reorganization, the lenders under our revolving credit facility would be entitled
to payment in full from our assets before distributions, if any, were made to our stockholders.
Risks Related to Regulatory, Legislative and Legal Matters
Current and future government regulation may negatively impact demand for our products and increase our cost of conducting
business.
The conduct of our business, and the distribution, sale, advertising, labeling, safety, transportation and use of many of our
products are subject to various laws and regulations administered by federal, state and local governmental agencies in the United
States. These laws and regulations may change, sometimes dramatically, as a result of political, economic or social events. Changes in
laws, regulations or governmental policy may alter the environment in which we do business and the demand for our products and,
therefore, may impact our financial results or increase our liabilities. Some of these laws and regulations include:
• laws and regulations governing the manner in which we advertise or sell our products;
• laws and regulations that prohibit or limit the sale, in certain localities, of certain products we offer, such as firearms,
ammunition and certain related accessories;
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• laws and regulations governing the activities for which we sell products, such as hunting and fishing;
• laws and regulations governing consumer products generally, such as the federal Consumer Product Safety Act and Consumer
Product Safety Improvement Act, as well as similar state laws;
• labor and employment laws, such as minimum wage or living wage laws and other wage and hour laws;
• laws requiring mandatory health insurance for employees, such as the Affordable Care Act; and
• U.S. customs laws and regulations pertaining to proper item classification, quotas and payment of duties and tariffs.
Changes in these and other laws and regulations or additional regulation could cause the demand for and sales of our products to
decrease. Moreover, complying with increased or changed regulations could cause our operating expense to increase. This could
adversely affect our net sales and profitability.
We may be subject to periodic litigation that may adversely affect our business and financial performance.
From time to time, we may be involved in lawsuits and regulatory actions relating to our business, certain of which may be
maintained in jurisdictions with reputations for aggressive application of laws and procedures against corporate defendants. Due to
the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such
proceedings. An unfavorable outcome could have a material adverse impact on our business, results of operations and financial
condition. In addition, regardless of the outcome of any litigation or regulatory proceedings, these proceedings could result in
substantial costs and may require that we devote substantial resources to defend against these claims, which could impact our results
of operations.
In particular, we may be involved in lawsuits related to employment, advertising and other matters, including class action
lawsuits brought against us for alleged violations of the Fair Labor Standards Act, state wage and hour laws, state or federal
advertising laws and other laws. An unfavorable outcome or settlement in any such proceeding could, in addition to requiring us to
pay any settlement or judgment amount, increase our operating expense as a consequence of any resulting changes we might be
required to make in employment, advertising or other business practices.
In addition, we sell products manufactured by third parties, some of which may be defective. Many such products are
manufactured overseas in countries which may utilize quality control standards that vary from those legally allowed or commonly
accepted in the United States, which may increase our risk that such products may be defective. If any products that we sell were to
cause physical injury or injury to property, the injured party or parties could bring claims against us as the retailer of the products
based upon strict product liability. In addition, our products are subject to the federal Consumer Product Safety Act and the Consumer
Product Safety Improvement Act, which empower the Consumer Product Safety Commission to protect consumers from hazardous
products. The Consumer Product Safety Commission has the authority to exclude from the market and recall certain consumer
products that are found to be hazardous. Similar laws exist in some states and cities in the United States. If we fail to comply with
government and industry safety standards, we may be subject to claims, lawsuits, product recalls, fines and negative publicity that
could harm our results of operations and financial condition.
We also sell firearms, ammunition and certain related accessories, which may be associated with an increased risk of injury and
related lawsuits. We may incur losses due to lawsuits relating to our performance of background checks on firearms purchases as
mandated by state and federal law or the improper use of firearms sold by us, including lawsuits by individuals, municipalities or
other organizations attempting to recover damages or costs from firearms manufacturers and retailers relating to the misuse of
firearms. Commencement of these lawsuits against us could reduce our net sales and decrease our profitability.
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Our insurance coverage may not be adequate to cover claims that could be asserted against us. If a successful claim was to be
brought against us in excess of our insurance coverage, or for which we have no insurance coverage, it could harm our business. Even
unsuccessful claims could result in the expenditure of funds and management time and could have a negative impact on our business.
The sale of firearms, ammunition and certain related accessories is subject to strict regulation, which could affect our operating
results.
Because we sell firearms, ammunition and certain related accessories, we are required to comply with federal, state and local
laws and regulations pertaining to the purchase, storage, transfer and sale of such products. These laws and regulations require us,
among other things, to ensure that all purchasers of firearms are subjected to a pre-sale background check, to record the details of
each firearm sale on appropriate government-issued forms, to record each receipt or transfer of a firearm at our distribution center or
any store location on acquisition and disposition records, and to maintain these records for a specified period of time. We also are
required to timely respond to traces of firearms by law enforcement agencies. Over the past several years, the purchase and sale of
firearms, ammunition and certain related accessories has been the subject of increased federal, state and local regulation. These
regulatory efforts are likely to continue in our current markets and other markets into which we may expand. If enacted, new laws and
regulations could limit the types of firearms, ammunition and certain related accessories that we are permitted to purchase and sell
and could impose new restrictions and requirements on the manner in which we purchase and sell these products. If we fail to comply
with existing or newly enacted laws and regulations relating to the purchase and sale of firearms, ammunition and certain related
accessories, our licenses to sell firearms at our stores or maintain inventory of firearms at our distribution center may be suspended or
revoked. If this occurs, our net sales and profitability could suffer. Further, complying with increased regulation relating to the sale of
firearms, ammunition and certain related accessories could cause our operating expense to increase and this could adversely affect our
results of operations.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex
accounting matters could significantly affect our financial results.
Accounting principles generally accepted in the United States of America (“GAAP”) and related accounting pronouncements,
implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, such as revenue
recognition; lease accounting; the carrying amount of merchandise inventories, property and equipment and goodwill; valuation
allowances for receivables, sales returns and deferred income tax assets; estimates related to gift card breakage and the valuation of
share-based compensation awards; and obligations related to asset retirements, litigation, self-insurance liabilities and employee
benefits are highly complex and may involve many subjective assumptions, estimates and judgments by our management. Changes in
these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could
significantly change our reported or expected financial performance.
Risks Related to Investing in Our Common Stock
The declaration of discretionary dividend payments or the repurchase of our common stock pursuant to our share repurchase
program may not continue.
We currently pay quarterly dividends subject to capital availability and periodic determinations that cash dividends are in the
best interest of us and our stockholders. Our dividend policy may be affected by, among other items, business conditions, our views
on potential future capital requirements, the terms of our debt instruments, legal risks, changes in federal income tax law and
challenges to our business model. Our dividend policy may change from time to time and we may or may not continue to declare
discretionary dividend payments. Additionally, although we have a share repurchase program authorized by our Board of Directors,
we are not obligated to make any purchases under the program and we may discontinue it at any time.
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Our anti-takeover provisions could prevent or delay a change in control of our company, even if such change of control would be
beneficial to our stockholders.
Provisions of our amended and restated certificate of incorporation and amended and restated bylaws as well as provisions of
Delaware law could discourage, delay or prevent a merger, acquisition or other change in control of our company, even if such
change in control would be beneficial to our stockholders. These provisions include:
• a Board of Directors that is classified such that only two or three of the seven directors, depending on classification, are
elected each year;
• authorization of the issuance of “blank check” preferred stock that could be issued by our Board of Directors to increase the
number of outstanding shares and thwart a takeover attempt;
• limitations on the ability of stockholders to call special meetings of stockholders;
• prohibition of stockholder action by written consent and requiring all stockholder actions to be taken at a meeting of our
stockholders; and
• establishment of advance notice requirements for nominations for election to the Board of Directors or for proposing matters
that can be acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporations Law limits business combination transactions with 15%
stockholders that have not been approved by the Board of Directors. These provisions and other similar provisions make it more
difficult for a third party to acquire us without negotiation. These provisions may apply even if the transaction may be considered
beneficial by some stockholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Properties
Our primary corporate headquarters are located at 2525 East El Segundo Boulevard, El Segundo, California 90245, with a
satellite office located nearby at 2401 East El Segundo Boulevard, El Segundo, California 90245. We lease approximately 55,000
square feet of office and adjoining retail space related to our primary corporate headquarters, and we lease approximately 8,000
square feet related to our satellite office. The lease for the primary corporate headquarters is scheduled to expire on February 28, 2016
and provides us with three five-year renewal options, while the lease for the satellite office is scheduled to expire on February 29,
2016 and provides us with two five-year renewal options.
Our distribution facility is located in Riverside, California and has approximately 953,000 square feet of warehouse and office
space. Our lease for the distribution center is scheduled to expire on August 31, 2015, and includes three additional five-year renewal
options. We have a distribution hub located in Salem, Oregon, utilizing approximately 12,000 square feet of space to separate
consolidated truckloads of product for delivery to our regional markets. Our lease for the hub is scheduled to expire on January 31,
2019, and includes four additional five-year renewal options.
We lease all of our retail store sites. Most of our store leases contain multiple fixed-price renewal options and the average lease
expiration term from inception of our store leases, taking into account renewal options, is approximately 32 years. As of
December 29, 2013, of our total store leases, 39 leases are due to expire in the next five years without renewal options. In most cases,
as current leases expire, we believe we will be able to obtain lease renewals for existing store locations or new leases for equivalent
locations in the same general area.
20
Our Stores
Throughout our history, we have focused on operating traditional, full-line sporting goods stores. Our stores generally range
from 8,000 to 15,000 square feet and average approximately 11,000 square feet. Our typical store is located in either a free-standing
street location or a multi-store shopping center. Our numerous convenient locations and accessible store format encourage frequent
customer visits, resulting in approximately 27.7 million sales transactions and an average transaction size of approximately $36 in
fiscal 2013. The following table details our store locations by state as of December 29, 2013:
State
California
Washington
Arizona
Oregon
Colorado
New Mexico
Utah
Nevada
Idaho
Texas
Oklahoma
Wyoming
Total
Year
Entered
1955
1984
1993
1995
2001
1995
1997
1978
1994
1995
2007
2010
Number of
Stores
217
50
40
25
22
18
18
16
11
9
2
1
429
Percentage of Total
Number of Stores
50.6%
11.7
9.3
5.8
5.1
4.2
4.2
3.7
2.6
2.1
0.5
0.2
100.0%
Our store format has resulted in productivity levels that we believe are among the highest of any full-line sporting goods retailer,
with same store sales per square foot of approximately $212 for fiscal 2013. Our high same store sales per square foot combined with
our efficient store-level operations and low store maintenance costs have allowed us to historically generate strong store-level returns.
Our same store sales per square foot declined during the economic recession beginning in fiscal 2008, but have been increasing over
the last two years.
ITEM 3. LEGAL PROCEEDINGS
The Company was served on the following dates with the following nine complaints, each of which was brought as a purported
class action on behalf of persons who made purchases at the Company’s stores in California using credit cards and were requested or
required to provide personal identification information at the time of the transaction: (1) on February 22, 2011, a complaint filed in
the California Superior Court in the County of Los Angeles, entitled Maria Eugenia Saenz Valiente v. Big 5 Sporting Goods
Corporation, et al., Case No. BC455049; (2) on February 22, 2011, a complaint filed in the California Superior Court in the County
of Los Angeles, entitled Scott Mossler v. Big 5 Sporting Goods Corporation, et al., Case No. BC455477; (3) on February 28, 2011, a
complaint filed in the California Superior Court in the County of Los Angeles, entitled Yelena Matatova v. Big 5 Sporting Goods
Corporation, et al., Case No. BC455459; (4) on March 8, 2011, a complaint filed in the California Superior Court in the County of
Los Angeles, entitled Neal T. Wiener v. Big 5 Sporting Goods Corporation, et al., Case No. BC456300; (5) on March 22, 2011, a
complaint filed in the California Superior Court in the County of San Francisco, entitled Donna Motta v. Big 5 Sporting Goods
Corporation, et al., Case No. CGC-11-509228; (6) on March 30, 2011, a complaint filed in the California Superior Court in the
County of Alameda, entitled Steve Holmes v. Big 5 Sporting Goods Corporation, et al., Case No. RG11563123; (7) on March 30,
2011, a complaint filed in the California Superior Court in the County of San Francisco, entitled Robin Nelson v. Big 5 Sporting
Goods Corporation, et al., Case No. CGC-11-508829; (8) on April 8, 2011, a complaint filed in the California Superior Court in the
County of San Joaquin, entitled Pamela B. Smith v. Big 5 Sporting Goods Corporation, et al., Case No. 39-2011-00261014-CU-BT-
STK; and
21
(9) on May 31, 2011, a complaint filed in the California Superior Court in the County of Los Angeles, entitled Deena Gabriel v. Big 5
Sporting Goods Corporation, et al., Case No. BC462213. On June 16, 2011, the Judicial Council of California issued an Order
Assigning Coordination Trial Judge designating the California Superior Court in the County of Los Angeles as having jurisdiction to
coordinate and to hear all nine of the cases as Case No. JCCP4667. On October 21, 2011, the plaintiffs collectively filed a
Consolidated Amended Complaint, alleging violations of the California Civil Code, negligence, invasion of privacy and unlawful
intrusion. The plaintiffs allege, among other things, that customers making purchases with credit cards at the Company’s stores in
California were improperly requested to provide their zip code at the time of such purchases. The plaintiffs seek, on behalf of the
class members, the following: statutory penalties; attorneys’ fees; expenses; restitution of property; disgorgement of profits; and
injunctive relief. In an effort to negotiate a settlement of this litigation, the Company and plaintiffs engaged in Mandatory Settlement
Conferences conducted by the court on February 6, 2013, February 19, 2013, April 2, 2013, September 12, 2013, and September 20,
2013, and also engaged in mediation conducted by a third party mediator on July 15, 2013. As a result of the foregoing, the parties
agreed to settle the lawsuit. The court has not yet granted preliminary approval or final approval of the settlement. On November 15,
2013, the proposed settlement was submitted to the court for preliminary approval. On January 30, 2014, the court initially heard the
motion for preliminary approval and continued the motion to March 5, 2014. Under the terms of the proposed settlement, the
Company agreed that class members who submit valid and timely claim forms will receive either a $25 gift card (with proof of
purchase) or a $10 merchandise voucher (without proof of purchase). Additionally, the Company agreed to pay plaintiff’s attorneys’
fees and costs awarded by the court, enhancement payments to the class representatives and claims administrator’s fees. Under the
proposed settlement, if the total amount paid by the Company for the class payout, class representative enhancement payments and
claims administrator’s fees is less than $1.0 million, then the Company will issue merchandise vouchers to a charity for the balance of
the deficiency in the manner provided in the settlement agreement. The Company’s estimated total cost pursuant to this proposed
settlement is reflected in a legal settlement accrual recorded in the third quarter of fiscal 2013. The Company admitted no liability or
wrongdoing with respect to the claims set forth in the lawsuit. Once final approval is granted, the settlement will constitute a full and
complete settlement and release of all claims related to the lawsuit. Based on the terms of the settlement agreement, the Company
currently believes that settlement of this litigation will not have a material negative impact on the Company’s results of operations or
financial condition. However, if the settlement is not finally approved by the court, the Company intends to defend this litigation
vigorously. If the settlement is not finally approved by the court and this litigation is settled or resolved unfavorably to the Company,
this litigation and the costs of defending it could have a material negative impact on the Company’s results of operations or financial
condition.
The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company’s results of
operations or financial condition.
ITEM 4. MINE SAFETY DISCLOSURES
None.
22
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock, par value $0.01 per share, trades on The NASDAQ Stock Market LLC under the symbol “BGFV.” The
following table sets forth the high and low closing sale prices for our common stock as reported by The NASDAQ Stock Market LLC
during fiscal 2013 and 2012:
Fiscal Period
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2013
2012
High
$15.84
$22.37
$24.80
$19.40
Low
$12.95
$14.21
$16.06
$15.44
High
$10.17
$ 8.62
$10.04
$14.00
Low
$7.32
$6.19
$7.23
$8.91
As of February 19, 2014, the closing price for our common stock as reported on The NASDAQ Stock Market LLC was $16.42
per share.
As of February 19, 2014, there were 22,305,601 shares of common stock outstanding held by approximately 360 holders of
record.
Performance Graph
Set forth below is a graph comparing the cumulative total stockholder return for our common stock with the cumulative total
return of (i) the NASDAQ Composite Stock Market Index and (ii) the NASDAQ Retail Trade Index. The information in this graph is
provided at annual intervals for the fiscal years ended 2009, 2010, 2011, 2012 and 2013. This graph shows historical stock price
performance (including reinvestment of dividends) and is not necessarily indicative of future performance:
23
Dividend Policy
Dividends are paid at the discretion of the Board of Directors. In fiscal 2011 and 2012, we paid quarterly cash dividends of
$0.075 per share of outstanding common stock, for an annual rate of $0.30 per share. In fiscal 2013, we paid quarterly cash dividends
of $0.10 per share of outstanding common stock, for an annual rate of $0.40 per share. In the first quarter of fiscal 2014, our Board of
Directors declared a quarterly cash dividend of $0.10 per share of outstanding common stock, which will be paid on March 21, 2014
to stockholders of record as of March 7, 2014.
The agreement governing our revolving credit facility imposes restrictions on our ability to make dividend payments. For
example, our ability to pay cash dividends on our common stock will depend upon, among other things, our compliance with certain
availability and fixed charge coverage ratio requirements at the time of the proposed dividend or distribution, and whether we are in
default under the agreement. Our future dividend policy will also depend on the requirements of any future credit or other financing
agreements to which we may be a party and other factors considered relevant by our Board of Directors, including the General
Corporation Law of the State of Delaware, which provides that dividends are only payable out of surplus or current net profits.
Securities Authorized for Issuance Under Equity Compensation Plans as of December 29, 2013
See Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, of this
Annual Report on Form 10-K.
24
ITEM 6.
SELECTED FINANCIAL DATA
The “Statement of Operations Data” and the “Balance Sheet Data” for all years presented below have been derived from our
audited consolidated financial statements. Selected consolidated financial data under the captions “Store Data” and “Other Financial
Data” have been derived from the unaudited internal records of our operations. The information contained in these tables should be
read in conjunction with our consolidated financial statements and accompanying notes and Management’s Discussion and Analysis
of Financial Condition and Results of Operations appearing elsewhere in this Annual Report on Form 10-K.
Statement of Operations Data:
Net sales
(2)
Cost of sales
(3)
(2)
Gross profit
Selling and administrative
expense
(2)(4)(5)(6)(7)
Operating income
Interest expense
Income before income taxes
Income taxes
Net income
(2)(5)(6)(7)
Earnings per share:
Basic
Diluted
Dividends per share
Weighted-average shares of common
stock outstanding:
Basic
Diluted
Store Data:
Same store sales increase (decrease)
Same store sales per square foot
(8)
(in dollars)
(9)
End of period stores
End of period same stores
Same store sales per store
Other Financial Data:
Gross profit margin
Selling and administrative expense as a
(10)
percentage of net sales
(12)
(11)
Operating margin
Depreciation and amortization
Capital expenditures
Inventory turns
Balance Sheet Data:
Cash and cash equivalents
Working capital
Total assets
Long-term debt and capital leases, less
(13)
current portion
Stockholders’ equity
2013
Fiscal Year
2011
(Dollars and shares in thousands, except per share and certain store data)
2010
2012
(1)
2009
$ 993,323
664,583
328,740
$ 940,490
637,721
302,769
$ 902,134
610,531
291,603
$ 896,813
599,101
297,712
$ 895,542
597,792
297,750
281,313
47,427
1,745
45,682
17,736
27,946
1.28
1.27
0.40
21,765
22,083
3.9%
212
429
394
2,415
33.1%
28.3%
4.8%
20,192
22,035
2.3x
$
$
$
$
$
$
$
$
276,797
25,972
2,202
23,770
8,855
14,915
0.70
0.69
0.30
21,394
21,616
2.5%
205
414
387
2,336
32.2%
29.4%
2.8%
18,895
12,901
2.3x
$
$
$
$
$
$
$
$
272,436
19,167
2,561
16,606
4,933
11,673
0.54
0.53
0.30
21,656
21,869
(1.2)%
202
406
378
2,286
32.3%
30.2%
2.1%
18,544
12,990
2.3x
$
$
$
$
$
$
$
$
263,488
34,224
2,108
32,116
11,554
20,562
0.95
0.94
0.20
21,552
21,890
0.8%
204
398
380
2,315
33.2%
29.4%
3.8%
18,627
15,628
2.4x
$
$
$
$
$
$
$
$
260,068
37,682
2,465
35,217
13,406
21,811
1.02
1.01
0.20
21,434
21,657
(0.6)%
210
384
362
2,373
33.2%
29.0%
4.2%
19,400
5,764
2.6x
$
$
$
$
$
$
$
$
9,400
$
$ 168,693
$ 441,888
7,635
$
$ 150,010
$ 406,660
4,900
$
$ 156,909
$ 394,064
5,620
$
$ 130,737
$ 392,356
5,765
$
$ 120,541
$ 366,122
$
44,613
$ 190,770
$
50,316
$ 164,420
$
66,621
$ 156,590
$
49,882
$ 150,726
$
57,233
$ 131,861
(See notes on following page:)
25
(Notes to table on previous page)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
Our fiscal year is the 52 or 53 week reporting period ending on the Sunday closest to the calendar year end. Fiscal 2013, 2012,
2011 and 2010 each included 52 weeks, and fiscal 2009 included 53 weeks.
In fiscal 2013, we recorded a pre-tax charge of $1.3 million reflecting an accrual for legal settlements, of which $0.3 million was
classified as a reduction to net sales and $1.0 million was classified as selling and administrative expense. In fiscal 2010, we
recorded a net pre-tax charge of $2.3 million reflecting a legal settlement accrual, of which $0.8 million was classified as a
reduction to net sales and $1.5 million was classified as selling and administrative expense. These charges reduced net income in
fiscal 2013 and 2010 by $0.8 million, or $0.04 per diluted share, and $1.5 million, or $0.07 per diluted share, respectively.
Cost of sales includes the cost of merchandise, net of discounts or allowances earned, freight, inventory reserves, buying,
distribution center expense, including depreciation, and store occupancy expense. Store occupancy expense includes rent,
amortization of leasehold improvements, common area maintenance, property taxes and insurance.
Selling and administrative expense includes store-related expense, other than store occupancy expense, as well as advertising,
depreciation and amortization, expense associated with operating our corporate headquarters and impairment charges, if any.
In fiscal 2012, we recorded a pre-tax charge related to store closing costs of $1.2 million. This charge reduced net income in fiscal
2012 by $0.8 million, or $0.03 per diluted share.
In fiscal 2013, 2012 and 2011, we recorded pre-tax non-cash impairment charges of $0.1 million, $0.2 million and $2.1 million,
respectively, related to certain underperforming stores. These impairment charges reduced net income in fiscal 2013, 2012 and
2011 by $44,000, or $0.00 per diluted share, $0.1 million, or $0.01 per diluted share, and $1.5 million, or $0.07 per diluted share,
respectively.
In fiscal 2009, we recorded a net pre-tax charge of $1.0 million, which reflected a legal settlement accrual offset by proceeds
received from the settlement of a lawsuit relating to credit card fees. This charge reduced net income in fiscal 2009 by $0.6
million, or $0.03 per diluted share.
Same store sales for a period reflect net sales from stores operated throughout that period as well as the full corresponding prior
year period. Our same store sales declined during the economic recession beginning in fiscal 2008, but have been increasing over
the last two years.
Same store sales per square foot is calculated by dividing net sales for same stores, as defined above, by the total square footage
for those stores. Our same store sales per square foot declined during the economic recession beginning in fiscal 2008, but have
been increasing over the last two years.
Same store sales per store is calculated by dividing net sales for same stores, as defined above, by total same store count. Our
same store sales per store declined during the economic recession beginning in fiscal 2008, but have been increasing over the last
two years.
Lower capital expenditures in fiscal 2009 reflect substantially fewer store openings when compared with fiscal 2013, 2012, 2011
and 2010 due to the economic recession. Capital expenditures in fiscal 2013 reflected an increased investment in existing store
remodeling and new store additions.
Inventory turns equal fiscal year cost of sales divided by the fiscal year four-quarter weighted-average cost of merchandise
inventory.
Working capital is defined as current assets less current liabilities.
26
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Throughout this section, the Big 5 Sporting Goods Corporation (“we,” “our,” “us”) fiscal years ended December 29,
2013, December 30, 2012 and January 1, 2012 are referred to as fiscal 2013, 2012 and 2011, respectively. The following discussion
and analysis of our financial condition and results of operations for fiscal 2013, 2012 and 2011 includes information with respect to
our plans and strategies for our business and should be read in conjunction with the consolidated financial statements and related
notes, the risk factors and the cautionary statement regarding forward-looking information included elsewhere in this Annual Report
on Form 10-K.
Our fiscal year ends on the Sunday nearest December 31. Fiscal 2013, 2012 and 2011 each included 52 weeks.
Overview
We are a leading sporting goods retailer in the western United States, operating 429 stores in 12 states under the name “Big 5
Sporting Goods” at December 29, 2013. We provide a full-line product offering in a traditional sporting goods store format that
averages approximately 11,000 square feet. Our product mix includes athletic shoes, apparel and accessories, as well as a broad
selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, snowboarding and roller
sports.
We believe that over our 59-year history we have developed a reputation with the competitive and recreational sporting goods
customer as a convenient neighborhood sporting goods retailer that consistently delivers value on quality merchandise. Our stores
carry a wide range of products at competitive prices from well-known brand name manufacturers, including adidas, Coleman, Easton,
New Balance, Nike, Reebok, Spalding, Under Armour and Wilson. We also offer brand name merchandise produced exclusively for
us, private label merchandise and specials on quality items we purchase through opportunistic buys of vendor over-stock and close-
out merchandise. We reinforce our value reputation through weekly print advertising in major and local newspapers, direct mailers
and digital marketing designed to generate customer traffic, drive sales and build brand awareness. We also maintain social media
sites to enhance distribution capabilities for our promotional offers and to enable communication with our customers.
Throughout our history, we have emphasized controlled growth. In fiscal 2013, we opened 17 new stores, three of which were
relocations, and closed two stores, both of which were relocations. In fiscal 2012, we opened 14 new stores, three of which were
relocations, and closed six stores, two of which were relocations. For fiscal 2014, we expect to open approximately 15 net new stores.
The following table summarizes our store count for the periods presented:
Big 5 Sporting Goods stores:
Beginning of period
New stores
(1)
Stores relocated
Stores closed
End of period
New stores opened per year, net
2013
Fiscal Year
2012
2011
414
17
(2)
—
429
15
406
14
(2)
(4)
414
8
398
13
(5)
—
406
8
(1)
Stores that are relocated are classified as new stores. Sales from the prior location are treated as sales from a closed store and thus are excluded from same store sales
calculations.
27
Executive Summary
Our improved operating results for fiscal 2013 compared to fiscal 2012 were mainly attributable to our higher sales levels,
including an increase in same store sales of 3.9%. We believe our higher same store sales reflected favorable customer response to
changes in our merchandise offering and new marketing initiatives, higher demand for firearm and ammunition products, and
improved sales of winter merchandise in the first quarter of fiscal 2013. We also believe our operating results for fiscal 2012 and
2011, and to a lesser extent for fiscal 2013, reflected challenging macroeconomic conditions in our markets resulting primarily from
the lingering effects of the economic recession.
• Net sales for fiscal 2013 increased 5.6% to $993.3 million compared to fiscal 2012. The increase in net sales was primarily
attributable to increased same store sales of 3.9% combined with added revenue from new stores.
• Net income for fiscal 2013 increased 87.4% to $27.9 million, or $1.27 per diluted share, compared to $14.9 million, or $0.69
per diluted share, for fiscal 2012. The increase was driven primarily by higher net sales and higher merchandise margins,
partially offset by increased selling and administrative expense and higher income tax expense.
• Gross profit for fiscal 2013 represented 33.1% of net sales, compared with 32.2% in the prior year. Merchandise margins
were 50 basis points higher than the prior year, combined with reduced distribution and store occupancy expense as a
percentage of net sales.
• Selling and administrative expense for fiscal 2013 increased 1.6% to $281.3 million, or 28.3% of net sales, compared to
$276.8 million, or 29.4% of net sales, for fiscal 2012. The increase was primarily attributable to higher store-related expense,
excluding occupancy, as a result of new store openings and increased employee labor and benefit-related expense.
• Operating income for fiscal 2013 increased 82.6% to $47.4 million, or 4.8% of net sales, compared to $26.0 million, or 2.8%
of net sales, for fiscal 2012. The higher operating income primarily reflects higher net sales and higher merchandise margins,
partially offset by increased selling and administrative expense.
Results of Operations
The following table sets forth selected items from our consolidated statements of operations by dollar and as a percentage of our
net sales for the periods indicated:
Statement of Operations Data:
Net sales
(2)
Cost of sales
(3)
Gross profit
(2)
Selling and administrative expense
(2)(4)(5)(6)
Operating income
Interest expense
Income before income taxes
Income taxes
Net income
(2)(5)(6)
Other Financial Data:
Net sales change
Same store sales change
(7)
Net income change
(1)
Fiscal 2013, 2012 and 2011 each included 52 weeks.
2013
(1)
Fiscal Year
2012
(Dollars in thousands)
2011
$993,323 100.0% $940,490
637,721
66.9
302,769
33.1
276,797
28.3
25,972
4.8
2,202
0.2
23,770
4.6
1.8
8,855
2.8% $ 14,915
664,583
328,740
281,313
47,427
1,745
45,682
17,736
$ 27,946
100.0% $902,134 100.0%
610,531
67.8
291,603
32.2
272,436
29.4
19,167
2.8
2,561
0.3
16,606
2.5
0.9
4,933
1.6% $ 11,673
67.7
32.3
30.2
2.1
0.3
1.8
0.5
1.3%
5.6%
3.9%
87.4%
4.3%
2.5%
27.8%
0.6%
(1.2)%
(43.2)%
28
(2)
(3)
(4)
(5)
(6)
In fiscal 2013, we recorded a pre-tax charge of $1.3 million reflecting an accrual for legal settlements, of which $0.3 million was classified as a reduction to net sales and
$1.0 million was classified as selling and administrative expense. This charge reduced net income in fiscal 2013 by $0.8 million, or $0.04 per diluted share.
Cost of sales includes the cost of merchandise, net of discounts or allowances earned, freight, inventory reserves, buying, distribution center expense, including
depreciation, and store occupancy expense. Store occupancy expense includes rent, amortization of leasehold improvements, common area maintenance, property taxes and
insurance.
Selling and administrative expense includes store-related expense, other than store occupancy expense, as well as advertising, depreciation and amortization, expense
associated with operating our corporate headquarters and impairment charges, if any.
In fiscal 2012, we recorded a pre-tax charge related to store closing costs of $1.2 million. This charge was included in selling and administrative expense, and reduced net
income in fiscal 2012 by $0.8 million, or $0.03 per diluted share.
In fiscal 2013, 2012 and 2011, we recorded pre-tax non-cash impairment charges of $0.1 million, $0.2 million and $2.1 million, respectively, related to certain
underperforming stores. These impairment charges are included in selling and administrative expense, and reduced net income in fiscal 2013, 2012 and 2011 by $44,000, or
$0.00 per diluted share, $0.1 million, or $0.01 per diluted share, and $1.5 million, or $0.07 per diluted share, respectively.
(7)
Same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period.
Fiscal 2013 Compared to Fiscal 2012
Net Sales. Net sales increased by $52.8 million, or 5.6%, to $993.3 million for fiscal 2013 from $940.5 million for fiscal 2012.
The change in net sales was primarily attributable to the following:
• Same store sales increased 3.9% for fiscal 2013 versus fiscal 2012. We believe our higher same store sales reflected favorable
customer response to changes in our merchandise offering and new marketing initiatives, higher demand for firearm and
ammunition products, and improved sales of winter merchandise in the first quarter of fiscal 2013 as a result of more
favorable weather compared to unseasonably warm winter weather experienced in the first quarter of fiscal 2012. Same store
sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year
period.
• Added sales from new stores reflected the opening of 31 new stores since January 1, 2012, partially offset by a reduction in
closed store sales.
• While we experienced a slight decline in customer transaction levels in our retail stores in fiscal 2013 when compared with
fiscal 2012, the average sale per transaction increased primarily as a result of changes in our sales mix and merchandise
offering.
Store count at the end of fiscal 2013 was 429 versus 414 at the end of fiscal 2012. We opened 17 new stores, three of which
were relocations, and closed two stores, both of which were relocations, in fiscal 2013. For fiscal 2014, we expect to open
approximately 15 net new stores.
Gross Profit. Gross profit increased by $25.9 million to $328.7 million in fiscal 2013 from $302.8 million in fiscal 2012.
Gross profit as a percentage of net sales in fiscal 2013 was 33.1% compared with 32.2% during fiscal 2012. The change in gross
profit was primarily attributable to the following:
• Net sales increased by $52.8 million in fiscal 2013 compared to the prior year.
• Merchandise margins, which exclude buying, occupancy and distribution expense, increased 50 basis points versus fiscal
2012, when merchandise margins decreased 24 basis points versus fiscal 2011. The improvement primarily reflected a sales
mix shift to higher-margin winter product categories as a result of favorable winter weather in the first quarter of fiscal 2013
compared with the same period in fiscal 2012, combined with sales of firearm and ammunition products at higher margins
during fiscal 2013.
• Store occupancy expense for fiscal 2013 increased by $3.5 million year over year due primarily to the increase in store count.
Store occupancy expense as a percentage of net sales in fiscal 2013 decreased by ten basis points compared with fiscal 2012.
29
• Distribution expense decreased $1.5 million, or 38 basis points, primarily resulting from higher costs capitalized into
inventory and decreased employee labor and benefit-related expense, as well as reductions in various other operating
expenses.
Selling and Administrative Expense. Selling and administrative expense increased by $4.5 million, or 1.6%, to $281.3 million
in fiscal 2013 from $276.8 million in fiscal 2012. Selling and administrative expense as a percentage of net sales decreased 110 basis
points to 28.3% in fiscal 2013 from 29.4% in fiscal 2012. The change in selling and administrative expense was primarily attributable
to the following:
• Store-related expense, excluding occupancy, increased by $1.5 million due primarily to higher labor and other operating
expense to support the increase in store count and increased credit card fees reflecting higher net sales levels, partially offset
by decreased employee benefit-related expense, primarily related to lower health and welfare expense.
• Advertising expense for fiscal 2013 decreased by $1.4 million, due primarily to lower newspaper advertising, partially offset
by increases in digital marketing programs and other advertising to support sales.
• Administrative expense for fiscal 2013 increased by $4.4 million, primarily reflecting higher employee labor and benefit-
related expense, added costs related to our new e-commerce initiative and increases in other administrative expense to support
our growth. Also, administrative expense for fiscal 2013 reflected a pre-tax charge of $1.0 million related to legal settlements.
In fiscal 2012, we recorded a pre-tax charge of $1.2 million related to store closing costs and a pre-tax non-cash impairment
charge of $0.2 million related to certain underperforming stores. These charges are further discussed in Notes 4, 5 and 14 to
the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this
Annual Report on Form 10-K.
Interest Expense. Interest expense decreased by $0.5 million, or 20.8%, to $1.7 million in fiscal 2013 from $2.2 million in
fiscal 2012. The decrease in interest expense reflects the combined impact of a decrease in average debt levels of $22.2 million to
$44.0 million in fiscal 2013 from $66.2 million in fiscal 2012, as well as a decrease in average interest rates of 10 basis points to 2.1%
in fiscal 2013 from 2.2% in fiscal 2012, due mainly to lower applicable margins under our credit agreement.
Income Taxes. The provision for income taxes was $17.7 million for fiscal 2013 compared with $8.9 million for fiscal 2012.
This increase was primarily due to higher pre-tax income and a higher effective tax rate in fiscal 2013. Our effective tax rate was
38.8% for fiscal 2013 compared with 37.3% for fiscal 2012. The increased effective tax rate year over year primarily reflected the
impact of lower overall income tax credits as a percentage of pre-tax income for fiscal 2013, partially offset by the retroactive
reinstatement of the work opportunity tax credit (“WOTC”) for 2012 that resulted from enactment of The American Taxpayer Relief
Act of 2012. Reinstatement of WOTC reduced the effective tax rate for the first quarter of fiscal 2013 by 137 basis points.
Fiscal 2012 Compared to Fiscal 2011
Net Sales. Net sales increased by $38.4 million, or 4.3%, to $940.5 million for fiscal 2012 from $902.1 million for fiscal 2011.
The change in net sales was primarily attributable to the following:
• Same store sales increased 2.5% for fiscal 2012 versus fiscal 2011. We believe our higher same store sales largely reflected
favorable customer response to changes in our merchandise offering and new marketing initiatives, despite lower sales of
winter merchandise as a result of unseasonably warm winter weather in the first quarter of fiscal 2012. Same store sales for a
period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period.
• Added sales from new stores reflected the opening of 27 new stores since January 2, 2011, partially offset by a reduction in
closed store sales.
30
• Net sales for fiscal 2012 continued to be impacted by the economic recession. While we experienced decreased customer
transactions in our retail stores in fiscal 2012 when compared with fiscal 2011, the average sale per transaction increased
primarily as a result of changes in our sales mix and merchandise offering.
Store count at the end of fiscal 2012 was 414 versus 406 at the end of fiscal 2011. We opened 14 new stores, three of which
were relocations, and closed six stores, two of which were relocations, in fiscal 2012.
Gross Profit. Gross profit increased by $11.2 million to $302.8 million in fiscal 2012 from $291.6 million in fiscal 2011.
Gross profit as a percentage of net sales in fiscal 2012 was 32.2% compared with 32.3% during the prior year. The change in gross
profit was primarily attributable to the following:
• Net sales increased by $38.4 million in fiscal 2012 compared to fiscal 2011.
• Merchandise margins, which exclude buying, occupancy and distribution expense, decreased for fiscal 2012 by 24 basis
points versus fiscal 2011, primarily reflecting a sales mix shift away from higher margin winter product categories in the first
quarter of fiscal 2012, combined with product cost inflation.
• Store occupancy expense for fiscal 2012 increased by $2.6 million year over year due primarily to the increase in store count.
Store occupancy expense as a percentage of net sales in fiscal 2012 decreased by seven basis points compared with fiscal
2011.
• Distribution expense increased $1.5 million primarily resulting from lower costs capitalized into inventory and increased
employee labor and benefit-related expense, partially offset by lower trucking expense. Distribution expense as a percentage
of net sales in fiscal 2012 decreased by two basis points compared with fiscal 2011.
Selling and Administrative Expense. Selling and administrative expense increased by $4.4 million, or 1.6%, to $276.8 million,
or 29.4% of net sales, in fiscal 2012 from $272.4 million, or 30.2% of net sales, in fiscal 2011. The change in selling and
administrative expense was primarily attributable to the following:
• Store-related expense, excluding occupancy, increased by $3.0 million due primarily to higher labor and operating expense to
support the increase in store count, increased employee benefit-related expense and higher public liability claim-related
expense, partially offset by lower debit card fees.
• Advertising expense for fiscal 2012 decreased by $1.7 million, due primarily to lower newspaper advertising, partially offset
by increases in digital marketing programs and other advertising to support sales.
• Administrative expense for fiscal 2012 included a pre-tax charge of $1.2 million related to store closing costs, and a pre-tax
non-cash impairment charge of $0.2 million related to certain underperforming stores. Administrative expense for fiscal 2011
included a pre-tax non-cash impairment charge of $2.1 million related to certain underperforming stores. These charges are
further discussed in Notes 4 and 5 to the consolidated financial statements included in Part II, Item 8, Financial Statements
and Supplementary Data, of this Annual Report on Form 10-K.
Interest Expense. Interest expense decreased by $0.4 million, or 14.0%, to $2.2 million in fiscal 2012 from $2.6 million in
fiscal 2011. The decrease in interest expense reflects the combined impact of a decrease in average interest rates of 30 basis points, to
2.2% in fiscal 2012 from 2.5% in fiscal 2011, due mainly to lower applicable margins under our amended credit agreement, as well as
a decrease in average debt levels of $1.3 million to $66.2 million in fiscal 2012 from $67.5 million in fiscal 2011.
Income Taxes. The provision for income taxes was $8.9 million for fiscal 2012 compared with $4.9 million for fiscal 2011.
This increase was primarily due to higher pre-tax income and a higher effective tax rate in fiscal 2012. Our effective tax rate was
37.3% for fiscal 2012 compared with 29.7% for fiscal 2011. Our higher effective tax rate for fiscal 2012 compared to fiscal 2011
primarily reflects the expiration of previously enacted legislation that resulted in the loss of certain tax credits in fiscal 2012 that were
previously available in fiscal 2011, combined with higher pre-tax income in fiscal 2012.
31
Liquidity and Capital Resources
Our principal liquidity requirements are for working capital, capital expenditures and cash dividends. We fund our liquidity
requirements primarily through cash and cash equivalents on hand, cash flows from operations and borrowings from our revolving
credit facility. We believe our cash and cash equivalents on hand, future cash flows from operations and borrowings from our
revolving credit facility will be sufficient to fund our cash requirements for at least the next 12 months.
We ended fiscal 2013 with $9.4 million of cash and cash equivalents compared with $7.6 million in fiscal 2012. After reducing
our long-term debt by $16.0 million, or 25.2%, during fiscal 2012, we further decreased our long-term debt by $4.5 million, or 9.5%,
during fiscal 2013 to $43.0 million from $47.5 million at the end of fiscal 2012. The following table summarizes our cash flows from
operating, investing and financing activities for each of the past three fiscal years:
Total cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
2013
Fiscal Year
2012
(In thousands)
2011
$ 26,287
(22,035)
(2,487)
$ 1,765
$ 39,604
(12,650)
(24,219)
$ 2,735
$ 2,218
(11,988)
9,050
(720)
$
The seasonality of our business historically provides greater cash flows from operations during the holiday and winter selling
season. We use operating cash flows and borrowings under our revolving credit facility to fund inventory increases in anticipation of
the holidays and our inventory levels are normally at their highest in the months leading up to Christmas. As holiday sales typically
reduce inventory levels, this reduction, combined with net income, historically provides us with strong cash flows from operations at
the end of our fiscal year.
For fiscal 2013, while we increased inventory purchases in the months leading up to Christmas, weaker-than-anticipated sales
during the fourth quarter of fiscal 2013 resulted in higher-than-expected inventory levels and lower operating cash flows in the fourth
quarter of fiscal 2013. However, healthy net sales and net income for the full fiscal year 2013 contributed sufficient levels of
operating cash flows that allowed us to pay down debt balances year over year.
For fiscal 2012, we increased inventory purchases in the months leading up to Christmas, resulting in a higher accounts payable
balance at year-end compared to fiscal 2011. Additionally, improved net sales and net income in fiscal 2012 compared with fiscal
2011 contributed to higher operating cash flows which allowed us to significantly pay down debt balances year over year.
For fiscal 2011, we strategically increased merchandise inventory levels to add certain new products to stimulate sales and also
purchased inventory earlier in the year to mitigate the impact of product cost inflation and potential delivery delays. Reduced
inventory purchases in the fourth quarter of fiscal 2011 resulted in lower accounts payable as a percentage of inventory. Also, weaker-
than-anticipated sales during fiscal 2011, particularly in the fourth quarter, resulted in higher inventory levels and reduced operating
cash flows for the year, contributing to higher debt balances year over year.
Operating Activities. Net cash provided by operating activities for fiscal 2013, 2012 and 2011 was $26.3 million, $39.6 million
and $2.2 million, respectively. The decrease in cash provided by operating activities for fiscal 2013 compared to fiscal 2012 was due
primarily to higher inventory levels, which reflected softer-than-anticipated sales in the fourth quarter of fiscal 2013. Furthermore, the
timing of inventory purchases resulted in higher funding of accounts payable in fiscal 2013 when compared to fiscal 2012. The
impact of higher inventory
32
was partially offset by higher net income for fiscal 2013. The increase in cash provided by operating activities for fiscal 2012
compared to fiscal 2011 primarily reflected higher accounts payable year over year due mainly to the timing of inventory purchases.
Inventory purchases were higher in the fourth quarter of fiscal 2012 compared to the fourth quarter of fiscal 2011, which resulted in a
higher accounts payable balance at the end of fiscal 2012. Also contributing to the improved operating cash flow in fiscal 2012 over
fiscal 2011 was a smaller increase in inventory, higher net income and increased accrued expenses related primarily to employee
benefit-related accruals and a liability for store closings.
Investing Activities. Net cash used in investing activities for fiscal 2013, 2012 and 2011 was $22.0 million, $12.7 million and
$12.0 million, respectively. In fiscal 2012 and 2011, we received proceeds of $0.3 million and $0.5 million, respectively, as part of a
local utility rebate program related to the implementation of a green energy system at our distribution center, and in fiscal 2011 we
received proceeds of $0.5 million from the sale of owned real property. Our capital spending is primarily for new store openings,
store-related remodeling, distribution center and corporate headquarters’ costs and computer hardware and software purchases.
Capital expenditures by category for each of the last three fiscal years are as follows:
New stores
Store-related remodels
Distribution center
Computer hardware, software and other
Total
2013
$10,996
7,600
871
2,568
$22,035
Fiscal Year
2012
(In thousands)
$ 7,076
3,703
536
1,586
$12,901
2011
$ 7,108
3,749
1,127
1,006
$12,990
Our capital expenditures included 17 new stores in fiscal 2013, 14 new stores in fiscal 2012 and 13 new stores in fiscal 2011.
The higher capital expenditures in fiscal 2013 also reflected an increased investment in existing store remodeling to support our
merchandising initiatives and added costs related to the development of an e-commerce platform. Capital expenditures in fiscal 2013,
2012 and 2011 also included amounts related to our computer system replacement program as well as enhanced security measures to
support our infrastructure.
Financing Activities. Net cash used in financing activities for fiscal 2013 and 2012 was $2.5 million and $24.2 million,
respectively, and net cash provided by financing activities for fiscal 2011 was $9.1 million. For fiscal 2013, we used cash provided
from operating activities primarily to pay dividends, pay down borrowings from our revolving credit facility and make capital lease
payments. These payments were partially offset by proceeds received from the exercise of employee share option awards. For fiscal
2012, we used cash provided from operating activities to pay down borrowings from our revolving credit facility, pay dividends,
make capital lease payments and purchase treasury stock. For fiscal 2011, cash provided by financing activities primarily reflected
increased borrowings under our revolving credit facility, partially offset by dividend payments and capital lease payments.
Borrowings under our revolving credit facility for fiscal 2011 were largely used to fund merchandise inventory purchases.
As of December 29, 2013, we had revolving credit borrowings of $43.0 million and letter of credit commitments of $0.9 million
outstanding. These balances compare to borrowings of $47.5 million and letter of credit commitments of $4.3 million outstanding as
of December 30, 2012.
Our revolving credit facility balances have historically increased from the end of the first quarter to the end of the second quarter
and from the end of the third quarter to the week of Thanksgiving. The historical increases in our revolving credit facility balances
reflect the build-up of inventory in anticipation of our summer and winter selling seasons. Revolving credit facility balances typically
fall from the week of Thanksgiving to the end of the fourth quarter, reflecting inventory sales during the holiday and winter selling
season.
33
In fiscal 2011 and 2012, we paid quarterly cash dividends of $0.075 per share of outstanding common stock, for an annual rate
of $0.30 per share. In fiscal 2013, we paid quarterly cash dividends of $0.10 per share of outstanding common stock, for an annual
rate of $0.40 per share. In the first quarter of fiscal 2014, our Board of Directors declared a quarterly cash dividend of $0.10 per share
of outstanding common stock, which will be paid on March 21, 2014 to stockholders of record as of March 7, 2014.
Periodically, we repurchase our common stock in the open market pursuant to programs approved by our Board of Directors.
Depending on business conditions, we may repurchase our common stock for a variety of reasons, including, among other things, our
alternative cash requirements, existing business conditions and the current market price of our stock. In the fourth quarter of fiscal
2011, we resumed share repurchase activity under our share repurchase program, repurchasing 109,550 shares of common stock for
$1.0 million in fiscal 2011 and 448,991 shares of common stock for $3.6 million in fiscal 2012. We did not repurchase shares of
common stock during fiscal 2013. Since the inception of our initial share repurchase program in May 2006 through December 29,
2013, we have repurchased a total of 1,927,626 shares for $25.4 million, leaving a total of $9.6 million available for share repurchases
under our current share repurchase program.
Credit Agreement. On October 18, 2010, we entered into a credit agreement with Wells Fargo Bank, National Association
(“Wells Fargo”), as administrative agent, and a syndicate of other lenders, which was amended on October 31, 2011 and
December 19, 2013 (as so amended, the “Credit Agreement”), as further discussed below. Initial borrowings under the Credit
Agreement on October 18, 2010 were used to, among other things, repay all of our outstanding indebtedness under our prior financing
agreement, at which time the prior financing agreement was terminated.
The Credit Agreement provides for a revolving credit facility (the “Credit Facility”) with an aggregate committed availability of
up to $140.0 million, which amount may be increased at our option up to a maximum of $165.0 million. We may also request
additional increases in aggregate availability, up to a maximum of $200.0 million, in which case the existing lenders under the Credit
Agreement will have the option to increase their commitments to accommodate the requested increase. If such existing lenders do not
exercise that option, we may (with the consent of Wells Fargo, not to be unreasonably withheld) seek other lenders willing to provide
such commitments. The Credit Facility includes a $50.0 million sublimit for issuances of letters of credit and a $20.0 million sublimit
for swingline loans. All amounts outstanding under the Credit Facility are scheduled to mature on December 19, 2018 (see discussion
below). As of December 29, 2013 and December 30, 2012, our total remaining borrowing availability under the Credit Agreement,
after subtracting letters of credit, was $96.1 million and $88.2 million, respectively.
We may borrow under the Credit Facility from time to time, provided the amounts outstanding will not exceed the lesser of the
then aggregate availability (as discussed above) and the Borrowing Base (such lesser amount being referred to as the “Loan Cap”).
After giving effect to the amendments, the “Borrowing Base” generally is comprised of the sum, at the time of calculation of
(a) 90.00% of our eligible credit card receivables; plus (b) the cost of our eligible inventory (other than our eligible in-transit
inventory), net of inventory reserves, multiplied by 90.00% of the appraised net orderly liquidation value of eligible inventory
(expressed as a percentage of the cost of eligible inventory); plus (c) the lesser of (i) the cost of our eligible in-transit inventory, net of
inventory reserves, multiplied by 90.00% of the appraised net orderly liquidation value of our eligible in-transit inventory (expressed
as a percentage of the cost of eligible in-transit inventory), or (ii) $10.0 million, minus (d) certain reserves established by Wells Fargo
in its role as the Administrative Agent in its reasonable discretion.
Generally, we may designate specific borrowings under the Credit Facility as either base rate loans or LIBO rate loans.
Following the most recent amendment of the Credit Agreement on December 19, 2013 (the “Second Amendment”), the applicable
interest rate on our borrowings will be a function of the daily average, over the preceding fiscal quarter, of the excess of the Loan Cap
over amounts borrowed (such amount being referred to as the “Average Daily Excess Availability”). Those loans designated as LIBO
rate loans shall bear interest at a rate
34
equal to the then applicable LIBO rate plus an applicable margin as shown in the table below. Those loans designated as base rate
loans shall bear interest at a rate equal to the applicable margin for base rate loans (as shown below) plus the highest of (a) the Federal
funds rate, as in effect from time to time, plus one-half of one percent (0.50%), (b) the LIBO rate, as adjusted to account for statutory
reserves, plus one percent (1.00%), or (c) the rate of interest in effect for such day as publicly announced from time to time by Wells
Fargo as its “prime rate.” The applicable margin for all loans will be as set forth below as a function of Average Daily Excess
Availability for the preceding fiscal quarter.
Level
I
II
III
Average Daily Excess Availability
Greater than or equal to $100,000,000
Less than $100,000,000 but greater than or
equal to $40,000,000
Less than $40,000,000
LIBO Rate
Applicable Margin
1.25%
Base Rate
Applicable Margin
0.25%
1.50%
1.75%
0.50%
0.75%
Following the Second Amendment, the commitment fee assessed on the unused portion of the Credit Facility is 0.25% per
annum.
Obligations under the Credit Facility are secured by a general lien and perfected security interest in substantially all of our
assets. Our Credit Agreement contains covenants that require us to maintain a fixed charge coverage ratio of not less than 1.0:1.0 in
certain circumstances, and limit our ability to, among other things, incur liens, incur additional indebtedness, transfer or dispose of
assets, change the nature of the business, guarantee obligations, pay dividends or make other distributions or repurchase stock, and
make advances, loans or investments. We may declare or pay cash dividends or repurchase stock only if, among other things, no
default or event of default then exists or would arise from such dividend or repurchase of stock and, after giving effect to such
dividend or repurchase, certain availability and/or fixed charge coverage ratio requirements are satisfied. The Credit Agreement
contains customary events of default, including, without limitation, failure to pay when due principal amounts with respect to the
Credit Facility, failure to pay any interest or other amounts under the Credit Facility for five days after becoming due, failure to
comply with certain agreements or covenants contained in the Credit Agreement, failure to satisfy certain judgments against us,
failure to pay when due (or any other default which does or may lead to the acceleration of) certain other material indebtedness in
principal amount in excess of $5.0 million, and certain insolvency and bankruptcy events.
The following table provides information about our revolving credit borrowings as of and for the periods indicated:
Fiscal year-end balance
Average interest rate
Maximum outstanding during the year
Average outstanding during the year
Fiscal Year
2013
2012
(Dollars in thousands)
$43,018
2.11%
$82,640
$43,973
$47,461
2.18%
$86,619
$66,190
Future Capital Requirements. We had cash and cash equivalents on hand of $9.4 million at December 29, 2013. We expect
capital expenditures for fiscal 2014, excluding non-cash acquisitions, to range from approximately $28.0 million to $32.0 million,
primarily to fund the opening of new stores, store-related remodeling, distribution center equipment and computer hardware and
software purchases, including amounts related to the development of an e-commerce platform. For fiscal 2014, we expect to open
approximately 15 net new stores.
In fiscal 2011 and 2012, we paid quarterly cash dividends of $0.075 per share of outstanding common stock, for an annual rate
of $0.30 per share. In fiscal 2013, we paid quarterly cash dividends of $0.10 per share of
35
outstanding common stock, for an annual rate of $0.40 per share. In the first quarter of fiscal 2014, our Board of Directors declared a
quarterly cash dividend of $0.10 per share of outstanding common stock, which will be paid on March 21, 2014 to stockholders of
record as of March 7, 2014.
As of December 29, 2013, a total of $9.6 million remained available for share repurchases under our share repurchase program.
We consider several factors in determining when and if we make share repurchases including, among other things, our alternative
cash requirements, existing business conditions and the market price of our stock.
We believe we will be able to fund our cash requirements from cash and cash equivalents on hand, operating cash flows and
borrowings from our revolving credit facility, for at least the next twelve months. However, our ability to satisfy our cash
requirements depends upon our future performance, which in turn is subject to general economic conditions and regional risks, as
well as financial, business and other factors affecting our operations, including factors beyond our control. There is no assurance that
we will be able to generate sufficient cash flows or that we will be able to maintain our ability to borrow under our revolving credit
facility.
Off-Balance Sheet Arrangements and Contractual Obligations. Our material off-balance sheet arrangements are operating
lease obligations and letters of credit. We excluded these items from the balance sheet in accordance with accounting principles
generally accepted in the United States of America (“GAAP”). A summary of our operating lease obligations and letter of credit
commitments by fiscal year is included in the table below. Additional information regarding our operating leases is available in
Item 2, Properties and Note 8, Lease Commitments, of the notes to consolidated financial statements included in Item 8, Financial
Statements and Supplementary Data, of this Annual Report on Form 10-K.
Our future obligations and commitments as of December 29, 2013, include the following:
Capital lease obligations
Lease commitments:
Operating lease commitments
Other occupancy expense
Other liabilities
Revolving credit facility
Letters of credit
Total
Payments Due by Period
Total
Less Than 1
Year
$
3,315
$
1,655
315,196
59,059
12,543
43,018
925
$ 434,056
69,424
13,518
3,432
—
925
$ 88,954
1-3 Years
(In thousands)
$
1,432
107,017
21,050
3,720
—
—
$ 133,219
3-5 Years
After 5 Years
$
228
$
—
67,904
13,222
1,985
43,018
—
$ 126,357
70,851
11,269
3,406
—
—
$ 85,526
Capital lease obligations, which include imputed interest, consist principally of leases for some of our distribution center
delivery tractors, management information systems hardware and point-of-sale equipment for our stores. Payments for these lease
obligations are provided by cash flows generated from operations or through borrowings from our revolving credit facility.
Operating lease commitments consist principally of leases for our retail store facilities, distribution center and corporate office.
These leases frequently include options which permit us to extend the terms beyond the initial fixed lease term. With respect to most
of those leases, we intend to renegotiate those leases as they expire.
36
Operating lease commitments also include a lease commitment for a building adjacent to our corporate office. The lease term for
this property commenced in 2009 and the primary term expires on February 28, 2019. In accordance with terms of the lease
agreement, we are committed to the construction of a new retail building on the premises before the primary term expires in 2019. We
are not yet able to determine the ultimate amount of the construction commitment.
Other occupancy expense includes estimated property maintenance fees and property taxes for our stores, distribution center and
corporate headquarters.
Other liabilities consist principally of actuarially-determined reserve estimates related to self-insurance liabilities, a contractual
obligation for the surviving spouse of Robert W. Miller, our co-founder, and asset retirement obligations related to the removal and
retirement of leasehold improvements for certain stores upon termination of their leases.
Periodic interest payments on the Credit Agreement are not included in the preceding table because interest expense is based on
variable indices, and the balance of our Credit Agreement fluctuates daily depending on operating, investing and financing cash
flows. Assuming no changes in our revolving credit facility debt or interest rates as of the fiscal 2013 year-end, our projected annual
interest payments would be approximately $1.1 million.
Issued and outstanding letters of credit were $0.9 million at December 29, 2013, and were related primarily to securing
insurance program liabilities.
In the ordinary course of business, we enter into arrangements with vendors to purchase merchandise in advance of expected
delivery. Because most of these purchase orders do not contain any termination payments or other penalties if cancelled, they are not
included as outstanding contractual obligations.
Critical Accounting Estimates
Our critical accounting estimates are included in our significant accounting policies as described in Note 2 of the consolidated
financial statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Those
consolidated financial statements were prepared in accordance with GAAP. Critical accounting estimates are those that we believe are
most important to the portrayal of our financial condition and results of operations. The preparation of our consolidated financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense.
Our estimates are evaluated on an ongoing basis and drawn from historical experience, current trends and other factors that
management believes to be relevant at the time our consolidated financial statements are prepared. Actual results may differ from our
estimates. Management believes that the following accounting estimates reflect the more significant judgments and estimates we use
in preparing our consolidated financial statements.
Valuation of Merchandise Inventories, Net
Our merchandise inventories are made up of finished goods and are valued at the lower of cost or market using the weighted-
average cost method that approximates the first-in, first-out (“FIFO”) method. Average cost consists of the direct purchase price of
merchandise inventory, net of vendor allowances and cash discounts, in-bound freight-related costs and allocated overhead costs
associated with our distribution center.
We record valuation reserves on a quarterly basis for damaged and defective merchandise, merchandise items with slow-moving
or obsolescence exposure and merchandise that has a carrying value that exceeds market value. These reserves are estimates of a
reduction in value to reflect inventory valuation at the lower of cost or market. Factors included in determining slow-moving or
obsolescence reserve estimates include current and anticipated demand or customer preferences, merchandise aging, seasonal trends
and decisions to discontinue
37
certain products. Because of our merchandise mix, we have not historically experienced significant occurrences of obsolescence. Our
inventory valuation reserves for merchandise returns, slow-moving or obsolete merchandise and for lower of cost or market
provisions totaled $3.1 million and $3.1 million as of December 29, 2013 and December 30, 2012, respectively, representing
approximately 1% of our merchandise inventory for both periods.
Inventory shrinkage is accrued as a percentage of merchandise sales based on historical inventory shrinkage trends. We perform
physical inventories at each of our stores at least once per year and cycle count inventories encompassing all inventory items at least
once every quarter at our distribution center. The reserve for inventory shrinkage primarily represents an estimate for inventory
shrinkage for each store since the last physical inventory date through the reporting date. Inventory shrinkage can be impacted by
internal factors such as the level of investment in employee training and loss prevention and external factors such as the health of the
overall economy, and shrink reserve estimates can vary from actual results. Our reserve for inventory shrinkage was $2.2 million and
$2.1 million as of December 29, 2013 and December 30, 2012, respectively, representing approximately 1% of our merchandise
inventory for both periods.
A 10% change in our inventory reserves estimate in total at December 29, 2013, would result in a change in reserves of
approximately $0.5 million and a change in pre-tax earnings by the same amount. Our reserves are estimates, which could vary
significantly, either favorably or unfavorably, from actual results if future economic conditions, consumer demand and competitive
environments differ from our expectations. At this time, we do not believe that there is a reasonable likelihood that there will be a
material change in the future estimates or assumptions that we use to calculate our inventory reserves.
Valuation of Long-Lived Assets
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable.
Long-lived assets are reviewed for recoverability at the lowest level in which there are identifiable cash flows (“asset group”),
usually at the store level. Each store typically requires investments of approximately $0.4 million in long-lived assets to be held and
used, subject to recoverability testing. The carrying amount of an asset group is not considered recoverable if it exceeds the sum of
the undiscounted cash flows expected to result from the asset group. If the asset group is determined not to be recoverable, then an
impairment charge will be recognized in the amount by which the carrying amount of the asset group exceeds its fair value,
determined using discounted cash flow valuation techniques, as defined in the impairment provisions of Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 360, Property, Plant, and Equipment.
We determine the sum of the undiscounted cash flows expected to result from the asset group by projecting future revenue, gross
margin and operating expense for each store under evaluation for impairment. The estimates of future cash flows involve
management judgment and are based upon assumptions about expected future operating performance. Assumptions used in these
forecasts are consistent with internal planning, and include assumptions about sales growth rates, gross margins and operating
expense in relation to the current economic environment and our future expectations, competitive factors in our various markets and
inflation. The actual cash flows could differ from management’s estimates due to changes in business conditions, operating
performance and economic conditions.
Our evaluation resulted in a pre-tax impairment charge of $0.1 million, $0.2 million and $2.1 million recognized in fiscal 2013,
2012 and 2011, respectively, related to certain underperforming stores.
A 10% change in the sum of our undiscounted cash flow estimates resulting from different assumptions used at December 29,
2013, would not result in a change in long-lived asset impairment charges for fiscal 2013.
38
Self-Insurance Liabilities
We maintain self-insurance programs for our estimated commercial general liability risk and, in certain states, our estimated
workers’ compensation liability risk. In addition, we have a self-insurance program for a portion of our employee medical benefits.
Under these programs, we maintain insurance coverage for losses in excess of specified per-occurrence amounts. Estimated costs
under the self-insured workers’ compensation and medical benefits programs, including incurred but not reported claims, are recorded
as expense based upon historical experience, trends of paid and incurred claims, and other actuarial assumptions. If actual claims
trends under these programs, including the severity or frequency of claims, differ from our estimates, our financial results may be
significantly impacted. Our estimated self-insurance liabilities, which are reported gross of expected workers’ compensation
insurance reimbursements, are classified in our balance sheet as accrued expenses or other long-term liabilities based upon whether
they are expected to be paid during or beyond our normal operating cycle of 12 months from the date of our consolidated financial
statements. As of December 29, 2013 and December 30, 2012, our self-insurance liabilities totaled $11.6 million and $10.4 million,
respectively.
A 10% change in our estimated self-insurance liabilities estimate as of December 29, 2013, would result in a change in our
liability of approximately $1.2 million and a change in pre-tax earnings by the same amount.
Seasonality and Impact of Inflation
We experience seasonal fluctuations in our net sales and operating results. In the fourth fiscal quarter, which includes the
holiday selling season, we normally experience higher inventory purchase volumes and increased expense for staffing and
advertising. Seasonality influences our buying patterns which directly impacts our merchandise and accounts payable levels and cash
flows. We purchase merchandise for seasonal activities in advance of a season. If we miscalculate the demand for our products
generally or for our product mix during the fourth fiscal quarter, our net sales can decline, which can harm our financial performance.
A significant shortfall from expected fourth fiscal quarter net sales can negatively impact our annual operating results.
In fiscal 2012 and 2013, we experienced minor inflation in the purchase cost, including transportation expense, of certain
products. We continue to evolve our product mix to include more branded merchandise that we believe gives us added flexibility to
adjust selling prices for purchase cost increases. If we are unable to adjust our selling prices for purchase cost increases then our
merchandise margins will decline, which will adversely impact our operating results. We do not believe that inflation had a material
impact on our operating results for the reporting periods.
Recently Issued Accounting Updates
See Note 2 to consolidated financial statements included in Item 8, Financial Statements and Supplementary Data, of this
Annual Report on Form 10-K.
Forward-Looking Statements
This document includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements relate to, among other things, our financial condition, our results of operations, our
growth strategy and the business of our company generally. In some cases, you can identify such statements by terminology such as
“may,” “could,” “project,” “estimate,” “potential,” “continue,” “should,” “expects,” “plans,” “anticipates,” “believes,” “intends” or
other such terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may
cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among
other things, continued or worsening weakness in the consumer spending environment and the U.S. financial and credit markets,
fluctuations in consumer holiday spending patterns, breach of data security or other unauthorized disclosure of sensitive personal or
confidential information, the competitive environment in the sporting goods industry in general and in our specific market areas,
inflation,
39
product availability and growth opportunities, changes in the current market for (or regulation of) firearms, ammunition and certain
related accessories, seasonal fluctuations, weather conditions, changes in cost of goods, operating expense fluctuations, higher-than-
expected costs related to the development of an e-commerce platform, delay in completing the e-commerce platform or lower-than-
expected profitability of the e-commerce platform, litigation risks, disruption in product flow, changes in interest rates, credit
availability, higher expense associated with sources of credit resulting from uncertainty in financial markets and economic conditions
in general. Those and other risks and uncertainties are more fully described in Part I, Item 1A, Risk Factors, in this report. We caution
that the risk factors set forth in this report are not exclusive. In addition, we conduct our business in a highly competitive and rapidly
changing environment. Accordingly, new risk factors may arise. It is not possible for management to predict all such risk factors, nor
to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of factors,
may cause results to differ materially from those contained in any forward-looking statement. We undertake no obligation to revise or
update any forward-looking statement that may be made from time to time by us or on our behalf.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to risks resulting from interest rate fluctuations since interest on our borrowings under our Credit Facility is
based on variable rates. We enter into borrowings under our Credit Facility principally for working capital, capital expenditures and
general corporate purposes. We routinely evaluate the best use of our cash and cash equivalents on hand and manage financial
statement exposure to interest rate fluctuations by managing our level of indebtedness and the interest base rate options on such
indebtedness. We do not utilize derivative instruments and do not engage in foreign currency transactions or hedging activities to
manage our interest rate risk. If the interest rate on our debt was to change 1.0% as compared to the rate at December 29, 2013, our
interest expense would change approximately $0.4 million on an annual basis based on the outstanding balance of our borrowings
under our Credit Facility at December 29, 2013.
Inflationary factors and changes in foreign currency rates can increase the purchase cost of our products. We are evolving our
product mix to include more branded merchandise, which we believe gives us added flexibility to adjust selling prices for purchase
cost increases. If we are unable to adjust our selling prices for purchase cost increases then our merchandise margins will decline,
which will adversely impact our operating results. All of our stores are located in the United States, and all imported merchandise is
purchased in U.S. dollars. We do not believe that inflation had a material impact on our operating results for the reporting periods.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the supplementary financial information required by this Item and included in this Annual Report
on Form 10-K are listed in the Index to consolidated financial statements beginning on page F-1.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
40
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information
which is required to be timely disclosed is accumulated and communicated to our management, including our Chief Executive Officer
(“CEO”) and Chief Financial Officer (“CFO”), in a timely fashion. We conducted an evaluation, under the supervision and with the
participation of our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of
December 29, 2013. Based on such evaluation, our CEO and CFO have concluded that, as of December 29, 2013, our disclosure
controls and procedures are effective, at a reasonable assurance level, in recording, processing, summarizing and reporting, on a
timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective
in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule
13a-15(f) under the Exchange Act.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect transactions and disposition of assets; provide reasonable assurance that transactions are
recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America (“GAAP”), and that receipts and expenditures are being made only in accordance with the
authorization of our management and directors; and provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 29,
2013, based upon the Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management has concluded that, as of December 29, 2013, we maintained
effective internal control over financial reporting. The attestation report issued by Deloitte & Touche LLP, our independent registered
public accounting firm, on our internal control over financial reporting is included herein.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)
during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Big 5 Sporting Goods Corporation
El Segundo, California
We have audited the internal control over financial reporting of Big 5 Sporting Goods Corporation and subsidiaries (the “Company”)
as of December 29, 2013, based on criteria established in Internal Control – Integrated Framework (1992) issued 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,
included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on 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, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
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 effectiveness to future periods are subject to the risk that 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, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 29, 2013, based on the criteria established in Internal Control – Integrated Framework (1992) issued 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 and financial statement schedule as of and for the year ended December 29, 2013 of the Company
and our report dated February 26, 2014 expressed an unqualified opinion on those financial statements and financial statement
schedule.
/s/ Deloitte & Touche LLP
Los Angeles, California
February 26, 2014
42
ITEM 9B. OTHER INFORMATION
None.
43
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy
Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 29, 2013.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy
Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 29, 2013.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy
Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 29, 2013.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy
Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 29, 2013.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy
Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 29, 2013.
44
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a) Documents filed as part of this report:
(1) Financial Statements.
See Index to Consolidated Financial Statements on page F-1 hereof.
(2) Financial Statement Schedule.
See Index to Consolidated Financial Statements on page F-1 hereof.
(3) Exhibits.
See Index to Exhibits on page E-1 hereof immediately following the financial statements, which is hereby incorporated by
reference into this Item 15. Certain exhibits are incorporated by reference from documents previously filed by the
Company with the SEC as required by Item 601 of Regulation S-K.
45
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 its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
BIG 5 SPORTING GOODS CORPORATION, a Delaware
corporation
Date: February 26, 2014
By:
/s/ Steven G. Miller
Steven G. Miller
Chairman of the Board of Directors,
President, Chief Executive Officer and
Director of the Company
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:
Signatures
Title
Date
/s/ Steven G. Miller
Steven G. Miller
/s/ Barry D. Emerson
Barry D. Emerson
/s/ Sandra N. Bane
Sandra N. Bane
/s/ G. Michael Brown
G. Michael Brown
/s/ Dominic P. DeMarco
Dominic P. DeMarco
/s/ Jennifer H. Dunbar
Jennifer H. Dunbar
/s/ Van B. Honeycutt
Van B. Honeycutt
/s/ David R. Jessick
David R. Jessick
Chairman of the Board of Directors,
President, Chief Executive Officer and
Director of the Company (Principal
Executive Officer)
February 26, 2014
Senior Vice President, Chief Financial
Officer and Treasurer (Principal Financial
and Accounting Officer)
February 26, 2014
Director of the Company
February 26, 2014
Director of the Company
February 26, 2014
Director of the Company
February 26, 2014
Director of the Company
February 26, 2014
Director of the Company
February 26, 2014
Director of the Company
February 26, 2014
46
BIG 5 SPORTING GOODS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 29, 2013 and December 30, 2012
Consolidated Statements of Operations for the fiscal years ended December 29, 2013,
December 30, 2012 and January 1, 2012
Consolidated Statements of Stockholders’ Equity for the fiscal years ended
December 29, 2013, December 30, 2012 and January 1, 2012
Consolidated Statements of Cash Flows for the fiscal years ended December 29, 2013,
December 30, 2012 and January 1, 2012
Notes to Consolidated Financial Statements
Consolidated Financial Statement Schedule:
Valuation and Qualifying Accounts as of December 29, 2013, December 30, 2012 and January 1, 2012
F-1
F-1
F-2
F-3
F-4
F-5
F-6
F-7
Schedule
II
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Big 5 Sporting Goods Corporation
El Segundo, California
We have audited the accompanying consolidated balance sheets of Big 5 Sporting Goods Corporation and subsidiaries (the
“Company”) as of December 29, 2013 and December 30, 2012, and the related consolidated statements of operations, stockholders’
equity, and cash flows for the years ended December 29, 2013, December 30, 2012, and January 1, 2012. Our audits also included the
financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and financial statement schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial
statement schedule 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 Big 5 Sporting
Goods Corporation and subsidiaries as of December 29, 2013 and December 30, 2012, and the results of their operations and their
cash flows for the years ended December 29, 2013, December 30, 2012, and January 1, 2012, in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of December 29, 2013, based on the criteria established in Internal Control—
Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated February 26, 2014 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
Los Angeles, California
February 26, 2014
F-2
BIG 5 SPORTING GOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $105 and $99, respectively
Merchandise inventories, net
Prepaid expenses
Deferred income taxes
Total current assets
Property and equipment, net
Deferred income taxes
Other assets, net of accumulated amortization of $891 and $637, respectively
Goodwill
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Current portion of capital lease obligations
Total current liabilities
Deferred rent, less current portion
Capital lease obligations, less current portion
Long-term debt
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, authorized 50,000,000 shares; issued 24,339,537 and
23,783,084 shares, respectively; outstanding 22,297,701 and 21,741,248 shares,
respectively
Additional paid-in capital
Retained earnings
Less: Treasury stock, at cost; 2,041,836 shares
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
F-3
December 29,
2013
December 30,
2012
$
9,400
16,301
300,952
6,356
12,000
345,009
75,608
13,564
3,274
4,433
$ 441,888
$ 104,826
69,923
1,567
176,316
21,078
1,595
43,018
9,111
251,118
$
7,635
15,297
270,350
8,784
9,905
311,971
72,089
14,795
3,372
4,433
$ 406,660
$
92,688
67,553
1,720
161,961
21,386
2,855
47,461
8,577
242,240
244
109,901
106,565
(25,940)
190,770
$ 441,888
238
102,658
87,464
(25,940)
164,420
$ 406,660
BIG 5 SPORTING GOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling and administrative expense
Operating income
Interest expense
Income before income taxes
Income taxes
Net income
Earnings per share:
Basic
Diluted
Dividends per share
Weighted-average shares of common stock outstanding:
Basic
Diluted
January 1,
2012
December 29,
2013
Year Ended
December 30,
2012
$ 993,323 $ 940,490 $ 902,134
610,531
291,603
272,436
19,167
2,561
16,606
4,933
11,673
637,721
302,769
276,797
25,972
2,202
23,770
8,855
14,915 $
664,583
328,740
281,313
47,427
1,745
45,682
17,736
27,946 $
$
$
$
$
1.28 $
1.27 $
0.40 $
0.70 $
0.69 $
0.30 $
0.54
0.53
0.30
21,765
22,083
21,394
21,616
21,656
21,869
See accompanying notes to consolidated financial statements.
F-4
BIG 5 SPORTING GOODS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
Balance at January 2, 2011
Net income
Dividends on common stock ($0.30 per
share)
Issuance of nonvested share awards
Exercise of share option awards
Share-based compensation
Tax deficiency from share-based awards
activity
Forfeiture of nonvested share awards
Retirement of common stock for payment of
withholding tax
Purchases of treasury stock
Balance at January 1, 2012
Net income
Dividends on common stock ($0.30 per
share)
Issuance of nonvested share awards
Exercise of share option awards
Share-based compensation
Tax benefit from share-based awards activity
Forfeiture of nonvested share awards
Retirement of common stock for payment of
withholding tax
Purchases of treasury stock
Balance at December 30, 2012
Net income
Dividends on common stock ($0.40 per
share)
Issuance of nonvested share awards
Exercise of share option awards
Share-based compensation
Tax benefit from share-based awards activity
Forfeiture of nonvested share awards
Retirement of common stock for payment of
withholding tax
Balance at December 29, 2013
Common Stock
Shares
Amount
21,832,537 $ 233 $
—
—
152,100
48,262
—
—
(8,625)
(23,754)
(109,550)
21,890,970
—
—
145,100
200,680
—
—
(10,500)
(36,011)
(448,991)
21,741,248
—
—
127,020
482,295
—
—
(11,050)
—
—
2
—
—
—
—
—
—
235
—
—
1
2
—
—
—
—
—
238
—
—
1
5
—
—
—
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock,
At Cost
Total
97,910 $
—
73,949 $
11,673
(21,366) $ 150,726
11,673
—
—
(2)
316
1,798
(74)
—
(283)
—
99,665
—
—
(1)
1,489
1,736
51
—
(282)
—
102,658
—
—
(1)
4,581
1,877
1,427
—
(6,585)
—
—
—
—
—
—
—
79,037
14,915
(6,488)
—
—
—
—
—
—
—
87,464
27,946
(8,845)
—
—
—
—
—
—
—
—
—
—
—
—
(981)
(22,347)
—
—
—
—
—
—
—
—
(3,593)
(25,940)
—
—
—
—
—
—
—
(6,585)
—
316
1,798
(74)
—
(283)
(981)
156,590
14,915
(6,488)
—
1,491
1,736
51
—
(282)
(3,593)
164,420
27,946
(8,845)
—
4,586
1,877
1,427
—
(41,812)
(641)
22,297,701 $ 244 $ 109,901 $ 106,565 $ (25,940) $ 190,770
(641)
—
—
—
See accompanying notes to consolidated financial statements.
F-5
BIG 5 SPORTING GOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Impairment of store assets
Share-based compensation
Excess tax benefit related to share-based awards
Amortization of debt issuance costs
Deferred income taxes
Gain on disposal of property and equipment
Changes in operating assets and liabilities:
Accounts receivable, net
Merchandise inventories, net
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from solar energy rebate
Proceeds from disposal of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Principal borrowings under revolving credit facility
Principal payments under revolving credit facility
Changes in book overdraft
Debt issuance costs
Principal payments under capital lease obligations
Proceeds from exercise of share option awards
Excess tax benefit related to share-based awards
Purchases of treasury stock
Tax withholding payments for share-based compensation
Dividends paid
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of non-cash investing and financing activities:
Property and equipment acquired under capital leases
Property and equipment additions unpaid
Solar energy rebate receivable
Supplemental disclosures of cash flow information:
Interest paid
Income taxes paid
December 29,
2013
Year Ended
December 30,
2012
January 1,
2012
$ 27,946
$ 14,915
$ 11,673
20,192
72
1,877
(1,733)
254
(864)
—
(1,004)
(30,602)
3,863
4,234
2,052
26,287
(22,035)
—
—
(22,035)
248,263
(252,706)
7,115
(164)
(1,807)
4,586
1,733
(75)
(641)
(8,791)
(2,487)
1,765
7,635
9,400
392
3,309
—
1,475
18,602
$
$
$
$
$
$
18,895
208
1,736
(222)
254
(3,054)
(8)
(2,441)
(6,072)
(2,078)
12,853
4,618
39,604
(12,901)
250
1
(12,650)
211,824
(227,839)
2,172
—
(1,815)
1,491
222
(3,518)
(282)
(6,474)
(24,219)
2,735
4,900
7,635
1,632
2,094
—
2,001
9,767
$
$
$
$
$
$
18,544
2,116
1,798
(90)
314
197
(250)
2,144
(10,061)
(432)
(19,789)
(3,946)
2,218
(12,990)
500
502
(11,988)
225,597
(210,434)
3,681
(304)
(2,102)
316
90
(981)
(283)
(6,530)
9,050
(720)
5,620
4,900
3,551
776
250
2,182
4,658
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
F-6
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business
The accompanying consolidated financial statements as of December 29, 2013 and December 30, 2012 and for the years ended
December 29, 2013 (“fiscal 2013”), December 30, 2012 (“fiscal 2012”) and January 1, 2012 (“fiscal 2011”) represent the financial
position, results of operations and cash flows of Big 5 Sporting Goods Corporation (the “Company”) and its wholly-owned
subsidiary, Big 5 Corp. and Big 5 Corp.’s wholly-owned subsidiary, Big 5 Services Corp. The Company operates as one reportable
segment, as a sporting goods retailer under the “Big 5 Sporting Goods” name. The Company carries a full-line product offering,
operating 429 stores at December 29, 2013 in California, Washington, Arizona, Oregon, Texas, New Mexico, Nevada, Utah, Idaho,
Colorado, Oklahoma and Wyoming.
(2) Summary of Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements include the accounts of Big 5 Sporting Goods Corporation, Big 5 Corp. and
Big 5 Services Corp. Intercompany balances and transactions have been eliminated in consolidation.
Reporting Period
The Company follows the concept of a 52-53 week fiscal year, which ends on the Sunday nearest December 31. Fiscal 2013,
2012 and 2011 each included 52 weeks.
Recently Issued Accounting Updates
There have been no recently issued accounting updates that had a material impact on the Company’s consolidated financial
statements.
Use of Estimates
Management has made a number of estimates and assumptions relating to the reporting of assets, liabilities and stockholders’
equity and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts
of revenue and expense during the reporting period to prepare these consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America (“GAAP”). Certain items subject to such estimates and assumptions
include the carrying amount of merchandise inventories, property and equipment, and goodwill; valuation allowances for receivables,
sales returns and deferred income tax assets; estimates related to gift card breakage and the valuation of share-based compensation
awards; and obligations related to asset retirements, litigation, self-insurance liabilities and employee benefits. Actual results could
differ significantly from these estimates under different assumptions and conditions.
Segment Reporting
The Company operates solely as a sporting goods retailer whose Chief Operating Decision Maker (“CODM”) is the Chief
Executive Officer. The CODM reviews financial information presented on a consolidated basis, for purposes of allocating resources
and evaluating financial performance. The Company’s stores typically have similar square footage and offer essentially the same
general product category mix. The Company’s core customer demographic remains similar chain-wide, as does the Company’s
process for the procurement and marketing of its product mix. Furthermore, the Company distributes its product mix chain-wide from
a single distribution center. Given the consolidated level of review by the CODM, the Company operates as one reportable segment as
defined by Accounting Standards Codification (“ASC”) 280, Segment Reporting.
F-7
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The approximate net sales attributable to hard goods, athletic and sport apparel, athletic and sport footwear and other for the
periods presented are set forth as follows:
Hard goods
Athletic and sport apparel
Athletic and sport footwear
Other sales
Net sales
Earnings Per Share
2013
$ 540,698
174,021
275,744
2,860
$ 993,323
Fiscal Year
2012
(In thousands)
$ 514,942
152,648
271,596
1,304
$ 940,490
2011
$ 491,493
145,209
262,558
2,874
$ 902,134
The Company calculates earnings per share in accordance with ASC 260, Earnings Per Share, which requires a dual
presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the weighted-
average shares of common stock outstanding, reduced by shares repurchased and held in treasury, during the period. Diluted earnings
per share represents basic earnings per share adjusted to include the potentially dilutive effect of outstanding share option awards,
nonvested share awards and nonvested share unit awards.
Revenue Recognition
The Company earns revenue by selling merchandise primarily through its retail stores. Revenue is recognized when merchandise
is sold and delivered to the customer and is shown net of estimated returns during the relevant period. The allowance for sales returns
is estimated based upon historical experience.
Cash received from the sale of gift cards is recorded as a liability, and revenue is recognized upon the redemption of the gift card
or when it is determined that the likelihood of redemption is remote (“gift card breakage”) and no liability to relevant jurisdictions
exists. The Company determines the gift card breakage rate based upon historical redemption patterns and recognizes gift card
breakage on a straight-line basis over the estimated gift card redemption period (20 quarters as of the end of fiscal 2013). The
Company recognized approximately $0.4 million, $0.4 million and $0.4 million in gift card breakage revenue for fiscal 2013, 2012
and 2011, respectively.
The Company records sales tax collected from its customers on a net basis, and therefore excludes it from revenue as defined in
ASC 605, Revenue Recognition.
Included in revenue are sales of returned merchandise to vendors specializing in the resale of defective or used products, which
accounted for less than 1% of net sales in each of the periods reported.
Cost of Sales
Cost of sales includes the cost of merchandise, net of discounts or allowances earned, freight, inventory reserves, buying,
distribution center expense, including depreciation, and store occupancy expense. Store occupancy expense includes rent,
amortization of leasehold improvements, common area maintenance, property taxes and insurance.
F-8
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Selling and Administrative Expense
Selling and administrative expense includes store-related expense, other than store occupancy expense, as well as advertising,
depreciation and amortization, expense associated with operating the Company’s corporate headquarters and impairment charges, if
any.
Vendor Allowances
The Company receives allowances for co-operative advertising and volume purchase rebates earned through programs with
certain vendors. The Company records a receivable for these allowances which are earned but not yet received when it is determined
the amounts are probable and reasonably estimable, in accordance with ASC 605. Amounts relating to the purchase of merchandise
are treated as a reduction of inventory cost and reduce cost of goods sold as the merchandise is sold. Amounts that represent a
reimbursement of costs incurred, such as advertising, are recorded as a reduction in selling and administrative expense. The Company
performs detailed analyses to determine the appropriate amount of vendor allowances to be applied as a reduction of merchandise cost
and selling and administrative expense.
Advertising Expense
Advertising is expensed when the advertising first occurs. Advertising expense, net of co-operative advertising allowances,
amounted to $44.5 million, $45.9 million and $47.6 million for fiscal 2013, 2012 and 2011, respectively. Advertising expense is
included in selling and administrative expense in the accompanying consolidated statements of operations. The Company receives co-
operative advertising allowances from product vendors in order to subsidize qualifying advertising and similar promotional
expenditures made relating to vendors’ products. These advertising allowances are recognized as a reduction to selling and
administrative expense when the Company incurs the advertising expense eligible for the credit. Co-operative advertising allowances
recognized as a reduction to selling and administrative expense amounted to $6.2 million, $6.2 million and $6.2 million for fiscal
2013, 2012 and 2011, respectively.
Share-Based Compensation
The Company accounts for its share-based compensation in accordance with ASC 718, Compensation — Stock Compensation.
The Company recognizes compensation expense on a straight-line basis over the requisite service period using the fair-value method
for share option awards, nonvested share awards and nonvested share unit awards granted with service-only conditions. See Note 15
to the consolidated financial statements for a further discussion on share-based compensation.
Pre-opening Costs
Pre-opening costs for new stores, which consist primarily of payroll and recruiting expense, training, marketing, rent, travel and
supplies, are expensed as incurred.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and all highly liquid instruments purchased with a maturity of three months or
less at the date of purchase. Book overdrafts are classified as current liabilities.
F-9
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Accounts Receivable
Accounts receivable consist primarily of third party purchasing card receivables, amounts due from inventory vendors for
returned products, volume purchase rebates or co-operative advertising, amounts due from lessors for tenant improvement allowances
and insurance recovery receivables. Accounts receivable have not historically resulted in any material credit losses. An allowance for
doubtful accounts is provided when accounts are determined to be uncollectible.
Valuation of Merchandise Inventories, Net
The Company’s merchandise inventories are made up of finished goods and are valued at the lower of cost or market using the
weighted-average cost method that approximates the first-in, first-out (“FIFO”) method. Average cost includes the direct purchase
price of merchandise inventory, net of certain vendor allowances and cash discounts, in-bound freight-related expense and allocated
overhead expense associated with the Company’s distribution center.
Management regularly reviews inventories and records valuation reserves for damaged and defective merchandise, merchandise
items with slow-moving or obsolescence exposure and merchandise that has a carrying value that exceeds market value. Because of
its merchandise mix, the Company has not historically experienced significant occurrences of obsolescence.
Inventory shrinkage is accrued as a percentage of merchandise sales based on historical inventory shrinkage trends. The
Company performs physical inventories of its stores at least once per year and cycle counts inventories at its distribution center
throughout the year. The reserve for inventory shrinkage represents an estimate for inventory shrinkage for each store since the last
physical inventory date through the reporting date.
These reserves are estimates, which could vary significantly, either favorably or unfavorably, from actual results if future
economic conditions, consumer demand and competitive environments differ from expectations.
Prepaid Expenses
Prepaid expenses include the prepayment of various operating expenses such as insurance, rent, income and property taxes,
software maintenance and supplies, which are expensed when the operating cost is realized.
Property and Equipment, Net
Property and equipment are stated at cost and are being depreciated or amortized utilizing the straight-line method over the
following estimated useful lives:
Buildings
Leasehold improvements
Furniture, equipment and internal-
use software
20 years
Shorter of estimated useful life or term of lease
3 - 10 years
Maintenance and repairs are expensed as incurred.
In fiscal 2013, the Company incurred costs to purchase and develop software for internal use and for its website associated with
the development of an e-commerce initiative. Costs related to the application
F-10
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
development stage are capitalized and amortized over the estimated useful life of the software. Costs related to the design or
maintenance of internal-use software and website development are expensed as incurred. For fiscal 2013, the Company capitalized
$1.6 million of costs associated with internal-use software and website development for its e-commerce initiative. The Company
expects this software to be placed into service in fiscal 2014, at which time amortization will commence.
Goodwill
Goodwill represents the excess of purchase price over fair value of net assets acquired. Under ASC 350, Intangibles — Goodwill
and Other, goodwill is not amortized but evaluated for impairment annually or whenever events or changes in circumstances indicate
that the value may not be recoverable.
The Company performed an annual impairment test as of the end of fiscal 2013, 2012 and 2011, and determined that goodwill
was not impaired.
Valuation of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
Long-lived assets are reviewed for recoverability at the lowest level in which there are identifiable cash flows (“asset group”),
usually at the store level. Each store typically requires investments of approximately $0.4 million in long-lived assets to be held and
used, subject to recoverability testing. The carrying amount of an asset group is not considered recoverable if it exceeds the sum of
the undiscounted cash flows expected to result from the use and eventual disposition of the asset group. If the asset group is
determined not to be recoverable, then an impairment charge will be recognized in the amount by which the carrying amount of the
asset group exceeds its fair value, determined using discounted cash flow valuation techniques, as defined in ASC 360, Property,
Plant, and Equipment.
The Company determines the sum of the undiscounted cash flows expected to result from the asset group by projecting future
revenue, gross margin and operating expense for each store under evaluation for impairment. The estimates of future cash flows
involve management judgment and are based upon assumptions about expected future operating performance. Assumptions used in
these forecasts are consistent with internal planning, and include assumptions about sales growth rates, gross margins and operating
expense in relation to the current economic environment and future expectations, competitive factors in various markets and inflation.
The actual cash flows could differ from management’s estimates due to changes in business conditions, operating performance and
economic conditions.
In fiscal 2013, 2012 and 2011, the Company recognized pre-tax non-cash impairment charges of $0.1 million, $0.2 million and
$2.1 million, respectively, related to certain underperforming stores. These impairment charges are included in selling and
administrative expense in the consolidated statements of operations.
Leases and Deferred Rent
The Company accounts for its leases under the provisions of ASC 840, Leases.
The Company evaluates and classifies its leases as either operating or capital leases for financial reporting purposes. Operating
lease commitments consist principally of leases for the Company’s retail store facilities,
F-11
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
distribution center and corporate office. Capital lease obligations consist principally of leases for some of the Company’s distribution
center delivery tractors, management information systems hardware and point-of-sale equipment for the Company’s stores.
Certain of the leases for the Company’s retail store facilities provide for payments based on future sales volumes at the leased
location, which are not measurable at the inception of the lease. These contingent rents are expensed as they accrue.
Deferred rent represents the difference between rent paid and the amounts expensed for operating leases. Certain leases have
scheduled rent increases, and certain leases include an initial period of free or reduced rent as an inducement to enter into the lease
agreement (“rent holidays”). The Company recognizes rent expense for rent increases and rent holidays on a straight-line basis over
the term of the underlying leases, without regard to when rent payments are made. The calculation of straight-line rent is based on the
“reasonably assured” lease term as defined in ASC 840 and may exceed the initial non-cancelable lease term.
Landlord allowances for tenant improvements, or lease incentives, are recorded as deferred rent and amortized on a straight-line
basis over the “reasonably assured” lease term as a component of rent expense.
Asset Retirement Obligations
The Company accounts for its asset retirement obligations (“ARO”) in accordance with ASC 410, Asset Retirement and
Environmental Obligations, which requires the recognition of a liability for the fair value of a legally required asset retirement
obligation when incurred if the liability’s fair value can be reasonably estimated. The Company’s ARO liabilities are associated with
the disposal and retirement of leasehold improvements resulting from contractual obligations at the end of a lease to restore the
facility back to a condition specified in the lease agreement.
The Company records the net present value of the ARO liability and also records a related capital asset in an equal amount for
those leases that contractually obligate the Company with an asset retirement obligation. The estimate of the ARO liability is based on
a number of assumptions including store closing costs, inflation rates and discount rates. Accretion expense related to the ARO
liability is recognized as operating expense. The capitalized asset is depreciated on a straight-line basis over the useful life of the
leasehold improvement. Upon ARO removal, any difference between the actual retirement expense incurred and the recorded
estimated ARO liability is recognized as an operating gain or loss in the consolidated statements of operations. The ARO liability,
which totaled $0.7 million and $0.7 million as of December 29, 2013 and December 30, 2012, respectively, is included in other long-
term liabilities in the accompanying consolidated balance sheets.
Self-Insurance Liabilities
The Company maintains self-insurance programs for its commercial general liability risk and, in certain states, its estimated
workers’ compensation liability risk. The Company also has a self-funded insurance program for a portion of its employee medical
benefits. Under these programs, the Company maintains insurance coverage for losses in excess of specified per-occurrence amounts.
Estimated expenses incurred under the self-insured workers’ compensation and medical benefits programs, including incurred but not
reported claims, are recorded as expense based upon historical experience, trends of paid and incurred claims, and other actuarial
assumptions. If actual claims trends under these programs, including the severity or frequency of claims, differ from the Company’s
estimates, its financial results may be significantly impacted. The Company’s estimated self-insurance liabilities, which are reported
gross of expected workers’ compensation insurance reimbursements,
F-12
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
are classified on the balance sheet as accrued expenses or other long-term liabilities based upon whether they are expected to be paid
during or beyond the normal operating cycle of 12 months from the date of the consolidated financial statements. Self-insurance
liabilities totaled $11.6 million and $10.4 million as of December 29, 2013 and December 30, 2012, respectively, of which $4.4
million and $4.0 million were recorded as a component of accrued expenses as of December 29, 2013 and December 30, 2012,
respectively, and $7.2 million and $6.4 million were recorded as a component of other long-term liabilities as of December 29, 2013
and December 30, 2012, respectively, in the accompanying consolidated balance sheets.
Income Taxes
Under the asset and liability method prescribed within ASC 740, Income Taxes, the Company recognizes deferred tax assets and
liabilities for the future tax consequences attributable to differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be realized or settled. The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The realizability of
deferred tax assets is assessed throughout the year and a valuation allowance is recorded if necessary to reduce net deferred tax assets
to the amount more likely than not to be realized.
ASC 740 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the
position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the
technical merits of the position. ASC 740 also provides guidance on measurement, derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition.
The Company’s practice is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in
operating expense. At December 29, 2013 and December 30, 2012, the Company had no accrued interest or penalties.
Concentration of Risk
The Company maintains its cash and cash equivalents accounts in financial institutions. Accounts at these institutions are
insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company performs ongoing evaluations of these
institutions to limit its concentration risk exposure.
The Company operates traditional sporting goods retail stores located in the western United States. Because of this, the
Company is subject to regional risks, such as the economy, including downturns in the housing market, state financial conditions,
unemployment and gas prices. Other regional risks include weather conditions, power outages, droughts, earthquakes and other
natural disasters specific to the states in which the Company operates.
The Company relies on a single distribution center located in Riverside, California, which services all of its stores. Any natural
disaster or other serious disruption to the distribution center due to fire, earthquake or any other cause could damage a significant
portion of inventory and could materially impair the Company’s ability to adequately stock its stores.
A substantial amount of the Company’s inventory is manufactured abroad, and shipped through the Port of Los Angeles. From
time to time, shipping ports experience capacity constraints, labor strikes, work stoppages or
F-13
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
other disruptions that may delay the delivery of imported products. In addition, acts of terrorism could significantly disrupt operations
at shipping ports or otherwise impact transportation of the Company’s imported merchandise. Disruptions at the Port of Los Angeles,
or other shipping ports, may result in delays in the transportation of such products to the Company’s distribution center and may
ultimately delay the Company’s ability to adequately stock its stores.
The Company purchases merchandise from approximately 800 suppliers, and the Company’s 20 largest suppliers accounted for
39.2% of total purchases in fiscal 2013. One vendor represented greater than 5% of total purchases, at 8.3%, in fiscal 2013. A
significant portion of the Company’s inventory is manufactured abroad in countries such as China, Taiwan and South Korea. If a
disruption of trade were to occur from the countries in which the suppliers of the Company’s vendors are located, the Company may
be unable to obtain sufficient quantities of products to satisfy its requirements, or the cost of obtaining products may increase.
The Company could be exposed to credit risk in the event of nonperformance by any lender under its revolving credit facility.
Instability in the financial and capital markets brings additional potential risks to the Company, including higher costs of credit,
potential lender defaults, and potential commercial bank failures. The Company has received no indication that any such events will
negatively impact the lenders under its current revolving credit facility; however, the possibility does exist.
(3) Property and Equipment, Net
Property and equipment, net, consist of the following:
Furniture, equipment and internal-use software
Leasehold improvements
Accumulated depreciation and amortization
Assets not placed into service
(1)
Property and equipment, net
December 29,
2013
December 30,
2012
(In thousands)
$ 134,740
134,151
268,891
(195,910)
72,981
2,627
$ 75,608
$ 129,904
120,023
249,927
(178,551)
71,376
713
$ 72,089
(1)
Includes internal-use software and website development costs of $1.6 million at December 29, 2013 related to an e-commerce initiative.
Depreciation expense associated with property and equipment, including assets leased under capital leases, was $10.0 million,
$10.1 million and $9.8 million for fiscal 2013, 2012 and 2011, respectively. Amortization expense for leasehold improvements was
$10.2 million, $8.8 million and $8.8 million for fiscal 2013, 2012 and 2011, respectively. The gross cost of equipment under capital
leases, included above, was $9.8 million and $10.1 million as of December 29, 2013 and December 30, 2012, respectively. The
accumulated amortization related to these capital leases was $6.0 million and $4.5 million as of December 29, 2013 and
December 30, 2012, respectively.
(4)
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. In fiscal 2013, 2012 and 2011, the Company recognized
F-14
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
pre-tax non-cash impairment charges of $0.1 million, $0.2 million and $2.1 million, respectively, related to certain underperforming
stores. The weak sales performance, coupled with future undiscounted cash flow projections, indicated that the carrying value of these
stores’ assets exceeded their estimated fair values as determined by their future discounted cash flow projections. When projecting the
stream of future cash flows associated with an individual store for purposes of determining long-lived asset recoverability,
management makes assumptions, incorporating local market conditions, about key store variables including sales growth rates, gross
profit and operating expenses. If economic conditions deteriorate in the markets in which the Company conducts business, or if other
negative market conditions develop, the Company may experience additional impairment charges in the future for underperforming
stores. These impairment charges are included in selling and administrative expense for fiscal 2013, 2012 and 2011 in the
consolidated statements of operations.
(5) Store Closing Costs
There were no closures of underperforming stores during fiscal 2013.
The Company closed four underperforming stores in fiscal 2012, which were not relocated. The store closing costs primarily
consist of remaining lease rental payments related to non-cancelable leases that expire in fiscal 2014. The following table summarizes
the activity of the Company’s store closing reserves:
Balance at December 30, 2012
Store closing costs
Payments
Balance at December 29, 2013
Severance
Costs
$ —
—
—
$ —
Lease
Termination
Costs
Other
Associated
Costs
$
(In thousands)
818
(91)
(444)
$ 283
$ —
21
(21)
$ —
Total
$ 818
(70)
(465)
$ 283
The Company recorded a net reduction of $70,000 in expense for fiscal 2013 primarily resulting from sublease income received
after the closure of these underperforming stores, and has incurred $1.1 million of net expense to date since initially recording store
closing costs in the second quarter of fiscal 2012. This expense is reflected as part of selling and administrative expense in the
accompanying consolidated statements of operations.
As of December 29, 2013, the liability for accrued store closing costs is recorded in accrued expenses in the accompanying
consolidated balance sheet. As of December 30, 2012, the current portion of accrued store closing costs was recorded in accrued
expenses and the noncurrent portion was recorded in other long-term liabilities in the accompanying consolidated balance sheet.
(6) Fair Value Measurements
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate the
fair values of these instruments due to their short-term nature. The carrying amount for borrowings under the revolving credit facility
approximates fair value because of the variable market interest rate charged to the Company for these borrowings. When the
Company recognizes impairment on certain of its underperforming stores, the carrying values of these stores are reduced to their
estimated fair values.
F-15
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
As of December 29, 2013 and December 30, 2012, the Company’s only significant assets or liabilities measured at fair value on
a nonrecurring basis subsequent to their initial recognition were assets subject to long-lived asset impairment related to certain
underperforming stores. As discussed in Note 4 to the consolidated financial statements, the Company estimated the fair values of
these long-lived assets based on the Company’s own judgments about the assumptions that market participants would use in pricing
the asset and on observable market data, when available. The Company classified these fair value measurements as Level 3 inputs,
which are unobservable inputs for which market data are not available and that are developed using the best information available
about pricing assumptions used by market participants in accordance with ASC 820, Fair Value Measurement. After the impairment
charges, the carrying values of the remaining assets of these stores were not material.
(7) Accrued Expenses
The major components of accrued expenses are as follows:
Payroll and related expense
Sales tax
Occupancy expense
Advertising
Other
Accrued expenses
(8) Lease Commitments
December 29,
2013
December 30,
2012
(In thousands)
$
23,240
10,110
9,392
5,734
21,447
$ 69,923
$
21,383
10,214
9,647
6,036
20,273
$ 67,553
The Company currently leases stores, distribution and headquarters facilities under non-cancelable operating leases. The
Company’s leases generally contain multiple renewal options for periods ranging from five to ten years and require the Company to
pay all executory costs such as maintenance and insurance. Certain of the Company’s store leases provide for the payment of
contingent rent based on a percentage of sales.
Rent expense for operating leases consisted of the following:
Rent expense
Contingent rent
Total rent expense
December 29,
2013
$
62,777
1,081
$ 63,858
Year Ended
December 30,
2012
(In thousands)
$
60,181
1,074
$ 61,255
January 1,
2012
$
57,456
1,100
$ 58,556
Rent expense includes sublease rent income of $0.1 million, $0.3 million and $0.3 million for fiscal 2013, 2012 and 2011,
respectively.
F-16
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Future minimum lease payments under non-cancelable leases, with lease terms in excess of one year, as of December 29, 2013
are as follows:
Year Ending:
2014
2015
2016
2017
2018
Thereafter
Total minimum lease payments
Imputed interest
Present value of minimum lease payments
Operating
Leases
(In thousands)
$ 69,424
60,146
46,871
37,865
30,039
70,851
$315,196
Total
$ 71,079
61,127
47,322
38,042
30,090
70,851
$318,511
Capital
Leases
$ 1,655
981
451
177
51
—
3,315
(153)
$ 3,162
In February 2008, the Company entered into a lease for a parcel of land with an existing building adjacent to its corporate
headquarters location. The lease term commenced in 2009 and the primary term expires on February 28, 2019, which may be renewed
for six successive periods of five years each. In accordance with terms of the lease agreement, the Company is committed to the
construction of a new retail building on the premises before the primary term expires in 2019, regardless of whether or not any
renewal options are exercised.
(9) Long-Term Debt
On October 18, 2010, the Company entered into a credit agreement with Wells Fargo Bank, National Association (“Wells
Fargo”), as administrative agent, and a syndicate of other lenders, which was amended on October 31, 2011 and December 19, 2013
(as so amended, the “Credit Agreement”), as further discussed below. Initial borrowings under the Credit Agreement on October 18,
2010 were used to, among other things, repay all of the Company’s outstanding indebtedness under the prior financing agreement, at
which time the prior financing agreement was terminated.
The Credit Agreement provides for a revolving credit facility (the “Credit Facility”) with an aggregate committed availability of
up to $140.0 million, which amount may be increased at the Company’s option up to a maximum of $165.0 million. The Company
may also request additional increases in aggregate availability, up to a maximum of $200.0 million, in which case the existing lenders
under the Credit Agreement will have the option to increase their commitments to accommodate the requested increase. If such
existing lenders do not exercise that option, the Company may (with the consent of Wells Fargo, not to be unreasonably withheld)
seek other lenders willing to provide such commitments. The Credit Facility includes a $50.0 million sublimit for issuances of letters
of credit and a $20.0 million sublimit for swingline loans. All amounts outstanding under the Credit Facility were originally to mature
and become due on October 18, 2014. On October 31, 2011, the Credit Agreement was amended to extend its maturity date to
October 31, 2016, and on December 19, 2013, the Credit Agreement was further amended to extend its maturity date to December 19,
2018 (see discussion below). Total remaining borrowing availability, after subtracting letters of credit, was $96.1 million and $88.2
million as of December 29, 2013 and December 30, 2012, respectively.
The Company may borrow under the Credit Facility from time to time, provided the amounts outstanding will not exceed the
lesser of the then aggregate availability (as discussed above) and the Borrowing Base (such
F-17
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
lesser amount being referred to as the “Loan Cap”). After giving effect to the amendments, the “Borrowing Base” generally is
comprised of the sum, at the time of calculation of (a) 90.00% of eligible credit card receivables; plus (b) the cost of eligible
inventory (other than eligible in-transit inventory), net of inventory reserves, multiplied by 90.00% of the appraised net orderly
liquidation value of eligible inventory (expressed as a percentage of the cost of eligible inventory); plus (c) the lesser of (i) the cost of
eligible in-transit inventory, net of inventory reserves, multiplied by 90.00% of the appraised net orderly liquidation value of eligible
in-transit inventory (expressed as a percentage of the cost of eligible in-transit inventory), or (ii) $10.0 million, minus (d) certain
reserves established by Wells Fargo in its role as the Administrative Agent in its reasonable discretion.
Generally, the Company may designate specific borrowings under the Credit Facility as either base rate loans or LIBO rate
loans. In each case, prior to the amendments dated October 31, 2011 and December 19, 2013, the applicable interest rate was a
function of the daily average, over the preceding fiscal quarter, of the excess of the Loan Cap over amounts outstanding under the
Credit Facility (such amount being referred to as the “Average Daily Excess Availability”). Those loans designated as LIBO rate
loans bore interest at a rate equal to the then applicable LIBO rate plus an applicable margin as shown in the table below. Those loans
designated as base rate loans bore interest at a rate equal to the applicable margin for base rate loans (as shown below) plus the
highest of (a) the Federal funds rate, as in effect from time to time, plus one-half of one percent (0.50%), (b) the LIBO rate, as
adjusted to account for statutory reserves, plus one percent (1.00%), or (c) the rate of interest in effect for such day as publicly
announced from time to time by Wells Fargo as its “prime rate.” Prior to the amendments discussed below, the applicable margin for
all loans was as set forth below as a function of Average Daily Excess Availability for the preceding fiscal quarter.
Level
I
II
Average Daily Excess Availability
Greater than 50% of the Loan Cap
Less than or equal to 50% of the Loan Cap
LIBO
Rate
Applicable
Margin
2.00%
2.25%
Base Rate
Applicable
Margin
1.00%
1.25%
On October 31, 2011, the Company entered into a First Amendment to Credit Agreement (“First Amendment”) and amended
certain provisions of the Credit Agreement. After the First Amendment, the applicable interest rate on the Company’s borrowings was
a function of the daily average, over the preceding fiscal quarter, of the excess of the Loan Cap over amounts borrowed (such amount
being referred to as the “Average Daily Excess Availability”). Those loans designated as LIBO rate loans bore interest at a rate equal
to the then applicable LIBO rate plus an applicable margin as shown in the table below. Those loans designated as base rate loans
bore interest at a rate equal to the applicable margin for base rate loans (as shown below) plus the highest of (a) the Federal funds rate,
as in effect from time to time, plus one-half of one percent (0.50%), (b) the LIBO rate, as adjusted to account for statutory reserves,
plus one percent (1.00%), or (c) the rate of interest in effect for such day as publicly announced from time to time by Wells Fargo as
its “prime rate.” The applicable margin for all loans was as set forth below as a function of Average Daily Excess Availability for the
preceding fiscal quarter.
Level
I
II
III
Average Daily Excess Availability
Greater than or equal to $70,000,000
Greater than or equal to $40,000,000
Less than $40,000,000
F-18
LIBO
Rate
Applicable
Margin
1.50%
1.75%
2.00%
Base Rate
Applicable
Margin
0.50%
0.75%
1.00%
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The First Amendment reduced the commitment fee assessed on the unused portion of the Credit Facility to 0.375% per annum.
The First Amendment also extended the maturity date of the Credit Agreement from October 18, 2014 to October 31, 2016 and
modified the provisions for restricting certain payments and investments.
On December 19, 2013, the Company entered into a Second Amendment to Credit Agreement (“Second Amendment”) and
amended certain provisions of the Credit Agreement. After the Second Amendment, the applicable interest rate on the Company’s
borrowings will be a function of the daily average, over the preceding fiscal quarter, of the excess of the Loan Cap over amounts
borrowed (such amount being referred to as the “Average Daily Excess Availability”). Those loans designated as LIBO rate loans
shall bear interest at a rate equal to the then applicable LIBO rate plus an applicable margin as shown in the table below. Those loans
designated as base rate loans shall bear interest at a rate equal to the applicable margin for base rate loans (as shown below) plus the
highest of (a) the Federal funds rate, as in effect from time to time, plus one-half of one percent (0.50%), (b) the LIBO rate, as
adjusted to account for statutory reserves, plus one percent (1.00%), or (c) the rate of interest in effect for such day as publicly
announced from time to time by Wells Fargo as its “prime rate.” The applicable margin for all loans will be set forth below as a
function of Average Daily Excess Availability for the preceding fiscal quarter.
Level
I
II
III
Average Daily Excess Availability
Greater than or equal to $100,000,000
Less than $100,000,000 but greater than or equal to
$40,000,000
Less than $40,000,000
LIBO
Rate
Applicable
Margin
1.25%
1.50%
1.75%
Base Rate
Applicable
Margin
0.25%
0.50%
0.75%
The Second Amendment reduced the commitment fee assessed on the unused portion of the Credit Facility to 0.25% per annum,
and reduced certain fees for letters of credit. The Second Amendment also extended the maturity date of the Credit Agreement from
October 31, 2016 to December 19, 2018.
Obligations under the Credit Facility are secured by a general lien and perfected security interest in substantially all of the
Company’s assets. The Credit Agreement contains covenants that require the Company to maintain a fixed charge coverage ratio of
not less than 1.0:1.0 in certain circumstances, and limit the ability to, among other things, incur liens, incur additional indebtedness,
transfer or dispose of assets, change the nature of the business, guarantee obligations, pay dividends or make other distributions or
repurchase stock, and make advances, loans or investments. The Company may declare or pay cash dividends or repurchase stock
only if, among other things, no default or event of default then exists or would arise from such dividend or repurchase of stock and,
after giving effect to such dividend or repurchase, certain availability and/or fixed charge coverage ratio requirements are satisfied.
The Credit Agreement contains customary events of default, including, without limitation, failure to pay when due principal amounts
with respect to the Credit Facility, failure to pay any interest or other amounts under the Credit Facility for five days after becoming
due, failure to comply with certain agreements or covenants contained in the Credit Agreement, failure to satisfy certain judgments
against the Company, failure to pay when due (or any other default which does or may lead to the acceleration of) certain other
material indebtedness in principal amount in excess of $5.0 million, and certain insolvency and bankruptcy events.
At December 29, 2013 and December 30, 2012, the one-month LIBO rate was 0.2% and 0.3%, respectively, and the Wells Fargo
Bank prime lending rate was 3.25% and 3.25%, respectively. The average interest rate on
F-19
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
the Company’s revolving credit borrowings during fiscal 2013 and 2012 was 2.11% and 2.18%, respectively. On December 29, 2013
and December 30, 2012, the Company had borrowings outstanding bearing interest at both LIBO and the prime lending rates as
follows:
LIBO rate
Prime rate
Total borrowings
(10) Income Taxes
Total income tax expense (benefit) consists of the following:
Fiscal 2013:
Federal
State
Fiscal 2012:
Federal
State
Fiscal 2011:
Federal
State
December 29,
2013
December 30,
2012
(In thousands)
$ 30,000
13,018
43,018
$
$ 43,000
4,461
47,461
$
Current
Deferred
(In thousands)
Total
$15,307
3,293
$18,600
$10,119
1,790
$11,909
$ 3,250
1,486
$ 4,736
$ (777)
(87)
$ (864)
$(2,736)
(318)
$(3,054)
$
$
821
(624)
197
$14,530
3,206
$17,736
$ 7,383
1,472
$ 8,855
$ 4,071
862
$ 4,933
The provision for income taxes differs from the amounts computed by applying the federal statutory tax rate of 35% to earnings
before income taxes, as follows:
Tax expense at statutory rate
State taxes, net of federal benefit
Tax credits and other
December 29,
2013
$
15,989
2,110
(363)
$ 17,736
Year Ended
December 30,
2012
(In thousands)
$
8,320
1,088
(553)
$ 8,855
January 1,
2012
$ 5,812
765
(1,644)
$ 4,933
F-20
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Deferred tax assets and liabilities consist of the following tax-effected temporary differences:
Deferred tax assets:
Deferred rent
Share-based compensation
Inventory
Other
Deferred tax assets
Deferred tax liabilities — basis difference in fixed assets
Net deferred tax assets
December 29,
2013
December 30,
2012
(In thousands)
$
$
9,744
3,116
2,130
12,594
27,584
(2,020)
25,564
$
9,960
3,696
1,982
11,512
27,150
(2,450)
$ 24,700
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled
reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon
the level of historical taxable income and projections of future taxable income over the periods during which the deferred tax assets
are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible
differences. The amount of the deferred tax asset considered realizable, however, could be reduced if estimates of future taxable
income are reduced.
The Company files a consolidated federal income tax return and files tax returns in various state and local jurisdictions. The
statutes of limitations for its consolidated federal income tax returns are open for fiscal years 2010 and after, and state and local
income tax returns are open for fiscal years 2009 and after.
Effective January 2, 2013, The American Taxpayer Relief Act of 2012 was enacted, which contained provisions that
retroactively reinstated the work opportunity tax credit (“WOTC”) and the 15 year cost recovery life of qualified leasehold
improvements from January 1, 2012 through December 31, 2013. As a result of this legislation, the Company applied WOTC of
approximately $0.3 million to its fiscal 2013 first quarter tax provision for amounts generated in 2012, resulting in a reduction to its
estimated effective tax rate for the 2013 first quarter of 137 basis points. Also as a result of this legislation, the Company increased its
2012 federal depreciation deduction by approximately $2.8 million, which resulted in a reduction to deferred tax assets and income
taxes payable by approximately $1.1 million.
At December 29, 2013 and December 30, 2012, the Company had no unrecognized tax benefits that, if recognized, would affect
the Company’s effective income tax rate over the next 12 months. The Company’s policy is to recognize interest accrued related to
unrecognized tax benefits in interest expense and penalties in operating expense. At December 29, 2013 and December 30, 2012, the
Company had no accrued interest or penalties.
(11) Earnings Per Share
The Company calculates earnings per share in accordance with ASC 260, Earnings Per Share, which requires a dual
presentation of basic and diluted earnings per share. Basic earnings per share is calculated by
F-21
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
dividing net income by the weighted-average shares of common stock outstanding, reduced by shares repurchased and held in
treasury, during the period. Diluted earnings per share represents basic earnings per share adjusted to include the potentially dilutive
effect of outstanding share option awards, nonvested share awards and nonvested share unit awards.
The following table sets forth the computation of basic and diluted earnings per common share:
Net income
Weighted-average shares of common stock outstanding:
Basic
Dilutive effect of common stock equivalents arising from share
option, nonvested share and nonvested share unit awards
Diluted
Basic earnings per share
Diluted earnings per share
December 29,
2013
Year Ended
December 30,
2012
January 1,
2012
(In thousands, except per share data)
$
27,946
$
14,915
$ 11,673
21,765
21,394
21,656
318
22,083
1.28
1.27
$
$
222
21,616
0.70
0.69
$
$
213
21,869
0.54
$
0.53
$
The computation of diluted earnings per share for fiscal 2013, 2012 and 2011 does not include share option awards in the
amounts of 763,688, 1,240,966 and 1,043,480, respectively, that were outstanding and antidilutive (i.e., including such share option
awards would result in higher earnings per share), since the exercise prices of these share option awards exceeded the average market
price of the Company’s common shares. Additionally, the computation of diluted earnings per share for fiscal 2013 and 2011 does not
include nonvested share awards and nonvested share unit awards in the amounts of 10,236 and 118,312 shares, respectively, that were
outstanding and antidilutive, since the grant date fair values of these nonvested share awards and nonvested share unit awards
exceeded the average market price of the Company’s common shares. No nonvested share awards and nonvested share unit awards
were antidilutive for fiscal 2012.
In the fourth quarter of fiscal 2011, the Company resumed its share repurchase activity under its share repurchase program,
repurchasing 109,550 shares of common stock for $1.0 million in fiscal 2011 and 448,991 shares of common stock for $3.6 million in
fiscal 2012. Of the shares of common stock repurchased in fiscal 2012, certain shares were repurchased and accrued in the amount of
$75,000 in December of fiscal 2012 which the Company paid in January of fiscal 2013. The Company did not repurchase shares of
common stock during fiscal 2013. Since the inception of the Company’s initial share repurchase program in May 2006 through
December 29, 2013, the Company has repurchased a total of 1,927,626 shares for $25.4 million, leaving a total of $9.6 million
available for share repurchases under the current share repurchase program.
(12) Employee Benefit Plans
The Company has a 401(k) plan covering eligible employees. Employee contributions are supplemented by Company
contributions subject to 401(k) plan terms. The Company recognized employer matching and profit-sharing contributions of $2.3
million, $1.8 million and $1.7 million for fiscal 2013, 2012 and 2011, respectively.
F-22
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(13) Related Party Transactions
G. Michael Brown is a director of the Company and a partner of the law firm of Musick, Peeler & Garrett LLP. From time to
time, the Company retains Musick, Peeler & Garrett LLP to handle various litigation matters. The Company received services from
Musick, Peeler & Garrett LLP amounting to $0.7 million, $1.0 million and $0.8 million in fiscal 2013, 2012 and 2011, respectively.
Amounts due to Musick, Peeler & Garrett LLP totaled $142,000 and $130,000 as of December 29, 2013 and December 30, 2012,
respectively.
Prior to his death in fiscal 2008, the Company had an employment agreement with Robert W. Miller (“Mr. Miller”), co-founder
of the Company and the father of Steven G. Miller, Chairman of the Board, President, Chief Executive Officer and a director of the
Company. The employment agreement provided for Mr. Miller to receive an annual base salary of $350,000. The employment
agreement further provided that, following his death, the Company will pay his surviving wife $350,000 per year and provide her
specified benefits for the remainder of her life. During fiscal 2013, 2012 and 2011, the Company made a payment of $350,000 to
Mr. Miller’s wife. The Company recognized expense of $0.3 million, $0.3 million and $0.3 million in fiscal 2013, 2012 and 2011,
respectively, to provide for a liability for the future obligations under this agreement. Based upon actuarial valuation estimates related
to this agreement, the Company recorded a liability of $1.5 million and $1.6 million as of December 29, 2013 and December 30,
2012, respectively. The short-term portion of this liability is recorded in accrued expenses and the long-term portion is recorded in
other long-term liabilities.
(14) Commitments and Contingencies
The Company was served on the following dates with the following nine complaints, each of which was brought as a purported
class action on behalf of persons who made purchases at the Company’s stores in California using credit cards and were requested or
required to provide personal identification information at the time of the transaction: (1) on February 22, 2011, a complaint filed in
the California Superior Court in the County of Los Angeles, entitled Maria Eugenia Saenz Valiente v. Big 5 Sporting Goods
Corporation, et al., Case No. BC455049; (2) on February 22, 2011, a complaint filed in the California Superior Court in the County
of Los Angeles, entitled Scott Mossler v. Big 5 Sporting Goods Corporation, et al., Case No. BC455477; (3) on February 28, 2011, a
complaint filed in the California Superior Court in the County of Los Angeles, entitled Yelena Matatova v. Big 5 Sporting Goods
Corporation, et al., Case No. BC455459; (4) on March 8, 2011, a complaint filed in the California Superior Court in the County of
Los Angeles, entitled Neal T. Wiener v. Big 5 Sporting Goods Corporation, et al., Case No. BC456300; (5) on March 22, 2011, a
complaint filed in the California Superior Court in the County of San Francisco, entitled Donna Motta v. Big 5 Sporting Goods
Corporation, et al., Case No. CGC-11-509228; (6) on March 30, 2011, a complaint filed in the California Superior Court in the
County of Alameda, entitled Steve Holmes v. Big 5 Sporting Goods Corporation, et al., Case No. RG11563123; (7) on March 30,
2011, a complaint filed in the California Superior Court in the County of San Francisco, entitled Robin Nelson v. Big 5 Sporting
Goods Corporation, et al., Case No. CGC-11-508829; (8) on April 8, 2011, a complaint filed in the California Superior Court in the
County of San Joaquin, entitled Pamela B. Smith v. Big 5 Sporting Goods Corporation, et al., Case No. 39-2011-00261014-CU-BT-
STK; and (9) on May 31, 2011, a complaint filed in the California Superior Court in the County of Los Angeles, entitled Deena
Gabriel v. Big 5 Sporting Goods Corporation, et al., Case No. BC462213. On June 16, 2011, the Judicial Council of California issued
an Order Assigning Coordination Trial Judge designating the California Superior Court in the County of Los Angeles as having
jurisdiction to coordinate and to hear all nine of the cases as Case No. JCCP4667. On October 21, 2011, the plaintiffs collectively
filed a Consolidated Amended Complaint, alleging violations of the California Civil Code, negligence, invasion of privacy and
unlawful intrusion. The plaintiffs allege, among other things, that customers making purchases with credit cards at the Company’s
stores in California were improperly requested to provide their zip code at the time of such purchases. The plaintiffs seek, on behalf of
the class members, the following: statutory penalties; attorneys’ fees; expenses; restitution of property; disgorgement of profits; and
injunctive relief. In an effort to negotiate a settlement
F-23
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
of this litigation, the Company and plaintiffs engaged in Mandatory Settlement Conferences conducted by the court on February 6,
2013, February 19, 2013, April 2, 2013, September 12, 2013, and September 20, 2013, and also engaged in mediation conducted by a
third party mediator on July 15, 2013. As a result of the foregoing, the parties agreed to settle the lawsuit. The court has not yet
granted preliminary approval or final approval of the settlement. On November 15, 2013, the proposed settlement was submitted to
the court for preliminary approval. On January 30, 2014, the court initially heard the motion for preliminary approval and continued
the motion to March 5, 2014. Under the terms of the proposed settlement, the Company agreed that class members who submit valid
and timely claim forms will receive either a $25 gift card (with proof of purchase) or a $10 merchandise voucher (without proof of
purchase). Additionally, the Company agreed to pay plaintiff’s attorneys’ fees and costs awarded by the court, enhancement payments
to the class representatives and claims administrator’s fees. Under the proposed settlement, if the total amount paid by the Company
for the class payout, class representative enhancement payments and claims administrator’s fees is less than $1.0 million, then the
Company will issue merchandise vouchers to a charity for the balance of the deficiency in the manner provided in the settlement
agreement. The Company’s estimated total cost pursuant to this proposed settlement is reflected in a legal settlement accrual recorded
in the third quarter of fiscal 2013. The Company admitted no liability or wrongdoing with respect to the claims set forth in the
lawsuit. Once final approval is granted, the settlement will constitute a full and complete settlement and release of all claims related to
the lawsuit. Based on the terms of the settlement agreement, the Company currently believes that settlement of this litigation will not
have a material negative impact on the Company’s results of operations or financial condition. However, if the settlement is not
finally approved by the court, the Company intends to defend this litigation vigorously. If the settlement is not finally approved by the
court and this litigation is settled or resolved unfavorably to the Company, this litigation and the costs of defending it could have a
material negative impact on the Company’s results of operations or financial condition.
The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company’s results of
operations or financial condition.
(15) Share-Based Compensation Plans
2002 Stock Incentive Plan
In June 2002, the Company adopted the 2002 Stock Incentive Plan (“2002 Plan”). The 2002 Plan provided for the grant of
incentive share option awards and non-qualified share option awards to the Company’s employees, directors and specified
consultants. Share option awards granted under the 2002 Plan generally vested and became exercisable at the rate of 25% per year
with a maximum life of ten years. Upon exercise of granted share option awards, shares are expected to be issued from new shares
previously registered for the 2002 Plan. The 2002 Plan was terminated in connection with the approval of the 2007 Equity and
Performance Incentive Plan, as described below. Consequently, at December 29, 2013, no shares remained available for future grant
and 651,390 share option awards remained outstanding under the 2002 Plan, subject to adjustment to reflect any changes in the
outstanding common stock of the Company by reason of any reorganization, recapitalization, reclassification, stock combination,
stock dividend, stock split, reverse stock split, spin off or other similar transaction.
2007 Equity and Performance Incentive Plan
In June 2007, the Company adopted the 2007 Equity and Performance Incentive Plan (“2007 Plan”) and cancelled the 2002
Plan. The aggregate amount of shares authorized for issuance under the 2007 Plan is 2,399,250 shares of common stock of the
Company, plus any shares subject to awards granted under the 2002 Plan which are forfeited, expire or are cancelled after April 24,
2007 (the effective date of the 2007 Plan). This amount represents the amount of shares that remained available for grant under the
2002 Plan as of April 24, 2007. Awards under the
F-24
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2007 Plan may consist of share option awards (both incentive share option awards and non-qualified share option awards), stock
appreciation rights, nonvested share awards, other stock unit awards, performance awards, or dividend equivalents. Any shares that
are subject to awards of options or stock appreciation rights shall be counted against this limit (i.e., shares available for grant) as one
share for every one share granted, regardless of the number of shares actually delivered pursuant to the awards. Any shares that are
subject to awards other than share option awards or stock appreciation rights (including shares delivered on the settlement of dividend
equivalents) shall be counted against this limit (i.e., shares available for grant) as 2.5 shares for every one share granted. The
aggregate number of shares available under the 2007 Plan and the number of shares subject to outstanding share option awards will be
increased or decreased to reflect any changes in the outstanding common stock of the Company by reason of any recapitalization,
spin-off, reorganization, reclassification, stock dividend, stock split, reverse stock split, or similar transaction. Share option awards
granted under the 2007 Plan generally vest and become exercisable at the rate of 25% per year with a maximum life of ten years.
Share option awards, nonvested share awards and nonvested share unit awards provide for accelerated vesting if there is a change in
control. The exercise price of the share option awards is equal to the quoted market price of the Company’s common stock on the date
of grant. Upon the grant of nonvested share awards or the exercise of granted share option awards, shares are expected to be issued
from new shares which were registered for the 2007 Plan.
Amendment and Restatement of 2007 Plan
On June 14, 2011, the Company’s shareholders approved an amendment and restatement of the Company’s 2007 Equity and
Performance Incentive Plan (as so amended and restated, the “Amended 2007 Plan”). The Amended 2007 Plan did not result in any
modifications to any of the Company’s outstanding share-based payment awards. Generally, the amendment and restatement made
the following revisions to the 2007 Plan that had been adopted as of April 24, 2007:
• the maximum number of shares of the Company’s common stock that may be issued or subject to awards under the Amended
2007 Plan was increased by 1,250,000 from the number authorized by the 2007 Plan;
• the term of the Amended 2007 Plan was extended through April 26, 2021 (i.e., by approximately four years from the
scheduled expiration of the 2007 Plan);
• the continuation of the terms of Article X of the Amended 2007 Plan was approved for purposes of Section 162(m) of the
Internal Revenue Code; and
• certain technical updates and enhancements were implemented, including an exception to certain vesting requirements for up
to 10% of the shares authorized under the Amended 2007 Plan.
These principal features of the Amended 2007 Plan are not intended to be a complete discussion of all of the terms of the
Amended 2007 Plan. A copy of the Amended 2007 Plan was filed in a Current Report on Form 8-K in the second quarter of fiscal
2011.
In fiscal 2013, the Company granted 127,020 nonvested share awards, 12,000 nonvested share unit awards and 30,500 share
option awards to certain employees, as defined by ASC 718, Compensation — Stock Compensation, under the Amended 2007 Plan.
At December 29, 2013, 1,115,173 shares remained available for future grant and 337,740 share option awards, 333,770 nonvested
share awards and 25,500 nonvested share unit awards remained outstanding under the Amended 2007 Plan.
The Company accounts for its share-based compensation in accordance with ASC 718 and recognizes compensation expense on
a straight-line basis over the requisite service period, net of estimated forfeitures, using the fair-value method for share option awards,
nonvested share awards and nonvested share unit awards granted with service-only conditions. The estimated forfeiture rate considers
historical employee turnover rates stratified
F-25
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
into employee pools in comparison with an overall employee turnover rate, as well as expectations about the future. The Company
periodically revises the estimated forfeiture rate in subsequent periods if actual forfeitures differ from those estimates. Compensation
expense recorded under this method for fiscal 2013, 2012 and 2011 was $1.9 million, $1.7 million and $1.8 million, respectively,
which reduced operating income and income before income taxes by the same amount. Compensation expense recognized in cost of
sales was $0.1 million, $0.1 million and $0.1 million in fiscal 2013, 2012 and 2011, respectively, and compensation expense
recognized in selling and administrative expense was $1.8 million, $1.6 million and $1.7 million in fiscal 2013, 2012 and 2011,
respectively. The recognized tax benefit related to compensation expense for fiscal 2013, 2012 and 2011 was $0.7 million, $0.6
million and $0.5 million, respectively. Net income for fiscal 2013, 2012 and 2011 was reduced by $1.2 million, $1.1 million and $1.3
million, respectively, or $0.05, $0.05 and $0.06 per basic and diluted share, respectively.
Share Option Awards
The fair value of each share option award on the date of grant was estimated using the Black-Scholes method based on the
following weighted-average assumptions:
Risk-free interest rate
Expected term
Expected volatility
Expected dividend yield
December 29,
2013
1.4%
6.9 years
57.5%
2.3%
Year Ended
December 30,
2012
1.2%
7.7 years
53.0%
4.7%
January 1,
2012
2.0%
7.3 years
51.0%
3.8%
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with
the expected term of the option award; the expected term represents the weighted-average period of time that option awards granted
are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected
volatility is based upon historical volatility of the Company’s common stock; and the expected dividend yield is based upon the
Company’s current dividend rate and future expectations.
The weighted-average grant-date fair value of share option awards granted for fiscal 2013, 2012 and 2011 was $8.37 per share,
$2.12 per share and $2.84 per share, respectively.
A summary of the status of the Company’s share option awards is presented below:
Outstanding at December 30, 2012
Granted
Exercised
Forfeited or Expired
Outstanding at December 29, 2013
Exercisable at December 29, 2013
Vested and Expected to Vest at December 29, 2013
Weighted-
Average
Exercise
Price
$ 15.05
18.12
9.51
15.23
$ 17.83
$ 18.24
$ 17.84
Shares
1,500,250
30,500
(482,295)
(59,325)
989,130
921,130
988,197
F-26
Weighted-
Average
Remaining
Contractual
Life
(In Years)
Aggregate
Intrinsic Value
2.89
2.48
2.89
$ 3,482,891
$ 2,998,375
$ 3,477,901
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based upon the Company’s
closing stock price of $19.19 per share as of December 29, 2013, which would have been received by the share option award holders
had all share option award holders exercised their share option awards as of that date.
The total intrinsic value of share option awards exercised for fiscal 2013, 2012 and 2011 was approximately $5.1 million, $1.0
million and $0.2 million, respectively. The total cash received from employees as a result of employee share option award exercises
for fiscal 2013, 2012 and 2011 was approximately $4.6 million, $1.5 million and $0.3 million, respectively. The actual tax benefit
realized for the tax deduction from share option award exercises in fiscal 2013, 2012 and 2011 totaled $2.0 million, $0.4 million and
$0.1 million, respectively.
As of December 29, 2013, there was $0.3 million of total unrecognized compensation expense related to nonvested share option
awards granted. That expense is expected to be recognized over a weighted-average period of 2.5 years.
Nonvested Share Awards and Nonvested Share Unit Awards
Nonvested share awards and nonvested share unit awards granted by the Company vest from the date of grant in four equal
annual installments of 25% per year with a maximum life of ten years. Nonvested share awards are delivered to the recipient upon
their vesting. With respect to nonvested share unit awards, vested shares will be delivered to the recipient on the tenth business day of
January following the year in which the recipient’s service to the Company is terminated. The total fair value of nonvested share
awards which vested during fiscal 2013, 2012 and 2011 was $1.8 million, $0.8 million and $0.8 million, respectively.
The following table details the Company’s nonvested share awards activity for fiscal 2013:
Balance at December 30, 2012
Granted
Vested
Forfeited
Balance at December 29, 2013
Shares
331,625
127,020
(113,825)
(11,050)
333,770
Weighted-
Average Grant-
Date Fair Value
$ 11.01
15.56
11.91
12.52
12.38
$
The following table details the Company’s nonvested share unit awards activity for fiscal 2013:
Balance at December 30, 2012
Granted
Vested
Forfeited
Balance at December 29, 2013
F-27
Units
18,750
12,000
(5,250)
—
25,500
Weighted-
Average Grant-
Date Fair Value
$ 7.02
20.29
7.16
—
13.24
$
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The weighted-average grant-date fair value of nonvested share awards and nonvested share unit awards is the quoted market
price of the Company’s common stock on the date of grant, as shown in the tables above. The weighted-average grant-date fair value
of nonvested share awards granted in fiscal 2013, 2012 and 2011 was $15.56 per share, $7.79 per share and $11.84 per share,
respectively. The weighted-average grant-date fair value per share of the Company’s nonvested share unit awards granted in fiscal
2013, 2012 and 2011 was $20.29 per share, $6.33 per share and $8.26 per share, respectively.
As of December 29, 2013, there was $2.7 million and $0.3 million of total unrecognized compensation expense related to
nonvested share awards and nonvested share unit awards, respectively. That expense is expected to be recognized over a weighted-
average period of approximately 2.2 years and 2.7 years for nonvested share awards and nonvested share unit awards, respectively.
To satisfy employee minimum statutory tax withholding requirements for nonvested share awards that vest, the Company
withholds and retires a portion of the vesting common shares, unless an employee elects to pay cash. In fiscal 2013, the Company
withheld 41,812 common shares with a total value of $0.6 million. This amount is presented as a cash outflow from financing
activities in the accompanying consolidated statements of cash flows.
(16) Selected Quarterly Financial Data (unaudited)
Fiscal 2013
First
Quarter
Second
Quarter
Third
Quarter
(1)(2)
Fourth
Quarter
Net sales
Gross profit
Net income
Basic earnings per share
Diluted earnings per share
Net sales
Gross profit
Net income
Basic earnings per share
Diluted earnings per share
$ 246,266
80,475
$
7,514
$
0.35
$
0.34
$
Fiscal 2012
First
Quarter
$ 218,496
67,428
$
156
$
0.01
$
0.01
$
(In thousands, except per share data)
$ 239,899
79,673
$
6,104
$
0.28
$
0.28
$
$ 259,121
87,790
$
9,138
$
0.42
$
0.41
$
$ 248,037
80,802
$
5,190
$
0.24
$
0.23
$
(3)
(2)(3)
Third
Quarter
Second
Quarter
(In thousands, except per share data)
$ 226,612
73,076
$
2,558
$
0.12
$
0.12
$
$ 251,774
83,873
$
8,169
$
0.38
$
0.38
$
Fourth
Quarter
(3)
$ 243,608
78,392
$
4,032
$
0.19
$
0.19
$
(1)
(2)
(3)
The Company recorded a pre-tax charge in the third quarter of fiscal 2013 of $1.3 million for legal settlements, of which $0.3 million was classified as a reduction to net
sales and $1.0 million was classified as selling and administrative expense. This charge reduced net income by $0.8 million, or $0.04 per share diluted share.
The Company recorded a pre-tax non-cash impairment charge in the third quarter of fiscal 2013 of $0.1 million related to an underperforming store. This impairment charge
was included in selling and administrative expense, and reduced net income in the third quarter of fiscal 2013 by $44,000, or $0.00 per diluted share. The Company also
recorded a pre-tax non-cash impairment charge in the second quarter of fiscal 2012 of $0.2 million related to certain underperforming stores. This impairment charge was
included in selling and administrative expense, and reduced net income in the second quarter of fiscal 2012 by $0.1 million, or $0.01 per diluted share.
The Company recorded pre-tax charges related to store closing costs in the second, third and fourth quarters of fiscal 2012 of $0.7 million, $0.4 million and $0.1 million,
respectively. These charges were included in selling and administrative expense, and reduced net income in the second, third and fourth quarters of fiscal 2012 by $0.5
million, $0.3 million and $48,000, respectively, or $0.02, $0.01 and $0.00 per diluted share, respectively.
F-28
BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(17) Subsequent Event
In the first quarter of fiscal 2014, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share of
outstanding common stock, which will be paid on March 21, 2014 to stockholders of record as of March 7, 2014.
F-29
BIG 5 SPORTING GOODS CORPORATION
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
December 29, 2013
Allowance for doubtful receivables
Allowance for sales returns
Inventory reserves
December 30, 2012
Allowance for doubtful receivables
Allowance for sales returns
Inventory reserves
January 1, 2012
Allowance for doubtful receivables
Allowance for sales returns
Inventory reserves
Represents increase (decrease) in the required reserve based upon the Company’s evaluation of anticipated merchandise returns.
$ (24)
(70)
6,047
201
1,488
4,607
$
(1)
(3)
In fiscal 2012, “Charged to Costs and Expenses” for allowance for doubtful receivables reflects the reversal of a prior provision of $50,000.
In fiscal 2011, “Charged to Costs and Expenses” for allowance for doubtful receivables reflects the reversal of a prior provision of $50,000.
II
(1)
(2)
(3)
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
$
$
99
1,475
5,151
142
1,418
5,109
$
$
59
(39)
5,444
(1)
(2)
(35)
57
(1)
5,983
Deductions
$
(53)
—
(5,313)
$
(8)
—
(5,941)
$
(35)
—
(5,545)
Balance at
End of
Period
$
$
$
105
1,436
5,282
99
1,475
5,151
142
1,418
5,109
Exhibit
Number
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
BIG 5 SPORTING GOODS CORPORATION
EXHIBIT INDEX
(1)
(2)
(1)
(3)
(3)
(1)
(1)
(1)
(2)
(14)
Exhibit
Description
Amended and Restated Certificate of Incorporation of Big 5 Sporting Goods Corporation.
Amended and Restated Bylaws.
Specimen of Common Stock Certificate.
2002 Stock Incentive Plan.
Form of Amended and Restated Employment Agreement between Robert W. Miller and Big 5 Sporting Goods
Corporation.
Second Amended and Restated Employment Agreement, dated as of December 31, 2008, between Steven G.
Miller and Big 5 Sporting Goods Corporation.
Amended and Restated Indemnification Implementation Agreement between Big 5 Corp. (successor to United
Merchandising Corp.) and Thrifty PayLess Holdings, Inc. dated as of April 20, 1994.
Agreement and Release among Pacific Enterprises, Thrifty PayLess Holdings, Inc., Thrifty PayLess, Inc., Thrifty
and Big 5 Corp. (successor to United Merchandising Corp.) dated as of March 11, 1994.
Form of Indemnification Agreement.
Form of Indemnification Letter Agreement.
Credit Agreement, dated as of October 18, 2010, among Big 5 Corp., Big 5 Services Corp. and Big 5 Sporting
Goods Corporation, Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent and
Swingline Lender, the Lenders named therein, and Bank of America, N.A. as Documentation Agent.
Security Agreement, dated as of October 18, 2010, among Big 5 Corp., Big 5 Services Corp. and Big 5 Sporting
Goods Corporation and Wells Fargo Bank, National Association, as Collateral Agent.
Guaranty, dated as of October 18, 2010, by Big 5 Sporting Goods Corporation in favor of Wells Fargo Bank,
National Association, as Administrative Agent and Collateral Agent for the Lenders described therein.
First Amendment to Credit Agreement, dated as of October 31, 2011 among Big 5 Corp., Big 5 Services Corp.,
Big 5 Sporting Goods Corporation, Wells Fargo Bank, National Association, as Administrative Agent, Collateral
Agent and Swingline Lender, Bank of America, N.A., as Documentation Agent, and the Lenders, party thereto.
Second Amendment to Credit Agreement, dated as of December 19, 2013 among Big 5 Corp., Big 5 Services
Corp., Big 5 Sporting Goods Corporation, Wells Fargo Bank, National Association, as Administrative Agent,
Collateral Agent and Swingline Lender, Bank of America, N.A., as Documentation Agent, and the Lenders, party
thereto.
Lease dated as of April 14, 2004 by and between Pannatoni Development Company, LLC and Big 5 Corp.
Form of Big 5 Sporting Goods Corporation Stock Option Grant Notice and Stock Option Agreement for use with
Steven G. Miller with the 2002 Stock Incentive Plan.
Form of Big 5 Sporting Goods Corporation Stock Option Grant Notice and Stock Option Agreement for use with
2002 Stock Incentive Plan.
Employment Offer Letter dated August 15, 2005 between Barry D. Emerson and Big 5 Corp.
Severance Agreement dated as of August 9, 2006 between Barry D. Emerson and Big 5 Corp.
Big 5 Sporting Goods Corporation 2007 Equity and Performance Incentive Plan (Amended and Restated as of
April 26, 2011).
Form of Big 5 Sporting Goods Corporation Stock Option Grant Notice and Stock Option Agreement for use with
2007 Equity and Performance Incentive Plan.
(10)
(11)
(12)
(15)
(5)
(6)
(9)
(8)
(9)
(7)
(5)
(5)
E-1
BIG 5 SPORTING GOODS CORPORATION
EXHIBIT INDEX
(continued)
10.20
10.21
10.22
10.23
14.1
21.1
23.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
(4)
(15)
(13)
Form of Big 5 Sporting Goods Corporation Restricted Stock Grant Notice and Restricted Stock Agreement for use
with 2007 Equity and Performance Incentive Plan.
Form of Big 5 Sporting Goods Corporation Restricted Stock Unit Agreement and Restricted Stock Unit Grant Notice
approved for use with Amended and Restated 2007 Equity and Performance Incentive Plan.
Independent Contractor Services Agreement, dated July 7, 2011, by and between Thomas J. Schlauch and Big 5 Corp.
(16)
General Release of Claims, dated July 7, 2011, by and between Thomas J. Schlauch and Big 5 Corp.
Code of Business Conduct and Ethics.
Subsidiaries of Big 5 Sporting Goods Corporation.
Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP.
Rule 13a-14(a) Certification of Chief Executive Officer.
Rule 13a-14(a) Certification of Chief Financial Officer.
Section 1350 Certification of Chief Executive Officer.
Section 1350 Certification of Chief Financial Officer.
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
(17)
XBRL Taxonomy Calculation Linkbase Document.
XBRL Taxonomy Definition Linkbase Document.
XBRL Taxonomy Label Linkbase Document.
XBRL Taxonomy Presentation Linkbase Document.
(17)
(17)
(17)
(17)
(16)
(17)
(17)
(17)
(17)
(17)
(17)
(9)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on March 31, 2003.
Incorporated by reference to Amendment No. 4 to the Registration Statement on Form S-1 filed by Big 5 Sporting Goods
Corporation on June 24, 2002.
Incorporated by reference to Amendment No. 2 to the Registration Statement on Form S-1 filed by Big 5 Sporting Goods
Corporation on June 5, 2002.
Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on March 12, 2004.
Incorporated by reference to the Quarterly Report on Form 10-Q filed by Big 5 Sporting Goods Corporation on November 3,
2010.
Incorporated by reference to the Quarterly Report on Form 10-Q filed by Big 5 Sporting Goods Corporation on November 3,
2011.
Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on December 20, 2013.
Incorporated by reference to the Quarterly Report on Form 10-Q filed by Big 5 Sporting Goods Corporation on August 6, 2004.
Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on September 6,
2005.
Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on March 16, 2006.
Incorporated by reference to the Quarterly Report on Form 10-Q filed by Big 5 Sporting Goods Corporation on August 11,
2006.
E-2
BIG 5 SPORTING GOODS CORPORATION
EXHIBIT INDEX
(continued)
(12)
(13)
(14)
(15)
(16)
(17)
Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on June 25, 2007.
Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on March 10, 2008.
Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on January 6, 2009.
Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on June 20, 2011.
Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on July 13, 2011.
Filed herewith.
E-3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-149730, 333-104898, and 333-179602 on Form S-8
of our reports dated February 26, 2014, relating to the financial statements and financial statement schedule of Big 5 Sporting Goods
Corporation and subsidiaries, and the effectiveness of Big 5 Sporting Goods Corporation and subsidiaries’ internal control over
financial reporting, appearing in this Annual Report on Form 10-K of Big 5 Sporting Goods Corporation for the fiscal year ended
December 29, 2013.
Exhibit 23.1
/s/ Deloitte & Touche LLP
Los Angeles, California
February 26, 2014
I, Steven G. Miller, certify that:
CERTIFICATIONS
Exhibit 31.1
1.
2.
3.
4.
5.
I have reviewed this Annual Report on Form 10-K of Big 5 Sporting Goods Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
b)
Date: February 26, 2014
/s/ Steven G. Miller
Steven G. Miller
President and Chief Executive Officer
I, Barry D. Emerson, certify that:
CERTIFICATIONS
Exhibit 31.2
1.
2.
3.
4.
5.
I have reviewed this Annual Report on Form 10-K of Big 5 Sporting Goods Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
b)
Date: February 26, 2014
/s/ Barry D. Emerson
Barry D. Emerson
Senior Vice President, Chief Financial Officer and Treasurer
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Big 5 Sporting Goods Corporation (the “Company”) for the period
ending December 29, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven G.
Miller, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of
the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Steven G. Miller
Steven G. Miller
President and Chief Executive Officer
February 26, 2014
A signed original of this written statement required by Section 906 has been provided to Big 5 Sporting Goods Corporation and will
be retained by Big 5 Sporting Goods Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of Big 5 Sporting Goods Corporation (the “Company”) for the period
ending December 29, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barry D.
Emerson, Senior Vice President, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Barry D. Emerson
Barry D. Emerson
Senior Vice President, Chief Financial Officer
and Treasurer
February 26, 2014
A signed original of this written statement required by Section 906 has been provided to Big 5 Sporting Goods Corporation and will
be retained by Big 5 Sporting Goods Corporation and furnished to the Securities and Exchange Commission or its staff upon request.