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Big 5 Sporting GoodsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549 FORM 10-K (Mark One)xxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended January 3, 2016ORooTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 95-4388794(State or Other Jurisdiction ofIncorporation or Organization) (I.R.S. EmployerIdentification No.) 2525 East El Segundo BoulevardEl Segundo, California 90245(Address of Principal Executive Offices) (Zip Code)Registrant’s telephone number, including area code: (310) 536-0611Securities registered pursuant to Section 12(b) of the Act: Title of Each Class: Name of Each Exchange on which Registered: Common Stock, par value $0.01 per share The NASDAQ Stock Market LLCSecurities 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 Act. Yes o No RIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No RIndicate 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 thepreceding 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 90days. Yes R No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to besubmitted 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 that the registrant was requiredto submit and post such files). Yes R No oIndicate 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 theregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or in any amendment to this Form 10-K. RIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated fileroAccelerated filerRNon-accelerated filero (Do not check if a smaller reporting company)Smaller reporting companyoIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No RThe aggregate market value of the voting stock held by non-affiliates of the registrant was $238,945,947 as of June 28, 2015 (the last business day of theregistrant’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 26,2015. Shares of common stock held by each executive officer and director and by each person who, as of such date, may be deemed to have beneficially owned more than 5% ofthe 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 affiliatestatus is not necessarily a conclusive determination of affiliate status for any other purpose.The registrant had 21,914,082 shares of common stock outstanding at February 24, 2016.Documents Incorporated by ReferencePart III of this Form 10-K incorporates by reference certain information from the registrant’s 2016 definitive proxy statement (the “Proxy Statement”) to be filedwith the Securities and Exchange Commission no later than 120 days after the end of the registrant’s fiscal year. TABLE OF CONTENTS PagePART I ITEM 1. BUSINESS 4ITEM 1A. RISK FACTORS 9ITEM 1B. UNRESOLVED STAFF COMMENTS 18ITEM 2. PROPERTIES 19ITEM 3. LEGAL PROCEEDINGS 20ITEM 4. MINE SAFETY DISCLOSURES 20 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES 21ITEM 6. SELECTED FINANCIAL DATA 23ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 25ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 37ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 37ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 37ITEM 9A. CONTROLS AND PROCEDURES 38ITEM 9B. OTHER INFORMATION 40 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 41ITEM 11. EXECUTIVE COMPENSATION 41ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS 41ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 41ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 41 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 42 SIGNATURES 43INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1EXHIBIT INDEX E-1 Forward-Looking StatementsThis document includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Suchforward-looking statements relate to, among other things, our financial condition, our results of operations, our growth strategy and the business of ourcompany 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 unknownrisks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. These risks anduncertainties include, among other things, continued or worsening weakness in the consumer spending environment and the U.S. financial and creditmarkets, fluctuations in consumer holiday spending patterns, breach of data security or other unauthorized disclosure of sensitive personal or confidentialinformation, the competitive environment in the sporting goods industry in general and in our specific market areas, inflation, product availability andgrowth opportunities, changes in the current market for (or regulation of) firearm-related products, seasonal fluctuations, weather conditions, changes in costof goods, operating expense fluctuations, lower-than-expected profitability of our e-commerce platform or cannibalization of sales from our existing storebase which could occur as a result of operating our e-commerce platform, litigation risks, stockholder campaigns and proxy contests, disruption in productflow, changes in interest rates, credit availability, higher expense associated with sources of credit resulting from uncertainty in financial markets andeconomic conditions in general. Those and other risks and uncertainties are more fully described in Part I, Item 1A, Risk Factors, in this report. We cautionthat 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 onour business or the extent to which any individual risk factor, or combination of factors, may cause results to differ materially from those contained in anyforward-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 onour behalf. 3 PART I ITEM 1.BUSINESSGeneralBig 5 Sporting Goods Corporation (“we,” “our,” “us” or the “Company”) is a leading sporting goods retailer in the western United States,operating 438 stores and an e-commerce platform under the “Big 5 Sporting Goods” name as of January 3, 2016. We provide a full-line product offering in atraditional sporting goods store format that averages approximately 11,000 square feet. In the fourth quarter of fiscal 2014, we launched our e-commerceplatform to also offer selected products online. Our product mix includes athletic shoes, apparel and accessories, as well as a broad selection of outdoor andathletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, winter and summer recreation and roller sports.We believe that over our 61-year history we have developed a reputation with the competitive and recreational sporting goods customer as aconvenient neighborhood sporting goods retailer that consistently delivers value on quality merchandise. Our stores carry a wide range of products atcompetitive prices from well-known brand name manufacturers, including adidas, Coleman, Everlast, New Balance, Nike, Rawlings, Skechers, Spalding,Under Armour and Wilson. We also offer brand name merchandise produced exclusively for us, private label merchandise and specials on quality items wepurchase through opportunistic buys of vendor over-stock and close-out merchandise. We reinforce our value reputation through weekly print advertising inmajor 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 surplusitems until 1963, when we began focusing exclusively on sporting goods and changed our trade name to “Big 5 Sporting Goods.” In 1971, we were acquiredby Thrifty Corporation, which was subsequently purchased by Pacific Enterprises. In 1992, management bought our company in conjunction with GreenEquity 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 facilityborrowings, to repurchase outstanding high-yield debt and preferred stock, fund management bonuses and repurchase common stock from non-executiveemployees.Our accumulated management experience and expertise in sporting goods merchandising, advertising, operations, store development andoverall cost management have enabled us to historically generate profitable growth. We believe our historical success can be attributed to a value-based andexecution-driven operating philosophy, a controlled growth strategy and a proven business model. Additional information regarding our managementexperience is available in Item 1, Business, under the sub-heading “Management Experience,” of this Annual Report on Form 10-K. In fiscal 2015, wegenerated net sales of $1,029.1 million, operating income of $26.5 million, net income of $15.3 million and diluted earnings per share of $0.70.We are a holding company incorporated in Delaware on October 31, 1997. We conduct our business through Big 5 Corp., a 100%-ownedsubsidiary incorporated in Delaware on October 27, 1997. We conduct our gift card operations through Big 5 Services Corp., a 100%-owned subsidiary ofBig 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 iswww.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, ifany, 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 soonas reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”).4 Expansion and Store DevelopmentThroughout our operating history, we have sought to expand our business with the addition of new stores through a disciplined strategy ofcontrolled growth. Our expansion within the western United States has been systematic and designed to capitalize on our name recognition, economicalstore format and economies of scale related to distribution and advertising. Over the past five fiscal years, we have opened 65 stores including relocations, anaverage of 13 new stores annually, of which 48% were in California. In fiscal 2015, we slowed our store growth as we maintained a cautious approach towardstore openings in the current retail environment. The following table illustrates the results of our expansion program during the periods indicated: Year California OtherMarkets Total StoresRelocated StoresClosed Number of Storesat Period End 2011 7 6 13 (5) — 406 2012 4 10 14 (2) (4) 414 2013 8 9 17 (2) — 429 2014 9 7 16 (4) (2) 439 2015 3 2 5 (3) (3) 438 Our store format enables us to have substantial flexibility regarding new store locations. We have successfully operated stores in majormetropolitan areas and in areas with as few as 30,000 people. Our 11,000 average square foot store format differentiates us from superstores that typicallyaverage 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 relativelyshort time necessary before our stores typically become profitable. Our store format normally requires investments of approximately $0.5 million in fixtures,equipment and leasehold improvements, net of landlord allowances, and approximately $0.3 million in net working capital with limited pre-opening and realestate expense related to leased locations that are built to our specifications. We seek to maximize new store performance by staffing new store managementwith 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 marketswith attractive demographic, competitive and economic profiles.Management ExperienceWe believe the experience and tenure of our professional staff in the retail industry gives us a competitive advantage. The table belowindicates the tenure of our professional staff in some of our key functional areas as of January 3, 2016: Number ofEmployees AverageNumber ofYears With Us Executive Management 7 31 Vice Presidents 9 24 Buyers 23 15 Store District / Regional Supervisors 51 24 Store Managers 438 12 MerchandisingWe target the competitive and recreational sporting goods customer with a full-line product offering at a wide variety of price points. We offera 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, winter and summer recreation and roller sports. We believe we offer consistent value to consumers by offering adistinctive merchandise mix that includes a combination of well-known brand name merchandise, merchandise produced exclusively for us under amanufacturer’s brand name, private label merchandise and specials on quality items we purchase through opportunistic buys of vendor over-stock and close-out merchandise.5 Through our 61 years of experience across different demographic, competitive and economic markets, we have refined our merchandisingstrategy in an effort to offer a selection of products that meets customer demand. Specifically, since fiscal 2012 we have strategically refined our merchandiseand marketing strategies in order to better align our product mix and promotional efforts with today’s consumer. We have not made wholesale changes to ourmodel, but rather have adjusted the model in an effort to broaden both our product offering and customer base. We have selectively refined our purchasestrategy for certain product categories, and have expanded our assortment of branded products and introduced new products, some at higher price points, inan 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 durableitems such as exercise equipment and baseball gloves, as a percentage of net sales: Fiscal Year 2015 2014 2013 2012 2011 Soft goods Athletic and sport apparel 19.4% 18.6% 17.6% 16.3% 16.1%Athletic and sport footwear 28.4 28.2 27.8 28.9 29.2 Total soft goods 47.8 46.8 45.4 45.2 45.3 Hard goods 52.2 53.2 54.6 54.8 54.7 Total 100.0% 100.0% 100.0% 100.0% 100.0% We purchase our popular branded merchandise from an extensive list of major sporting goods equipment, athletic footwear and apparelmanufacturers. Below is a selection of some of the brands we carry: adidasCrocsFranklinJanSportRawlingsSpaldingAsicsCrosmanHeadLifetimeRazorSpeedoBearpawDickiesHeelysMizunoRollerbladeTimexBushnellEastonHillerich & BradsbyMossbergRussell AthleticTitleistCamp ChefEverlastHi-TecMueller Sports MedicineSauconyUnder ArmourCarharttFilaIcon (Proform)New BalanceShimanoWilsonCasioFootjoyImpexNikeSkechersWinchesterColeman We believe we enjoy significant advantages in making opportunistic buys of vendor over-stock and close-out merchandise because of ourstrong vendor relationships, purchasing volume and rapid decision-making process. Our strong vendor relationships and purchasing volume also enable usto purchase merchandise produced exclusively for us under a manufacturer’s brand name which allows us to differentiate our product selection fromcompetition, obtain volume pricing discounts from vendors and offer unique value to our customers. Our weekly advertising highlights our opportunisticbuys together with merchandise produced exclusively for us in order to reinforce our reputation as a retailer that offers attractive values to our customers.In order to complement our branded product offerings, we offer a variety of private label merchandise, which represents approximately 3% ofour 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 ofprice points and allows us the potential 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 orlicensed by us from third parties. Our owned trademarks include Golden Bear, Harsh, Pacifica and Rugged Exposure, all of which are registered as federaltrademarks. The renewal dates for these trademark registrations range from 2016 to 2018. Our licensed trademarks include Beach Feet, Bearpaw, Body Glove,GoFit, Hi-Tec, Morrow and The Realm. One of the license agreements for these trademarks expires in 2018 and the other license agreements renewautomatically on an annual basis unless terminated by either party upon prior written notice. We intend to renew these trademark registrations and licenseagreements 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 ourmerchandise 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 wenormally experience higher inventory purchase volumes in anticipation of the winter and holiday selling season.6 Our buyers, who average 15 years of experience with us, work in collaboration with senior management to determine and enhance productselection, 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 bestserve the needs of our customers.Advertising and MarketingThrough years of targeted advertising, we have solidified our reputation for offering quality products at attractive prices. We have advertisedpredominantly through weekly print advertisements since 1955. We typically utilize four-page color advertisements to highlight promotions across ourmerchandise categories. We believe our print advertising, which includes an average weekly distribution of approximately 14.3 million newspaper inserts ormailers, consistently reaches more households in our established markets than that of our full-line sporting goods competitors. For non-subscribers ofnewspapers, we provide our print advertisements through carrier delivery and direct mail. The consistency and reach of our print advertising programs drivesales 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 mediamanagement. Our in-house advertising department provides management with the flexibility to react quickly to merchandise trends and to maximize theeffectiveness of our weekly inserts and mailers. We are able to effectively target different population zones for our advertising expenditures. We place insertsin over 225 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 thatinclude e-mail marketing (the “E-Team”), search engine marketing, social media including Facebook, Twitter and Pinterest, mobile programs and otherwebsite initiatives. Our digital promotional strategy is designed to provide additional opportunities to connect with potential customers and enable us to promotethe Big 5 brand. Our e-mail marketing program invites our customers to subscribe to our E-Team for weekly advertisements, special deals and productinformation disseminated on a regular basis. We use search engine marketing methods as a means to reach those customers searching the Internet to gatherinformation about our products. Within our social media program, our customers have the opportunity to engage in conversations with other sports-mindedpeople and receive exclusive information about new products and unique weekly offers. All of these marketing methods are intended to simplify theshopping 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, therebyenabling them to determine if items featured on our website are in-stock in one or more of our store locations. In fiscal 2014, we launched our e-commerceplatform to deliver an online shopping experience to our customers. We continue to develop our online capabilities to meet customer expectations of beingable to shop at their convenience.We have developed a strong cause marketing platform through our 16-year support of the March of Dimes annual fundraising campaign andnumerous other charities and organizations throughout our marketplace. 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” inAlbuquerque, New Mexico, for which we are the title sponsor. Additionally, in fiscal 2013, we entered into a three-year sponsorship agreement with the LosAngeles 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 theirsupporters’ purchases at our stores.Vendor RelationshipsWe have developed strong vendor relationships over the past 61 years. We currently purchase merchandise from over 700 vendors. In fiscal2015, only one vendor represented greater than 5% of total purchases, at 10.8%. We believe current relationships with our vendors are good. We benefit fromthe long-term working relationships with vendors that our senior management and our buyers have carefully nurtured throughout our history.7 Information Technology SystemsWe have fully integrated information technology (“IT”) systems that support critical business functions, such as sales reporting, merchandisemanagement, inventory receiving and distribution functions and provide pertinent information for financial reporting, as well as robust business intelligenceand retail analytics tools. We manage IT solutions for e-commerce, email, backup systems and systems support, as well as all networks that connect oursystem users to enterprise-level systems and tools. This includes connecting our store systems to enterprise-level systems via a managed wide area network(“WAN”) connection comprised of DSL, T1 and cable communications with 4G or satellite backup for purchasing card (i.e., credit and debit card) encryption,tokenization, authorization and processing, as well as daily polling of sales and merchandise movement at the store level. The stores also use this WANconnection for access to valuable tools such as collaboration, online training, workforce management, online hiring, company website functions andcorporate communications. Our disaster recovery site, which is located in Phoenix, Arizona, houses redundant network and application systems to be used inthe event of an emergency or unplanned outage to our production systems. We believe our IT systems are effectively supporting our current operations andcontinue to provide a foundation for future growth.DistributionWe operate a distribution center located in Riverside, California, that services all of our stores. The facility has approximately 953,000 squarefeet of storage and office space. The distribution center warehouse management system is fully integrated with our enterprise-level IT systems and providescomprehensive warehousing and distribution capabilities. We generally distribute merchandise from our distribution center to our stores at least once perweek, using our fleet of leased tractors, as well as contract carriers. Our lease for the distribution center is scheduled to expire on August 31, 2020, andincludes two additional five-year renewal options.In November 2015, we commenced operations at an additional 171,000 square foot distribution space adjacent to our distribution center inRiverside, California that will enable us to more efficiently fulfill our expanding distribution requirements. Our lease for this additional facility is scheduledto expire on August 31, 2020, and includes four additional five-year renewal options.We operate a small distribution hub in Oregon to help mitigate fuel costs. This approximately 12,000 square-foot facility enables us to ship fulltrailers of product from our Riverside distribution center to the Pacific Northwest, where we separate products for regional delivery. This distribution hub hasgreatly reduced the number of transportation miles logged to distribute our product to the Pacific Northwest. Our lease for the Oregon hub is scheduled toexpire on January 31, 2019, and includes four additional five-year renewal options.Industry and CompetitionThe 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. Thesestores emphasize high volume sales and a large number of stock-keeping units. Examples include Academy Sports & Outdoors, Dick’s Sporting Goods, TheSports Authority and Sport Chalet.Traditional Sporting Goods Stores. This category consists of traditional sporting goods chains, including us. These stores range in size from5,000 to 20,000 square feet and are frequently located in regional malls and multi-store shopping centers. The traditional chains typically carry a variedassortment of merchandise and attempt to position themselves as convenient neighborhood stores. Sporting goods retailers operating stores within thiscategory 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 productcategory, 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 morelimited than in other sporting goods retailers.8 E-commerce and Catalog Retailers. This category consists of many retailers that sell a broad array of new and used sporting goods products viae-commerce or catalogs, including Amazon.com. The types of retailers mentioned above may also sell their products through e-commerce. E-commerce hasbeen a rapidly growing sales channel, particularly with younger consumers, and an increasing source of competition in the sporting goods 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 retailindustry, 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; enterprise-level IT systemsand store location and format.EmployeesAs of January 3, 2016, we had approximately 9,000 active full and part-time employees. The General Teamsters, Airline, Aerospace and AlliedEmployees, Warehousemen, Drivers, Construction, Rock and Sand, Local Union No. 986, affiliated with the International Brotherhood of Teamsters (“Local986”) represents approximately 450 hourly employees in our distribution center and select stores. In October 2012, we negotiated a five-year contract withLocal 986 for our distribution center bargaining unit employees, and in November 2012, we negotiated a five-year contract with Local 986 for our storebargaining unit employees. Both contracts were retroactive to September 1, 2012 and expire on August 31, 2017. We have not had a strike or work stoppagein over 30 years, although such a disruption could have a significant negative impact on our business operations and financial results. We believe we provideworking conditions and wages that are comparable to those offered by other retailers in the sporting goods industry and that employee relations are good.Employee TrainingWe have developed a comprehensive training program that is tailored for each store and corporate position. All new store employees are givenan orientation and reference materials that stress excellence in customer service, product knowledge and selling skills. All full-time store employees,including salespeople, cashiers and management trainees, receive additional training specific to their job responsibilities. With over 100 available learningresources and multiple training opportunities hosted every month, our tiered curriculum includes seminars, interactive online courses, live webinars, onlinemessage boards, reference guides, individual instruction and performance evaluations designed to promote employee development. The manager traineeprogram utilizes a blended learning approach that includes classroom-style courses, online courses and quizzes, live webinars, self-directed and one-on-onetraining designed to teach key operational responsibilities such as product merchandising strategy, HR compliance, policies, procedures, systems utilization,loss prevention and inventory control. Moreover, each manager trainee must complete a progressive series of outlines and evaluations in order to beconsidered for the next successive level of advancement. Ongoing store management training includes advanced merchandising, delegation, personnelmanagement, 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, seminars, online courses and webinars. Our training strategy and learningmanagement system enables us to efficiently manage, monitor, assign and report employee training online.Description of Service Marks and TrademarksWe use the “Big 5” and “Big 5 Sporting Goods” names as service marks in connection with our business operations and have registered thesenames as federal service marks. The renewal dates for these service mark registrations are in 2025 and 2023, respectively. We have also registered the namesGolden Bear, Harsh, Pacifica and Rugged Exposure as federal trademarks under which we sell a variety of merchandise. The renewal dates for these trademarkregistrations range from 2016 to 2018. We intend to renew these service mark and trademark registrations if we are still using the marks in commerce and theycontinue to provide value to us at the time of renewal. ITEM 1A.RISK FACTORSAn investment in the Company entails risks and uncertainties including the following. You should carefully consider these risk factors whenevaluating any investment in the Company. Any of these risks and uncertainties could cause our actual results to differ materially from the resultscontemplated by the forward-looking statements set forth herein, and could otherwise have a significant adverse impact on our business, prospects, financialcondition or results of operations or on the price of our common stock.9 Risks Related to Our Business and IndustryDisruptions in the overall economy and the financial markets may adversely impact our business and results of operations.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 isaffected by many factors, including general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, currencyexchange 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 ourproduct 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.As discussed in prior reports, the consumer environment has been challenging in recent years. The economic recession deteriorated theconsumer spending environment and reduced consumer income, liquidity, credit and confidence in the economy, and resulted in substantial reductions inconsumer spending. Further deterioration of the consumer spending environment could be harmful to our financial position and results of operations, couldadversely affect our ability to comply with covenants under our credit facility and, as a result, may negatively impact our ability to continue payment of ourquarterly dividend, to repurchase our stock and to open additional stores in the manner that we have in the past.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 followingcategories 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 ourcompetitors 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 resultof this competition, we may also need to spend more on advertising and promotion than we anticipate. Increased competition in our current markets or theadoption or proliferation by competitors of innovative store formats, aggressive pricing strategies and retail sales methods, such as e-commerce, could causeus to lose market share and could have a material adverse effect on our business.E-commerce has been a rapidly growing sales channel, particularly with younger consumers, and an increasing source of competition in theretail industry. We began selling products through our e-commerce platform in late fiscal 2014. We have no assurance that our e-commerce efforts will proveprofitable, 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. If we are unable to compete successfully, our operating results may suffer.If we fail to anticipate changes in consumer preferences, we may experience lower net sales, higher inventory, higher inventory markdowns and lowermargins.Our products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty. These preferences are alsosubject to change and can be impacted by sports participation levels in our market areas and the performance of sports teams for which we sell licensedproducts. 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 topurchase 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-stockunpopular products and be forced to take inventory markdowns that could have a negative impact on profitability.10 Our quarterly net sales and operating results, reported and expected, can fluctuate substantially, which may adversely affect the market price of ourcommon 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 inthe future. These fluctuations may adversely affect our financial condition and the market price of our common stock. A number of factors, many of whichare 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 inmanagement’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 tosuffer.Our business relies heavily on print advertising. We utilize print advertising programs that include newspaper inserts, direct mailers andcourier-delivered inserts in order to effectively deliver our message to our targeted markets. Newspaper circulation and readership has been declining, whichcould limit the number of people who receive or read our advertisements. Additionally, declining newspaper demand and the weak macroeconomicenvironment are adversely impacting newspaper publishers and could jeopardize their ability to operate, which could restrict our ability to advertise in themanner we have in the past. If we are unable to develop other effective strategies to reach potential customers within our desired markets, awareness of ourstores, 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 otherdelivery 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 downturnsin 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 highconcentration of stores, seasonal factors such as unfavorable weather conditions or other localized conditions such as flooding, drought, fires, earthquakes orelectricity blackouts could impact our sales and harm our operations. State and local regulatory compliance also can impact our financial results. Economicdownturns or other adverse regional events could have an adverse impact upon our net sales and profitability and our ability to open additional stores in themanner 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 unseasonableweather conditions in our markets. For example, our winter sports and apparel sales are dependent on cold winter weather and snowfall in our markets, andcan be negatively impacted by unseasonably warm or dry weather in our markets during the winter product selling season. Conversely, sales of our springproducts and summer products, such as baseball gear and camping and water sports equipment, can be adversely impacted by unseasonably cold or wetweather in those periods. Accordingly, our sales results and financial condition will typically suffer when weather patterns do not 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. Seasonality influences our buying patterns which directly impactsour merchandise and accounts payable levels and cash flows. We purchase merchandise for seasonal activities in advance of a season. In the fourth fiscalquarter, which includes the holiday selling season, we normally experience higher inventory purchase volumes and increased expense for staffing andadvertising. If we miscalculate the demand for our products generally or for our product mix during the fourth fiscal quarter, our net sales can decline, whichcan harm our financial performance. A significant shortfall from expected fourth fiscal quarter net sales can negatively impact our annual operating results.11 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 ChiefExecutive Officer, and other key personnel with longstanding tenure who are not obligated to stay with us. The loss of the services of any of theseindividuals for any reason could harm our business and operations. In addition, as our business grows, we will need to attract and retain additional qualifiedpersonnel in a timely manner and develop, train and manage an increasing number of management-level sales associates and other employees. Competitionfor qualified employees could require us to pay higher wages and benefits to attract a sufficient number of qualified employees, and increases in the minimumwage 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 netsales 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 orincrease our operating expense.We rely on a single distribution center located in Riverside, California to service our business. Any natural disaster or other serious disruptionto the distribution center due to fire, earthquake or any other cause could damage a significant portion of our inventory and could materially impair both ourability to adequately stock our stores and our net sales and profitability. If the security measures used at our distribution center do not prevent inventorytheft, our gross margin may significantly decrease. Our distribution center is staffed in part by employees represented by the General Teamsters, Airline,Aerospace and Allied Employees, Warehousemen, Drivers, Construction, Rock and Sand, Local Union No. 986, affiliated with the International Brotherhoodof 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 ourbusiness 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 thisdistribution center in the manner we anticipate, our financial results could be negatively impacted.Additionally, because we rely on a single distribution center, our growth could be limited if our distribution center reaches full capacity. Sucha constraint could result in a loss of market share and our inability to execute our business plan, which could have a material adverse effect on our financialcondition and results of operations.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 2015 we operatedapproximately 10% more stores than we did at the end of fiscal 2010.Our ability to successfully implement and capitalize on our growth strategy could be negatively affected by various factors including: ·we may slow our expansion efforts, or close underperforming stores, as a result of challenging conditions in the retail industry and the economyoverall; ·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 thatdiffer from our current challenges. These potential new challenges include competition among our stores, added strain on our distribution center, additionalinformation to be processed by our IT systems, diversion of management attention from ongoing operations and challenges associated with managing asubstantially larger enterprise. We face additional challenges in entering new markets, including consumers’ lack of awareness of us, difficulties in hiringpersonnel and problems due to our unfamiliarity with local real estate markets and demographics. New markets may also have different competitiveconditions, consumer tastes, responsiveness to print advertising and discretionary spending patterns than our existing markets. To the extent that we are notable to meet these new challenges, our net sales could decrease and our operating expense could increase.12 Our IT 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 theefficient operation of our IT systems. We use IT systems to track inventory at the store level and aggregate daily sales information, communicate customerinformation and process purchasing card transactions, process shipments of goods and report financial information. These systems and our operations arevulnerable 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 orsupervision 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 IT systems that causes an interruption in our operations or a decrease in inventory tracking could result in reduced net salesand profitability. Additionally, if any data intrusion, security breach, misappropriation or theft were to occur, we could incur significant costs in respondingto 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, employees and standing withour customers.The protection of our customer, employee and business data is critical to us. Our business, like that of most retailers, involves the receipt,storage and transmission of customers’ personal information, consumer preferences and payment card information, as well as confidential information aboutour employees, our suppliers and our Company. We rely on commercially available systems, software, tools and monitoring to provide security forprocessing, transmission and storage of all such data, including confidential information. Despite the security measures we have in place, our facilities andsystems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data,programming or human errors, or other similar events. Unauthorized parties may attempt to gain access to our systems or information through fraud or othermeans, including deceiving our employees or third party service providers. The methods used to obtain unauthorized access, disable or degrade service, orsabotage systems are also constantly changing and evolving, and may be difficult to anticipate or detect for long periods of time. We have implemented andregularly review and update our control systems, processes and procedures to protect against unauthorized access to or use of secured data and to prevent dataloss. However, the ever-evolving threats mean we must continually evaluate and adapt our systems and processes, and there is no guarantee that they will beadequate to safeguard against all data security breaches or misuses of data. Any security breach involving the misappropriation, loss or other unauthorizeddisclosure of customer payment card or personal information or employee personal or confidential information, whether by us or our vendors, could damageour reputation, expose us to risk of litigation and liability, disrupt our operations, harm our business and have an adverse impact upon our net sales andprofitability. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous,with new and changing requirements applicable to our business, compliance with those requirements could also result in additional costs.If our suppliers do not provide sufficient quantities of products, our net sales and profitability could suffer.We purchase merchandise from over 700 vendors. Although only one vendor represented more than 5.0% of our total purchases during fiscal2015, our dependence on principal suppliers involves risk. Our 20 largest vendors collectively accounted for 41.5% of our total purchases during fiscal 2015.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 consumersdesire to purchase. A vendor could discontinue or restrict selling products to us at any time for reasons that may or may not be within our control. Our netsales and profitability could decline if we are unable to promptly replace a vendor who is unwilling or unable to satisfy our requirements with a vendorproviding equally appealing products. Moreover, many of our suppliers provide us with incentives, such as return privileges, volume purchase allowancesand co-operative advertising. A decline or discontinuation of these incentives could reduce our profits.13 Because many of the products that we sell are manufactured abroad, we may face delays, increased cost or quality control deficiencies in the importationof 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 fromdomestic suppliers, is manufactured abroad in China and other countries. In addition, we believe most, if not all, of our private label merchandise ismanufactured 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 toforeign 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 tradefrom the countries in which the suppliers of our vendors are located, we may be unable to obtain sufficient quantities of products to satisfy our requirementsor our cost of obtaining products may increase. In addition, to the extent that any foreign manufacturers which supply products to us directly or indirectlyutilize quality control standards, labor practices or other practices that vary from those legally mandated or commonly accepted in the United States, wecould be hurt by any resulting negative publicity or, in some cases, face potential liability. Historically, instability in the political and economicenvironments of the countries in which our vendors or we obtain our products has not had a material adverse effect on our operations. However, we cannotpredict the effect that future changes in economic or political conditions in such foreign countries may have on our operations. In the event of disruptions ordelays in supply due to economic or political conditions in foreign countries, such disruptions or delays could adversely affect our results of operationsunless and until alternative supply arrangements could be made. In addition, merchandise purchased from alternative sources may be of lesser quality or moreexpensive 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 distributionand 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. A contract dispute, such as the one we experienced in the Ports of LosAngeles and Long Beach in 2015, may lead to protracted delays in the movement of our products, which could further delay the delivery of products to ourstores and impact net sales and profitability. 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.Future disruptions in transportation services or at a shipping port at which our products are received may result in delays in the transportationof 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 andprofitability 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, orforeign 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 beable 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 fromour distribution center to our stores. Consequently, our results can vary depending upon the price of fuel. The price of oil has fluctuated drastically over thelast few years, creating volatility in our fuel costs. In addition, efforts to combat climate change through reduction of greenhouse gases may result in higherfuel costs through taxation or other means. Any such future increases in fuel costs would increase our transportation costs for delivery of product to ourdistribution 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 supplyour stores in a timely manner. In particular, our business is highly dependent on the trucking industry to deliver products to our distribution center and ourstores. Our operating results may be adversely affected if we or our vendors are unable to secure adequate trucking resources at competitive prices to fulfillour delivery schedules to our distribution center or stores.14 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 orinternational shipping on which we are substantially dependent for the supply of much of the merchandise we sell. Our corporate headquarters is located nearLos Angeles International Airport and the Port of Los Angeles, which have been identified as potential terrorism targets. The potential for future terroristattacks, the national and international responses to terrorist attacks and other acts of war or hostility may cause greater uncertainty and cause our business tosuffer in ways that we cannot currently predict. Military action taken in response to such attacks could also have a short or long-term negative economicimpact upon the financial markets, international shipping and our business in general.Risks Related to Our Capital StructureWe are leveraged, future cash flows may not be sufficient to meet our obligations and we might have difficulty obtaining more financing or refinancing ourexisting indebtedness on favorable terms.As of January 3, 2016, the aggregate amount of our outstanding indebtedness, including capital lease obligations, was $58.7 million. Ourleveraged financial position means: ·our ability to obtain financing in the future for working capital, capital expenditures and general corporate purposes might be impeded; ·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. Inaddition, in the event of bankruptcy, insolvency or a material breach of any covenant contained in our revolving credit facility, our debt may beaccelerated. 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 areunable to generate sufficient cash flows from operations to meet our obligations, commitments and covenants of our revolving credit facility, we may berequired to refinance or restructure our indebtedness, raise additional debt or equity capital, sell material assets or operations, delay or forego expansionopportunities, or cease or curtail our quarterly dividends or share repurchase plans. These alternative strategies might not be effected on satisfactory terms, ifat all.The terms of our revolving credit facility impose operating and financial restrictions on us, which may impair our ability to respond to changing businessand economic conditions.The terms of our revolving credit facility impose operating and financial restrictions on us, including, among other things, covenants thatrequire 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, incuradditional indebtedness, transfer or dispose of assets, change the nature of the business, guarantee obligations, pay dividends or make other distributions orrepurchase stock, and make advances, loans or investments. For example, our ability to engage in the foregoing transactions will depend upon, among otherthings, 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, ourability to respond to changing business and economic conditions and to secure additional financing, if needed, may be significantly restricted, and we maybe prevented from engaging in transactions that might further our growth strategy or otherwise benefit us and our stockholders without obtaining consentfrom 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.15 Disruptions in the economy and financial markets may adversely impact our lenders.Volatility in capital and credit markets can impact the ability of financial institutions to meet their lending obligations. Based on informationavailable to us, all of the lenders under our revolving credit facility are currently able to fulfill their commitments thereunder. However, circumstances couldarise that may impact their ability to fund their obligations in the future. Although we believe the commitments from our lenders under the revolving creditfacility, together with our cash on hand and anticipated operating cash flows, should be sufficient to meet our near-term borrowing requirements, if WellsFargo Bank, National Association, our principal lender, or any other lender, is for any reason unable to perform its lending or administrative commitmentsunder 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 fromalternative sources on less favorable terms, including higher rates of interest.Risks Related to Regulatory, Legislative and Legal MattersCurrent 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 subjectto 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 inwhich we do business and the demand for our products and, therefore, may impact our financial results or increase our liabilities. Some of these laws andregulations 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 firearm-related products; ·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 SafetyImprovement Act, as well as similar state laws; ·labor and employment laws, such as minimum wage or living wage laws, paid time off 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 andprofitability.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 injurisdictions with reputations for aggressive application of laws and procedures against corporate defendants. Due to the inherent uncertainties of litigationand regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have a materialadverse impact on our business, results of operations and financial condition. In addition, regardless of the outcome of any litigation or regulatoryproceedings, these proceedings could result in substantial costs and may require that we devote substantial resources to defend against these claims, whichcould impact our results of operations.In particular, we may be involved in lawsuits related to employment, advertising and other matters, including class action lawsuits broughtagainst us for alleged violations of the Fair Labor Standards Act, state wage and hour laws, state or federal advertising laws and other laws. An unfavorableoutcome or settlement in any such proceeding could, in addition to requiring us to pay any settlement or judgment amount, increase our operating expense asa consequence of any resulting changes we might be required to make in employment, advertising or other business practices.16 In addition, we sell products manufactured by third parties, some of which may be defective. Many such products are manufactured overseas incountries which may utilize quality control standards that vary from those legally allowed or commonly accepted in the United States, which may increaseour 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 couldbring claims against us as the retailer of the products based upon strict product liability. In addition, our products are subject to the federal Consumer ProductSafety Act and the Consumer Product Safety Improvement Act, which empower the Consumer Product Safety Commission to protect consumers fromhazardous products. The Consumer Product Safety Commission has the authority to exclude from the market and recall certain consumer products that arefound 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 orreporting requirements, we may be subject to claims, lawsuits, product recalls, fines and negative publicity that could harm our results of operations andfinancial condition.We also sell firearm-related products, which may be associated with an increased risk of injury and related lawsuits. We may incur losses due tolawsuits relating to our performance of background checks on firearms purchases as mandated by state and federal law or the improper use of firearms sold byus, including lawsuits by individuals, municipalities or other organizations attempting to recover damages or costs from firearms manufacturers and retailersrelating to the misuse of firearms. Commencement of these lawsuits against us could reduce our net sales and decrease our profitability.Our insurance coverage may not be adequate to cover claims that could be asserted against us. If a successful claim was to be brought againstus 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 theexpenditure of funds and management time and could have a negative impact on our business.The sale of firearm-related products is subject to strict regulation, which could affect our operating results.Because we sell firearm-related products, we are required to comply with federal, state and local laws and regulations pertaining to thepurchase, storage, transfer and sale of such products. These laws and regulations require us to, among other things, obtain and maintain federal, state or localpermits or licenses in order to sell firearms, ensure that all purchasers of firearms are subjected to a pre-sale background check and other requirements, recordthe details of each firearm sale on appropriate government-issued forms, record each receipt or transfer of a firearm at our distribution center or any storelocation on acquisition and disposition records, and maintain these records for a specified period of time. We also are required to timely respond to traces offirearms by law enforcement agencies. Over the past several years, the purchase and sale of firearm-related products 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, newlaws and regulations could limit the types of firearm-related products that we are permitted to purchase and sell, impose new restrictions and requirements onthe manner in which we purchase and sell these products, and impact our ability to offer these products in certain retail locations or markets. If we fail tocomply with existing or newly enacted laws and regulations relating to the purchase and sale of firearm-related products, our permits or licenses to sellfirearm-related products at our stores or maintain inventory of firearm-related products 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 firearm-related products could cause ouroperating 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 couldsignificantly affect our financial results.Accounting principles generally accepted in the United States of America (“GAAP”) and related accounting pronouncements, implementationguidelines and interpretations with regard to a wide range of matters that are relevant to our business, such as revenue recognition; lease accounting; thecarrying amount of merchandise inventories, property and equipment and goodwill; valuation allowances for receivables, sales returns and deferred incometax 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 byour management. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management couldsignificantly change our reported or expected financial performance.17 Risks Related to Investing in Our Common StockThe 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 ofus 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 fromtime to time and we may or may not continue to declare discretionary dividend payments. Additionally, although we have a share repurchase programauthorized by our Board of Directors, we are not obligated to make any purchases under the program and we may discontinue it at any time.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 ourstockholders.Provisions of our amended and restated certificate of incorporation and amended and restated bylaws as well as provisions of Delaware lawcould 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 ourstockholders. We have agreed to present to our stockholders at our 2016 annual stockholder meeting, and recommend the adoption of, proposals to eliminatecertain of the provisions below. However, there is no assurance that those proposals will be adopted by our stockholders. The provisions of our amended andrestated certificate of incorporation, amended and restated bylaws and Delaware law that could discourage, delay or prevent a merger, acquisition or otherchange in control include: ·a Board of Directors that is classified such that two to four of the eight directors, depending on classification, are elected each year (we willpropose at our 2016 stockholder meeting that this provision be phased out and eliminated); ·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; ·a requirement in our certificate of incorporation that stockholder amendments to our bylaws and certain amendments to our certificate ofincorporation must be approved by 80% of the outstanding shares of our capital stock (we will propose at our 2016 stockholder meeting thatthis provision be eliminated); ·authorization of the issuance of “blank check” preferred stock that could be issued by our Board of Directors to increase the number ofoutstanding shares and thwart a takeover attempt; and ·establishment of advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be actedupon by stockholders at stockholder meetings.In addition, Section 203 of the Delaware General Corporations Law limits business combination transactions with 15% stockholders that havenot been approved by the Board of Directors. These provisions and other similar provisions make it more difficult for a third party to acquire us withoutnegotiation. These provisions may apply even if the transaction may be considered beneficial by some stockholders.Significant stockholders or potential stockholders may attempt to effect changes or acquire control over our company, which could adversely affect ourresults of operations and financial condition.Stockholders may from time to time attempt to effect changes, engage in proxy solicitations or advance stockholder proposals, such as thepublicly disclosed proxy contest that the Company settled on April 30, 2015. Responding to proxy contests and other actions by activist stockholders can becostly and time-consuming, disrupting our operations and diverting the attention of our Board of Directors and senior management from the pursuit ofbusiness strategies. As a result, shareholder campaigns could adversely affect our results of operations and financial condition. ITEM 1B.UNRESOLVED STAFF COMMENTSNone. 18 ITEM 2.PROPERTIESPropertiesOur primary corporate headquarters are located at 2525 East El Segundo Boulevard, El Segundo, California 90245, with a satellite officelocated nearby at 2401 East El Segundo Boulevard, El Segundo, California 90245. We lease approximately 55,000 square feet of office and adjoining retailspace related to our primary corporate headquarters, and we lease approximately 11,500 square feet related to our satellite office. The lease for the primarycorporate headquarters is scheduled to expire on February 28, 2021 and provides us with two five-year renewal options, while the lease for the satellite officeis scheduled to expire on February 28, 2021 and provides us with one five-year renewal option.Our distribution facility is located in Riverside, California and has approximately 953,000 square feet of warehouse and office space. Our leasefor the distribution center is scheduled to expire on August 31, 2020, and includes two additional five-year renewal options. In the first quarter of fiscal 2015,we executed a lease for approximately 171,000 square feet of additional distribution space adjacent to our distribution center in Riverside, California thatwill enable us to more efficiently fulfill our expanding distribution requirements. Our lease for this additional facility is scheduled to expire on August 31,2020, and includes four additional five-year renewal options. We commenced operations in this facility in November 2015. We have a distribution hublocated in Salem, Oregon, utilizing approximately 12,000 square feet of space to separate consolidated truckloads of product for delivery to our regionalmarkets. 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 having a typical duration of five yearsper option. As of January 3, 2016, of our total store leases, 50 leases are due to expire in the next five years without renewal options. In most cases, as currentleases 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. Our StoresThroughout our history, we have focused on operating traditional, full-line sporting goods stores. Our stores generally range from 8,000 to15,000 square feet and average approximately 11,000 square feet. Our typical store is located in either a free-standing street location or a multi-storeshopping center. Our numerous convenient locations and accessible store format encourage frequent customer visits, resulting in approximately 28.1 millionsales transactions and an average transaction size of approximately $37 in fiscal 2015. The following table details our store locations by state as of January 3,2016: State YearEntered Numberof Stores Percentage of TotalNumber of Stores California 1955 223 50.9%Washington 1984 50 11.4 Arizona 1993 40 9.2 Oregon 1995 28 6.4 Colorado 2001 22 5.0 Nevada 1978 18 4.1 New Mexico 1995 18 4.1 Utah 1997 18 4.1 Idaho 1994 11 2.5 Texas 1995 9 2.1 Wyoming 2010 1 0.2 Total 438 100.0% Our same store sales per square foot were approximately $208 for fiscal 2015. Our same store sales per square foot combined with our efficientstore-level operations and low store maintenance costs have allowed us to historically generate strong store-level returns. 19 ITEM 3.LEGAL PROCEEDINGSOn September 10, 2014, a complaint was filed in the California Superior Court for the County of Los Angeles, entitled Pedro Duran v. Big 5Corp., et al., Case No. BC557154. On October 7, 2014, an amended complaint was filed. As amended, the complaint alleged the Company violated theCalifornia Labor Code and the California Business and Professions Code. The complaint was brought as a purported class action on behalf of certain of theCompany’s hourly employees who worked as “warehousemen” in the Company’s distribution center in California for the four years prior to the filing of thecomplaint. The plaintiff alleged, among other things, that the Company failed to pay such employees for all time worked, failed to provide such employeeswith compliant meal and rest periods, failed to properly itemize wage statements, and failed to pay wages within required time periods during employmentand upon termination of employment. The plaintiff sought, on behalf of the purported class members, an award of statutory and civil damages and penalties,including restitution and recovery of unpaid wages; pre-judgment interest; an award of attorneys’ fees and costs; and injunctive and declaratory relief. TheCompany believed that the complaint was without merit. The Company was not served with the complaint or the amended complaint. In an effort tonegotiate a settlement of this litigation, the Company and plaintiff engaged in mediation on January 28, 2015. On April 1, 2015, the parties agreed to settlethe lawsuit. On June 22, 2015, the court granted preliminary approval of the proposed settlement. On October 20, 2015, the court granted final approval ofthe settlement. Under the terms of the settlement, the Company agreed to pay approximately $1.4 million, which includes payments to class members,plaintiff’s attorneys’ fees and expenses, an enhancement payment to the class representative, claims administration fees and payment to the California Laborand Workforce Development Agency. The Company’s total payments pursuant to this settlement have been reflected in a legal settlement accrual initiallyrecorded in the fourth quarter of fiscal 2014 prior to the settlement and subsequently adjusted in the first quarter of fiscal 2015 to reflect the settlement. TheCompany admitted no liability or wrongdoing with respect to the claims set forth in the lawsuit. The settlement constitutes a full and complete settlementand release of all claims related to the lawsuit.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 DISCLOSURESNone. 20 PART II ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESOur common stock, par value $0.01 per share, trades on The NASDAQ Stock Market LLC under the symbol “BGFV.” The following table setsforth the high and low closing sale prices for our common stock as reported by The NASDAQ Stock Market LLC during fiscal 2015 and 2014: 2015 2014 Fiscal Period High Low High Low First Quarter $14.88 $11.91 $20.10 $14.39 Second Quarter $14.80 $12.14 $16.46 $11.18 Third Quarter $15.34 $10.35 $13.05 $9.69 Fourth Quarter $11.30 $8.82 $14.68 $9.27 As of February 24, 2016, the closing price for our common stock as reported on The NASDAQ Stock Market LLC was $13.15 per share.As of February 24, 2016, there were 21,914,082 shares of common stock outstanding held by 399 holders of record.Performance GraphSet forth below is a graph comparing the cumulative total stockholder return for our common stock with the cumulative total return of (i) theNASDAQ Composite Stock Market Index and (ii) the NASDAQ Retail Trade Index. The information in this graph is provided at annual intervals for the fiscalyears ended 2011, 2012, 2013, 2014 and 2015. This graph shows historical stock price performance (including reinvestment of dividends) and is notnecessarily indicative of future performance:21 Dividend PolicyDividends are paid at the discretion of the Board of Directors. In fiscal 2013, 2014 and 2015 we paid quarterly cash dividends of $0.10 pershare of outstanding common stock, for an annual rate of $0.40 per share. In the first quarter of fiscal 2016, our Board of Directors declared a quarterly cashdividend of $0.125 per share of outstanding common stock, which will be paid on March 22, 2016 to stockholders of record as of March 8, 2016.The agreement governing our revolving credit facility imposes restrictions on our ability to make dividend payments. For example, our abilityto pay cash dividends on our common stock will depend upon, among other things, our compliance with certain availability and fixed charge coverage ratiorequirements at the time of the proposed dividend or distribution, and whether we are in default under the agreement. Our future dividend policy will alsodepend 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 Boardof Directors, including the General Corporation Law of the State of Delaware, which provides that dividends are only payable out of surplus or current netprofits.Issuer RepurchasesThe following tabular summary reflects the Company’s share repurchase activity during the quarter ended January 3, 2016:ISSUER PURCHASES OF EQUITY SECURITIES (1) (2) Period Total Numberof SharesPurchased AveragePrice Paidper Share Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs Maximum Number (orApproximate DollarValue) of Shares thatMay Yet Be PurchasedUnder the Plans orPrograms (3) September 28 – October 25 38,900 $10.34 38,900 $3,507,000 October 26 – November 29 33,848 $9.28 33,848 $3,193,000 November 30 – January 3 28,940 $9.28 28,940 $2,924,000 Total 101,688 101,688 $2,924,000 (1)All shares were purchased under the Company’s current share repurchase program, which was announced on November 1, 2007 and authorizes the repurchase of theCompany’s common stock totaling $20.0 million. Under the authorization, the Company may purchase shares from time to time in the open market or in privately negotiatedtransactions in compliance with the applicable rules and regulations of the SEC. However, the timing and amount of such purchases, if any, would be at the discretion ofmanagement and would depend upon market conditions and other considerations. Since the inception of the initial share repurchase program in May 2006 through January3, 2016, the Company has repurchased a total of 2,530,607 shares for $32.1 million, leaving a total of $2.9 million available for share repurchases under the current sharerepurchase program.(2)The Company’s dividends and stock repurchases are generally funded by distributions from its subsidiary, Big 5 Corp. The Company’s Credit Agreement containscovenants that require it 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, pay dividendsor repurchase stock. 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 wouldarise from such dividend or repurchase of stock and, after giving effect to such dividend or repurchase, certain availability and/or fixed charge coverage ratio requirementsare satisfied. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources, of thisAnnual Report on Form 10-K for a further discussion of the Credit Agreement.(3)This amount reflects the dollar value of shares remaining available to repurchase under previously announced plans. 22 ITEM 6.SELECTED FINANCIAL DATAThe “Statement of Operations Data” and the “Balance Sheet Data” for all years presented below have been derived from our auditedconsolidated financial statements. Selected consolidated financial data under the captions “Store Data” and “Other Financial Data” have been derived fromthe unaudited internal records of our operations. The information contained in these tables should be read in conjunction with our consolidated financialstatements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere inthis Annual Report on Form 10‑K. Fiscal Year (1) 2015 2014 2013 2012 2011 (Dollars and shares in thousands, except per share and certain store data) Statement of Operations Data: Net sales (2) $1,029,098 $977,860 $993,323 $940,490 $902,134 Cost of sales (3) 704,134 664,411 664,583 637,721 610,531 Gross profit (2) 324,964 313,449 328,740 302,769 291,603 Selling and administrative expense (2) (4) (5) (6) 298,425 288,274 281,313 276,797 272,436 Operating income 26,539 25,175 47,427 25,972 19,167 Interest expense 1,791 1,667 1,745 2,202 2,561 Income before income taxes 24,748 23,508 45,682 23,770 16,606 Income taxes 9,451 8,632 17,736 8,855 4,933 Net income (2) (5) (6) $15,297 $14,876 $27,946 $14,915 $11,673 Earnings per share: Basic $0.70 $0.68 $1.28 $0.70 $0.54 Diluted $0.70 $0.67 $1.27 $0.69 $0.53 Dividends per share $0.40 $0.40 $0.40 $0.30 $0.30 Weighted-average shares of common stock outstanding: Basic 21,741 21,933 21,765 21,394 21,656 Diluted 21,927 22,133 22,083 21,616 21,869 Store Data: Same store sales increase (decrease) (7) 1.3% (2.9)% 3.9% 2.5% (1.2)%Same store sales per square foot (in dollars) (8) $208 $203 $212 $205 $202 End of period stores 438 439 429 414 406 End of period same stores 414 402 394 387 378 Same store sales per store (9) $2,383 $2,324 $2,415 $2,336 $2,286 Other Financial Data: Gross profit margin 31.6% 32.1% 33.1% 32.2% 32.3%Selling and administrative expense as a percentage of net sales 29.0% 29.5% 28.3% 29.4% 30.2%Operating margin 2.6% 2.6% 4.8% 2.8% 2.1%Depreciation and amortization $21,410 $21,505 $20,192 $18,895 $18,544 Capital expenditures (10) $24,567 $22,565 $22,035 $12,901 $12,990 Inventory turns (11) 2.2x 2.1x 2.3x 2.3x 2.3x Balance Sheet Data: Cash $7,119 $11,503 $9,400 $7,635 $4,900 Working capital (12) $183,110 $193,689 $168,693 $150,010 $156,909 Total assets $445,029 $455,576 $441,888 $406,660 $394,064 Long-term debt and capital leases, less current portion $57,238 $67,467 $44,613 $50,316 $66,621 Stockholders’ equity $198,831 $195,004 $190,770 $164,420 $156,590 (See notes on following page:)23 (Notes to table on previous page) (1)Our fiscal year is the 52 or 53 week reporting period ending on the Sunday nearest December 31. Fiscal 2015 included 53 weeks and fiscal 2014, 2013, 2012 and 2011each included 52 weeks. (2)In fiscal 2015, 2014 and 2013, we recorded pre-tax charges of $0.4 million, $1.4 million and $1.3 million, respectively, reflecting legal accruals. In fiscal 2015 and 2014,the amounts were classified as selling and administrative expense. In fiscal 2013, $0.3 million was classified as a reduction to net sales and $1.0 million was classified asselling and administrative expense. These charges reduced net income in fiscal 2015, 2014 and 2013 by $0.2 million, or $0.01 per diluted share, $0.9 million, or $0.04 perdiluted share, and $0.8 million, or $0.04 per diluted share, respectively. (3)Cost of sales includes the cost of merchandise, net of discounts or allowances earned, freight, inventory reserves, buying, distribution center expense, includingdepreciation, and store occupancy expense. Store occupancy expense includes rent, amortization of leasehold improvements, common area maintenance, property taxes andinsurance. (4)Selling and administrative expense includes store-related expense, other than store occupancy expense, as well as advertising, depreciation and amortization, expenseassociated with operating our corporate headquarters and impairment charges, if any. (5)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 dilutedshare. (6)In fiscal 2015, 2014, 2013, 2012 and 2011, we recorded pre-tax non-cash impairment charges of $0.2 million, $1.2 million, $0.1 million, $0.2 million and $2.1 million,respectively, related to certain underperforming stores. These impairment charges reduced net income in fiscal 2015, 2014, 2013, 2012 and 2011 by $0.1 million, or $0.00per diluted share, $0.8 million, or $0.03 per diluted share, $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 dilutedshare, respectively. (7)Same store sales for a period reflect net sales from stores operated throughout that period as well as the full corresponding prior year period. For purposes of reporting samestore sales comparisons to fiscal 2014, we use comparable 53-week periods. (8)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. (9)Same store sales per store is calculated by dividing net sales for same stores, as defined above, by total same store count.(10)Capital expenditures in 2015, 2014 and 2013 reflected an increased investment in existing store remodeling to support our merchandising initiatives, amounts related to ourcomputer system replacement program, added costs related to the development of an e-commerce platform and enhanced security measures to support our infrastructure.Fiscal 2015 also included increased investment in our distribution center to support overall growth, while fiscal 2015 and 2014 included added costs related to thedevelopment of a new point-of-sale system.(11)Inventory turns equal fiscal year cost of sales divided by the fiscal year four-quarter weighted-average cost of merchandise inventory.(12)Working capital is defined as current assets less current liabilities. 24 ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThroughout this section, the Big 5 Sporting Goods Corporation (“we,” “our,” “us”) fiscal years ended January 3, 2016, December 28, 2014 andDecember 29, 2013 are referred to as fiscal 2015, 2014 and 2013, respectively. The following discussion and analysis of our financial condition and results ofoperations for fiscal 2015, 2014 and 2013 includes information with respect to our plans and strategies for our business and should be read in conjunctionwith the consolidated financial statements and related notes, the risk factors and the cautionary statement regarding forward-looking information includedelsewhere in this Annual Report on Form 10-K.Our fiscal year ends on the Sunday nearest December 31. Fiscal 2015 included 53 weeks and fiscal 2014 and 2013 each included 52 weeks.OverviewWe are a leading sporting goods retailer in the western United States, operating 438 stores and an e-commerce platform under the name “Big 5Sporting Goods” as of January 3, 2016. We provide a full-line product offering in a traditional sporting goods store format that averages approximately11,000 square feet. In the fourth quarter of fiscal 2014, we launched our e-commerce platform to also offer selected products online and e-commerce sales forfiscal 2015 and 2014 were not material. Our product mix includes athletic shoes, apparel and accessories, as well as a broad selection of outdoor and athleticequipment for team sports, fitness, camping, hunting, fishing, tennis, golf, winter and summer recreation and roller sports.We believe that over our 61-year history we have developed a reputation with the competitive and recreational sporting goods customer as aconvenient neighborhood sporting goods retailer that consistently delivers value on quality merchandise. Our stores carry a wide range of products atcompetitive prices from well-known brand name manufacturers, including adidas, Coleman, Everlast, New Balance, Nike, Rawlings, Skechers, Spalding,Under Armour and Wilson. We also offer brand name merchandise produced exclusively for us, private label merchandise and specials on quality items wepurchase through opportunistic buys of vendor over-stock and close-out merchandise. We reinforce our value reputation through weekly print advertising inmajor and local newspapers, direct mailers and digital marketing designed to generate customer traffic, drive sales and build brand awareness. We alsomaintain 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 2015, we opened five new stores and closed six stores, three of whichwere relocations. In fiscal 2014, we opened 16 new stores, four of which were relocations, and closed six stores, four of which were relocations. In fiscal 2013,we opened 17 new stores, three of which were relocations, and closed two stores, both of which were relocations. In fiscal 2015, we slowed our store growth aswe maintained a cautious approach toward store openings in the current retail environment. The following table summarizes our store count for the periodspresented: Fiscal Year 2015 2014 2013 Big 5 Sporting Goods stores: Beginning of period 439 429 414 New stores (1) 5 16 17 Stores relocated (3) (4) (2)Stores closed (3) (2) — End of period 438 439 429 Stores (closed) opened per year, net (1) 10 15 (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 salescalculations.25 Executive SummaryOur improved operating results for fiscal 2015 compared to fiscal 2014 were mainly attributable to our higher sales levels in fiscal 2015, whichincluded an increase in same store sales of 1.3% compared to the same period last year. Our higher same store sales primarily reflected increased sales ofwinter-related merchandise in our primary markets in the first quarter and fourth quarter of fiscal 2015. For the current fiscal year, same store sales for ourmajor merchandise categories of footwear and apparel increased while hard goods were down slightly. ·Net sales for fiscal 2015 increased 5.2% to $1,029.1 million compared to fiscal 2014. The increase in net sales was primarily attributable toadded revenue from new stores, an extra week of sales in fiscal 2015 and an increase in same store sales of 1.3%, partially offset by reducedclosed store sales. Same store sales for a period reflect net sales from stores that operated throughout the period as well as the full correspondingprior year period. For purposes of reporting same store sales comparisons to fiscal 2014, we use comparable 53-week periods. ·Net income for fiscal 2015 increased 2.8% to $15.3 million, or $0.70 per diluted share, compared to $14.9 million, or $0.67 per diluted share,for fiscal 2014. The increase was driven primarily by higher net sales, partially offset by lower merchandise margins and increased selling andadministrative expense. ·Gross profit for fiscal 2015 represented 31.6% of net sales, compared with 32.1% in the prior year. Merchandise margins were ten basis pointslower than last year, combined with higher distribution and store occupancy expense as a percentage of net sales. ·Selling and administrative expense for fiscal 2015 increased 3.5% to $298.4 million, or 29.0% of net sales, compared to $288.3 million, or29.5% of net sales, for fiscal 2014. The increase was primarily attributable to higher employee labor and benefit-related expense and higheroperating expense to support new store openings, partially offset by a decrease in print advertising expense.Our principal liquidity requirements are for working capital, capital expenditures and cash dividends. We fund our liquidity requirementsprimarily through cash on hand, cash flows from operations and borrowings from our revolving credit facility. ·Operating cash flow for fiscal 2015 increased to $39.6 million from $28.5 million in fiscal 2014. ·Capital expenditures for fiscal 2015 increased to $24.6 million from $22.6 million in fiscal 2014. ·We ended fiscal 2015 with a balance under our revolving credit facility of $54.8 million compared with $66.3 million at the end of fiscal 2014. ·We paid aggregate cash dividends in fiscal 2015 of $8.8 million, or $0.40 per share. ·We repurchased 379,930 shares of common stock for $4.2 million in fiscal 2015.26 Results of OperationsThe following table sets forth selected items from our consolidated statements of operations by dollar and as a percentage of our net sales forthe periods indicated: Fiscal Year (1) 2015 2014 2013 (Dollars in thousands) Statement of Operations Data: Net sales $1,029,098 100.0% $977,860 100.0% $993,323 100.0%Cost of sales (2) 704,134 68.4 664,411 67.9 664,583 66.9 Gross profit 324,964 31.6 313,449 32.1 328,740 33.1 Selling and administrative expense (3) 298,425 29.0 288,274 29.5 281,313 28.3 Operating income 26,539 2.6 25,175 2.6 47,427 4.8 Interest expense 1,791 0.2 1,667 0.2 1,745 0.2 Income before income taxes 24,748 2.4 23,508 2.4 45,682 4.6 Income taxes 9,451 0.9 8,632 0.9 17,736 1.8 Net income $15,297 1.5% $14,876 1.5% $27,946 2.8%Other Financial Data: Net sales change 5.2% (1.6)% 5.6%Same store sales change (4) 1.3% (2.9)% 3.9%Net income change 2.8% (46.6)% 87.4% (1)Fiscal 2015 included 53 weeks and fiscal 2014 and 2013 each included 52 weeks.(2)Cost of sales includes the cost of merchandise, net of discounts or allowances earned, freight, inventory reserves, buying, distribution center expense, includingdepreciation, and store occupancy expense. Store occupancy expense includes rent, amortization of leasehold improvements, common area maintenance, property taxes andinsurance.(3)Selling and administrative expense includes store-related expense, other than store occupancy expense, as well as advertising, depreciation and amortization, expenseassociated with operating our corporate headquarters and impairment charges, if any.(4)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. For purposes of reportingsame store sales comparisons to the prior year, we use comparable 53-week periods.Fiscal 2015 Compared to Fiscal 2014Net Sales. Net sales increased by $51.2 million, or 5.2%, to $1,029.1 million for fiscal 2015 from $977.9 million for fiscal 2014. The change innet sales was primarily attributable to the following: ·Added sales from new stores reflected the opening of 21 new stores since December 29, 2013, partially offset by a reduction in closed storesales. ·The extra week in fiscal 2015 contributed $22.8 million to net sales. ·Same store sales increased 1.3% for fiscal 2015 versus fiscal 2014. Our higher same store sales reflected increased sales of winter-relatedmerchandise as a result of favorable winter-weather conditions in our primary markets in the first quarter and fourth quarter of fiscal 2015. Forthe current fiscal year, our major merchandise categories of footwear and apparel increased while hard goods were down slightly. Same storesales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period. Forpurposes of reporting same store sales comparisons to fiscal 2014, we use comparable 53-week periods. ·Although we experienced decreased customer transactions in our retail stores, the average sale per transaction increased in fiscal 2015compared to fiscal 2014, continuing to reflect a shift in our product mix to more branded merchandise.Store count at the end of fiscal 2015 was 438 versus 439 at the end of fiscal 2014. We opened five new stores and closed six stores, three ofwhich were relocations, in fiscal 2015. For fiscal 2016, we anticipate opening between five and eight new stores and closing approximately ten stores.27 Gross Profit. Gross profit increased by $11.6 million to $325.0 million, or 31.6% of net sales, in fiscal 2015 from $313.4 million, or 32.1% ofnet sales, in fiscal 2014. The change in gross profit was primarily attributable to the following: ·Net sales increased by $51.2 million in fiscal 2015 compared to the prior year. ·Merchandise margins, which exclude buying, occupancy and distribution expense, decreased ten basis points from fiscal 2014. ·Store occupancy expense for fiscal 2015 increased by $5.6 million, or ten basis points, year over year due primarily to increased rent associatedwith store lease renewals and new store openings. ·Distribution expense increased $3.9 million, or 17 basis points, primarily resulting from higher employee labor and benefit-related expense duein part to an additional week of payroll expense, and lower costs capitalized into inventory, partially offset by reduced fuel expense.Selling and Administrative Expense. Selling and administrative expense increased by $10.1 million, or 3.5%, to $298.4 million, or 29.0% ofnet sales, in fiscal 2015 from $288.3 million, or 29.5% of net sales, in fiscal 2014. The change in selling and administrative expense was primarilyattributable to the following: ·Store-related expense, excluding occupancy, increased by $9.6 million due primarily to higher labor and employee benefit-related expense of$8.1 million that reflected an additional fiscal week of payroll expense, legislated minimum wage increases and personnel increases associatedwith new store openings, along with added operating expense for new stores. ·Administrative expense increased by $3.3 million, primarily reflecting expense associated with the following items: oHigher employee labor and benefit-related expense of $2.3 million due, in part, to an additional fiscal week of payroll expense. oA publicly-disclosed proxy contest, which was settled on April 30, 2015. The proxy contest and related matters negatively impacted ouradministrative expense during fiscal 2015 by approximately $1.6 million. oExpenses of $0.4 million to evaluate store growth strategies and potential profit improvement opportunities. oA pre-tax charge of $0.4 million for a legal settlement in fiscal 2015. Administrative expense in fiscal 2014 included pre-tax charges of$1.4 million for legal accruals. These charges are further discussed in Note 13 to the consolidated financial statements included in Part II,Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. oA pre-tax non-cash impairment charge of $0.2 million in fiscal 2015 related to an underperforming store. Administrative expense in fiscal2014 included a pre-tax non-cash impairment charge of $1.2 million related to certain underperforming stores. These charges are furtherdiscussed in Note 4 to the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, ofthis Annual Report on Form 10-K. ·Advertising expense for fiscal 2015 decreased by $2.8 million, due primarily to lower newspaper advertising, partially offset by increases indigital marketing programs to support sales.Interest Expense. Interest expense increased by $0.2 million, or 7.4%, to $1.8 million in fiscal 2015 from $1.6 million in fiscal 2014. Theincrease in interest expense reflects an increase in average debt levels of $6.3 million to $69.6 million in fiscal 2015 from $63.3 million in fiscal 2014.Average interest rates remained unchanged at 1.9% in fiscal 2015 compared with fiscal 2014.Income Taxes. The provision for income taxes was $9.5 million for fiscal 2015 compared with $8.6 million for fiscal 2014. This increase wasprimarily due to a higher effective tax rate and higher pre-tax income in fiscal 2015. Our effective tax rate was 38.2% for fiscal 2015 compared with 36.7% forfiscal 2014. The higher effective tax rate year over year primarily resulted from a reduced amount of income tax credits for the current year. In the first andsecond quarters of fiscal 2016, we anticipate writing off deferred tax assets related to share-based compensation, which we estimate will result in chargesranging between $0.6 million to $0.8 million and $0.1 million to $0.3 million, respectively, and will negatively impact our respective effective tax rates.28 Fiscal 2014 Compared to Fiscal 2013Net Sales. Net sales decreased by $15.4 million, or 1.6%, to $977.9 million for fiscal 2014 from $993.3 million for fiscal 2013. The change innet sales was primarily attributable to the following: ·Same store sales decreased 2.9% for fiscal 2014 versus fiscal 2013. Our lower same store sales reflected reduced demand for firearm-relatedproducts, combined with lower sales of winter-related merchandise as a result of unseasonably warm and dry winter-weather conditions in ourprimary markets in the first quarter and fourth quarter of fiscal 2014. Our sales comparisons to the prior year generally improved in the secondhalf of fiscal 2014 as improved sales for a number of product categories offset the lower demand for firearm-related products compared to fiscal2013. ·Added sales from new stores reflected the opening of 33 new stores since December 30, 2012, partially offset by a reduction in closed storesales. ·We experienced decreased customer transactions in our retail stores, and the average sale per transaction also declined slightly in fiscal 2014compared to fiscal 2013, primarily as a result of the reduced demand for firearm-related products in fiscal 2014.Store count at the end of fiscal 2014 was 439 versus 429 at the end of fiscal 2013. We opened 16 new stores, four of which were relocations,and closed six stores, four of which were relocations, in fiscal 2014.Gross Profit. Gross profit decreased by $15.3 million to $313.4 million, or 32.1% of net sales, in fiscal 2014 from $328.7 million, or 33.1% ofnet sales, in fiscal 2013. The change in gross profit was primarily attributable to the following: ·Net sales decreased by $15.4 million in fiscal 2014 compared to fiscal 2013. ·Merchandise margins, which exclude buying, occupancy and distribution expense, decreased 27 basis points from fiscal 2013, whenmerchandise margins increased 50 basis points versus fiscal 2012. The lower merchandise margins primarily reflected reduced sales of higher-margin winter-related products and increased sales promotions. ·Store occupancy expense for fiscal 2014 increased by $5.1 million, or 65 basis points, year over year due primarily to increased rent associatedwith store lease renewals and the increase in store count. ·Distribution expense increased $0.5 million, or 12 basis points, primarily resulting from higher employee labor and benefit-related expense andincreased trucking expense, partially offset by higher costs capitalized into inventory.Selling and Administrative Expense. Selling and administrative expense increased by $7.0 million, or 2.5%, to $288.3 million, or 29.5% of netsales, in fiscal 2014 from $281.3 million, or 28.3% of net sales, in fiscal 2013. The change in selling and administrative expense was primarily attributable tothe following: ·Store-related expense, excluding occupancy, increased by $6.4 million due primarily to higher employee benefit-related expense and higheroperating expense to support the increase in store count. ·Administrative expense increased by $2.4 million, primarily reflecting higher employee labor and benefit-related expense. Administrativeexpense in fiscal 2014 also included pre-tax charges of $1.4 million reflecting legal accruals and a pre-tax non-cash impairment charge of $1.2million related to certain underperforming stores. Administrative expense for fiscal 2013 included a pre-tax charge of $1.0 million related tolegal accruals. ·Advertising expense for fiscal 2014 decreased by $1.9 million, due primarily to lower newspaper advertising, partially offset by increases indigital marketing programs and other advertising to support sales.Interest Expense. Interest expense decreased by $0.1 million, or 4.5%, to $1.6 million in fiscal 2014 from $1.7 million in fiscal 2013. Thedecrease in interest expense reflects the impact of lower average interest rates of 20 basis points to 1.9% in fiscal 2014 from 2.1% in fiscal 2013, partiallyoffset by an increase in average debt levels of $19.3 million to $63.3 million in fiscal 2014 from $44.0 million in fiscal 2013.Income Taxes. The provision for income taxes was $8.6 million for fiscal 2014 compared with $17.7 million for fiscal 2013. This decrease wasprimarily due to lower pre-tax income and a lower effective tax rate in fiscal 2014. Our effective tax rate was 36.7% for fiscal 2014 compared with 38.8% forfiscal 2013. The lower effective tax rate year over year primarily resulted from increased income tax credits for the current year. The effective tax rate for fiscal2013 included the retroactive reinstatement of the work opportunity tax credit (“WOTC”) for 2012, which resulted from enactment of The AmericanTaxpayer Relief Act of 2012. Reinstatement of the WOTC reduced the effective tax rate for the first quarter of fiscal 2013 by 137 basis points.29 Liquidity and Capital ResourcesOur principal liquidity requirements are for working capital, capital expenditures and cash dividends. We fund our liquidity requirementsprimarily through cash on hand, cash flows from operations and borrowings from our revolving credit facility. We believe our cash on hand, future cash flowsfrom 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 2015 with $7.1 million of cash compared with $11.5 million in fiscal 2014. We decreased our long-term debt by $11.5 million,or 17.3%, during fiscal 2015 to $54.8 million from $66.3 million at the end of fiscal 2014, after increasing our long-term debt by $23.3 million, or 54.1%,during fiscal 2014. The following table summarizes our cash flows from operating, investing and financing activities for each of the past three fiscal years: Fiscal Year 2015 2014 2013 (In thousands) Total cash provided by (used in): Operating activities $39,645 $28,535 $26,287 Investing activities (24,567) (22,465) (22,035)Financing activities (19,462) (3,967) (2,487)Net (decrease) increase in cash $(4,384) $2,103 $1,765 The seasonality of our business historically provides greater cash flows from operations during the holiday and winter selling season. We useoperating cash flows and borrowings under our revolving credit facility to fund inventory increases in anticipation of the holidays and our inventory levelsare normally at their highest in the months leading up to Christmas. As holiday sales typically reduce inventory levels, this reduction, combined with netincome, historically provides us with strong cash flows from operations at the end of our fiscal year.For fiscal 2015, the level of inventory purchases in the months leading up to Christmas was lower compared to the prior year, resulting inreduced inventory and accounts payable balances at the end of fiscal 2015 compared to fiscal 2014. Additionally, improved net sales in fiscal 2015compared to fiscal 2014 contributed to higher operating cash flows, which allowed us to significantly pay down debt balances year over year.For fiscal 2014, we reduced the level of inventory purchases in the months leading up to Christmas compared to the prior year due in part to acarryover of winter-related merchandise from the prior season as a result of unfavorable weather conditions. For the fiscal 2014 full year, our operating cashflow increased over fiscal 2013 as the impact of reduced inventory purchases in fiscal 2014, due in part to lower sales levels, offset the effect of lowerearnings. The increase in our debt at the end of fiscal 2014 primarily reflected our lower earnings, a significant reduction in outstanding check payablebalances year over year from fiscal 2013, along with amounts paid for cash dividends and to repurchase stock.For fiscal 2013, while we increased inventory purchases in the months leading up to Christmas, weaker-than-anticipated sales during the fourthquarter of fiscal 2013 resulted in higher-than-expected inventory levels and lower operating cash flows in the fourth quarter of fiscal 2013. However, healthynet sales and net income for the fiscal 2013 full year contributed sufficient levels of operating cash flows that allowed us to pay down debt balances year overyear.Operating Activities. Net cash provided by operating activities for fiscal 2015, 2014 and 2013 was $39.6 million, $28.5 million and $26.3million, respectively. The increase in cash provided by operating activities for fiscal 2015 compared to fiscal 2014 was due primarily to the favorable effectof a reduction in merchandise inventory levels at the end of fiscal 2015 reflecting improved sales as a result of favorable winter-weather conditions in fiscal2015, compared with the end of fiscal 2014. The increase in cash provided by operating activities for fiscal 2014 compared to fiscal 2013 was due primarilyto reduced funding of inventory purchases, partially offset by the impact of lower net income, increases in prepaid expense largely related to the timing ofrent payments and lower accrued expenses for certain employee benefits.30 Investing Activities. Net cash used in investing activities for fiscal 2015, 2014 and 2013 was $24.6 million, $22.5 million and $22.0 million,respectively. In fiscal 2014 we received proceeds of $0.1 million as part of a local utility rebate program related to the implementation of a green energysystem at our distribution center. Our capital spending is primarily to fund the opening of new stores, store-related remodeling, distribution center equipmentand computer hardware and software purchases. Capital expenditures by category for each of the last three fiscal years are as follows: Fiscal Year 2015 2014 2013 (In thousands) New stores $5,508 $9,373 $10,996 Store-related remodels 8,607 7,094 7,600 Distribution center 7,866 2,270 871 Computer hardware, software and other 2,586 3,828 2,568 Total $24,567 $22,565 $22,035 Our capital expenditures included five new stores in fiscal 2015, 16 new stores in fiscal 2014 and 17 new stores in fiscal 2013. Capitalexpenditures in all years presented reflected an increased investment in existing store remodeling to support our merchandising initiatives, amounts relatedto our computer system replacement program, added costs related to the development of an e-commerce platform and enhanced security measures to supportour infrastructure. Fiscal 2015 also included increased investment in our distribution center to support overall growth, while fiscal 2015 and 2014 includedadded costs related to the development of a new point-of-sale system.Financing Activities. Net cash used in financing activities for fiscal 2015, 2014 and 2013 was $19.5 million, $4.0 million and $2.5 million,respectively. For fiscal 2015, we used cash provided from operating activities primarily to pay down borrowings from our revolving credit facility, funddividend payments, treasury stock repurchases and capital lease payments. For fiscal 2014, we used cash provided from operating activities primarily to funddividend payments, treasury stock repurchases and capital lease payments, partially offset by increased borrowings under our revolving credit facility. Forfiscal 2013, we used cash provided from operating activities primarily to pay dividends, pay down borrowings from our revolving credit facility and makecapital lease payments. These payments were partially offset by amounts received from employee share-based awards.As of January 3, 2016, we had revolving credit borrowings of $54.8 million and letter of credit commitments of $0.5 million outstanding.These balances compare to borrowings of $66.3 million and letter of credit commitments of $0.5 million outstanding as of December 28, 2014.Our revolving credit facility balances have historically increased from the end of the first quarter to the end of the second quarter and from theend of the third quarter to the week of Thanksgiving. The historical increases in our revolving credit facility balances reflect the build-up of inventory inanticipation of our summer and winter selling seasons. Revolving credit facility balances typically fall from the week of Thanksgiving to the end of thefourth quarter, reflecting inventory sales during the holiday and winter selling season.In fiscal 2013, 2014 and 2015 we paid quarterly cash dividends of $0.10 per share of outstanding common stock, for an annual rate of $0.40per share. In the first quarter of fiscal 2016, our Board of Directors declared a quarterly cash dividend of $0.125 per share of outstanding common stock,which will be paid on March 22, 2016 to stockholders of record as of March 8, 2016.Periodically, we repurchase our common stock in the open market pursuant to programs approved by our Board of Directors. We mayrepurchase our common stock for a variety of reasons, including, among other things, our alternative cash requirements, existing business conditions and thecurrent market price of our stock. We repurchased 379,930 shares of common stock for $4.2 million in fiscal 2015 and we repurchased 223,051 shares ofcommon stock for $2.5 million in fiscal 2014. We did not repurchase shares of common stock during fiscal 2013. Since the inception of our initial sharerepurchase program in May 2006 through January 3, 2016, we have repurchased a total of 2,530,607 shares for $32.1 million, leaving a total of $2.9 millionavailable 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”), asadministrative agent, and a syndicate of other lenders, which was amended on October 31, 2011 and December 19, 2013 (as so amended, the “CreditAgreement”). The maturity date of the Credit Agreement is December 19, 2018.31 The Credit Agreement provides for a revolving credit facility (the “Credit Facility”) with an aggregate committed availability of up to $140.0million, which amount may be increased at our option up to a maximum of $165.0 million. We may also request additional increases in aggregateavailability, up to a maximum of $200.0 million, in which case the existing lenders under the Credit Agreement will have the option to increase theircommitments to accommodate the requested increase. If such existing lenders do not exercise that option, we may (with the consent of Wells Fargo, not to beunreasonably withheld) seek other lenders willing to provide such commitments. The Credit Facility includes a $50.0 million sublimit for issuances of lettersof credit and a $20.0 million sublimit for swingline loans. As of January 3, 2016 and December 28, 2014, our total remaining borrowing availability underthe Credit Agreement, after subtracting letters of credit, was $84.7 million and $73.2 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 aggregateavailability (as discussed above) and the Borrowing Base (such lesser amount being referred to as the “Loan Cap”). The “Borrowing Base” generally iscomprised 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 thanour 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 reasonablediscretion.Generally, we may designate specific borrowings under the Credit Facility as either base rate loans or LIBO rate loans. The applicable interestrate on our borrowings is a function of the daily average, over the preceding fiscal quarter, of the excess of the Loan Cap over amounts borrowed (suchamount 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 thenapplicable 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 theapplicable 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 publiclyannounced from time to time by Wells Fargo as its “prime rate.” The applicable margin for all loans are as set forth below as a function of Average DailyExcess Availability for the preceding fiscal quarter. Level Average Daily Excess Availability LIBO RateApplicable Margin Base RateApplicable Margin I Greater than or equal to $100,000,000 1.25% 0.25% II Less than $100,000,000 but greater than or equal to $40,000,000 1.50% 0.50% III Less than $40,000,000 1.75% 0.75% 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 CreditAgreement 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 abilityto, among other things, incur liens, incur additional indebtedness, transfer or dispose of assets, change the nature of the business, guarantee obligations, paydividends or make other distributions or repurchase stock, and make advances, loans or investments. We may declare or pay cash dividends or repurchasestock 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 tosuch dividend or repurchase, certain availability and/or fixed charge coverage ratio requirements are satisfied. The Credit Agreement contains customaryevents of default, including, without limitation, failure to pay when due principal amounts with respect to the Credit Facility, failure to pay any interest orother amounts under the Credit Facility for five days after becoming due, failure to comply with certain agreements or covenants contained in the CreditAgreement, 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) certainother 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 2015 2014 (Dollars in thousands) Fiscal year-end balance $54,846 $66,312 Average interest rate 1.90% 1.90%Maximum outstanding during the year $103,238 $96,004 Average outstanding during the year $69,575 $63,335 32 Future Capital Requirements. We had cash on hand of $7.1 million as of January 3, 2016. We expect capital expenditures for fiscal 2016,excluding non-cash acquisitions, to range from approximately $17.0 million to $21.0 million, primarily to fund the opening of new stores, store-relatedremodeling, distribution center equipment and computer hardware and software purchases, including amounts related to the development of a new point-of-sale system. For fiscal 2016, we anticipate opening between five and eight new stores and closing approximately ten stores.In fiscal 2013, 2014 and 2015 we paid quarterly cash dividends of $0.10 per share of outstanding common stock, for an annual rate of $0.40per share. In the first quarter of fiscal 2016, our Board of Directors declared a quarterly cash dividend of $0.125 per share of outstanding common stock,which will be paid on March 22, 2016 to stockholders of record as of March 8, 2016.As of January 3, 2016, a total of $2.9 million remained available for share repurchases under our share repurchase program. We consider severalfactors in determining when and if we make share repurchases including, among other things, our alternative cash requirements, existing business conditionsand the market price of our stock.We believe we will be able to fund our cash requirements from cash on hand, operating cash flows and borrowings from our revolving creditfacility, for at least the next twelve months. However, our ability to satisfy our cash requirements depends upon our future performance, which in turn issubject to general economic conditions and regional risks, as well as financial, business and other factors affecting our operations, including factors beyondour 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 ourrevolving credit facility.Off-Balance Sheet Arrangements and Contractual Obligations. Our material off-balance sheet arrangements are operating lease obligations. We excluded these items from the balance sheet in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Asummary of our operating lease obligations and other commitments by fiscal year is included in the table below. Additional information regarding ouroperating leases is available in Item 2, Properties and Note 7, 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 January 3, 2016, include the following: Payments Due by Period Total Less Than1 Year 1-3Years 3-5Years After 5Years (In thousands) Capital lease obligations $4,017 $1,533 $1,983 $501 $— Lease commitments: Operating lease commitments 369,013 78,426 131,996 86,606 71,985 Other occupancy expense 65,640 14,283 24,353 15,499 11,505 Other liabilities 13,188 4,873 3,141 1,637 3,537 Revolving credit facility 54,846 — 54,846 — — Letters of credit 525 525 — — — Total $507,229 $99,640 $216,319 $104,243 $87,027 Capital lease obligations, which include imputed interest, consist principally of leases for some of our distribution center delivery tractors, ITsystems hardware and point-of-sale equipment for our stores. Payments for these lease obligations are provided by cash flows generated from operations orthrough borrowings from our revolving credit facility.Operating lease commitments consist principally of leases for our retail store facilities, distribution center and corporate office. These leasesfrequently include options which permit us to extend the terms beyond the initial fixed lease term. With respect to most of those leases, we intend torenegotiate those leases as they expire.Operating lease commitments also include a lease commitment for a building adjacent to our corporate office. The lease term for this propertycommenced in 2009 and the primary term expires on February 28, 2019. In accordance with terms of the lease agreement, we are committed to theconstruction 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 theconstruction commitment.Other occupancy expense includes estimated property maintenance fees and property taxes for our stores, distribution center and corporateheadquarters.33 Other liabilities consist principally of actuarially-determined reserve estimates related to self-insurance liabilities, of which certain self-insurance liabilities are secured by surety bonds, a contractual obligation for the surviving spouse of Robert W. Miller, our co-founder, and asset retirementobligations 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 variableindices, and the balance of our Credit Agreement fluctuates daily depending on operating, investing and financing cash flows. Assuming no changes in ourrevolving credit facility debt or interest rates as of the fiscal 2015 year-end, our projected annual interest payments would be approximately $1.1 million.Issued and outstanding letters of credit were $0.5 million as of January 3, 2016, and were related primarily to securing insurance programliabilities.In the ordinary course of business, we enter into arrangements with vendors to purchase merchandise in advance of expected delivery. Becausemost of these purchase orders do not contain any termination payments or other penalties if cancelled, they are not included as outstanding contractualobligations.Critical Accounting EstimatesOur critical accounting estimates are included in our significant accounting policies as described in Note 2 of the consolidated financialstatements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Those consolidated financial statementswere prepared in accordance with GAAP. Critical accounting estimates are those that we believe are most important to the portrayal of our financialcondition and results of operations. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect thereported amounts of assets, liabilities, revenue and expense. Our estimates are evaluated on an ongoing basis and drawn from historical experience, currenttrends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. Actual results may differ fromour estimates. Management believes that the following accounting estimates reflect the more significant judgments and estimates we use in preparing ourconsolidated financial statements.Valuation of Merchandise Inventories, NetOur merchandise inventories are made up of finished goods and are valued at the lower of cost or market using the weighted-average costmethod that approximates the first-in, first-out (“FIFO”) method. Average cost consists of the direct purchase price of merchandise inventory, net of vendorallowances 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 orobsolescence exposure and merchandise that has a carrying value that exceeds market value. These reserves are estimates of a reduction in value to reflectinventory valuation at the lower of cost or market. Factors included in determining slow-moving or obsolescence reserve estimates include current andanticipated demand or customer preferences, merchandise aging, seasonal trends and decisions to discontinue certain products. Because of our merchandisemix, we have not historically experienced significant occurrences of obsolescence. Our inventory valuation reserves for damaged and defective merchandise,slow-moving or obsolete merchandise and for lower of cost or market provisions totaled $3.9 million and $3.1 million as of January 3, 2016 and December28, 2014, 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 physicalinventories at each of our stores at least once per year and cycle count inventories encompassing all inventory items at least once every quarter at ourdistribution center. The reserve for inventory shrinkage primarily represents an estimate for inventory shrinkage for each store since the last physicalinventory date through the reporting date. Inventory shrinkage can be impacted by internal factors such as the level of investment in employee training andloss prevention and external factors such as the health of the overall economy, and shrink reserve estimates can vary from actual results. Our reserve forinventory shrinkage was $2.3 million and $2.2 million as of January 3, 2016 and December 28, 2014, respectively, representing approximately 1% of ourmerchandise inventory for both periods.A 10% change in our inventory reserves estimate in total as of January 3, 2016, would result in a change in reserves of approximately $0.6million 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 notbelieve 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 inventoryreserves.34 Valuation of Long-Lived AssetsWe review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset maynot be recoverable.Long-lived assets are reviewed for recoverability at the lowest level in which there are identifiable cash flows (“asset group”), usually at thestore level. Each store typically requires net investments of approximately $0.5 million in long-lived assets to be held and used, subject to recoverabilitytesting. 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 theasset 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 amountof the asset group exceeds its fair value, determined using discounted cash flow valuation techniques, as defined in the impairment provisions of FinancialAccounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 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 andoperating expense for each store under evaluation for impairment. The estimates of future cash flows involve management judgment and are based uponassumptions about expected future operating performance. Assumptions used in these forecasts are consistent with internal planning, and includeassumptions 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 businessconditions, operating performance and economic conditions.Our evaluation resulted in a pre-tax impairment charge of $0.2 million, $1.2 million and $0.1 million recognized in fiscal 2015, 2014 and2013, respectively, related to certain underperforming stores.A 10% change in the sum of our undiscounted cash flow estimates resulting from different assumptions used as of January 3, 2016 for thoseasset groups included in our evaluation would not result in a change in long-lived asset impairment charges for fiscal 2015.Self-Insurance LiabilitiesWe 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 maintaininsurance coverage for losses in excess of specified per-occurrence amounts. Estimated costs under the self-insured workers’ compensation and medicalbenefits 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, ourfinancial results may be significantly impacted. Our estimated self-insurance liabilities, which are reported gross of expected workers’ compensationinsurance reimbursements, are classified in our balance sheet as accrued expenses or other long-term liabilities based upon whether they are expected to bepaid during or beyond our normal operating cycle of 12 months from the date of our consolidated financial statements. As of January 3, 2016 and December28, 2014, our self-insurance liabilities totaled $11.2 million and $10.7 million, respectively.A 10% change in our estimated self-insurance liabilities estimate as of January 3, 2016, would result in a change in our liability ofapproximately $1.1 million and a change in pre-tax earnings by the same amount.Seasonality and Impact of InflationWe experience seasonal fluctuations in our net sales and operating results. In the fourth fiscal quarter, which includes the holiday sellingseason, we normally experience higher inventory purchase volumes and increased expense for staffing and advertising. Seasonality influences our buyingpatterns which directly impacts our merchandise and accounts payable levels and cash flows. We purchase merchandise for seasonal activities in advance of aseason. 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 canharm our financial performance. A significant shortfall from expected fourth fiscal quarter net sales can negatively impact our annual operating results.In fiscal 2013 and 2014, we experienced minor inflation in the purchase cost, including transportation expense, of certain products. In fiscal2015, the impact of inflation was minimal. We continue to evolve our product mix to include more branded merchandise that we believe gives us addedflexibility to adjust selling prices for purchase cost increases. If we are unable to adjust our selling prices for purchase cost increases then our merchandisemargins will decline, which will adversely impact our operating results. We do not believe that inflation had a material impact on our operating results for thereporting periods.35 Recently Issued Accounting UpdatesSee Note 2 to consolidated financial statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report onForm 10-K.Forward-Looking StatementsThis document includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Suchforward-looking statements relate to, among other things, our financial condition, our results of operations, our growth strategy and the business of ourcompany 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 unknownrisks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. These risks anduncertainties include, among other things, continued or worsening weakness in the consumer spending environment and the U.S. financial and creditmarkets, fluctuations in consumer holiday spending patterns, breach of data security or other unauthorized disclosure of sensitive personal or confidentialinformation, the competitive environment in the sporting goods industry in general and in our specific market areas, inflation, product availability andgrowth opportunities, changes in the current market for (or regulation of) firearm-related products, seasonal fluctuations, weather conditions, changes in costof goods, operating expense fluctuations, lower-than-expected profitability of our e-commerce platform or cannibalization of sales from our existing storebase which could occur as a result of operating our e-commerce platform, litigation risks, stockholder campaigns and proxy contests, disruption in productflow, changes in interest rates, credit availability, higher expense associated with sources of credit resulting from uncertainty in financial markets andeconomic conditions in general. Those and other risks and uncertainties are more fully described in Part I, Item 1A, Risk Factors, in this report. We cautionthat 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 onour business or the extent to which any individual risk factor, or combination of factors, may cause results to differ materially from those contained in anyforward-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 onour behalf. 36 ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are subject to risks resulting from interest rate fluctuations since interest on our borrowings under our Credit Facility is based on variablerates. We enter into borrowings under our Credit Facility principally for working capital, capital expenditures and general corporate purposes. We routinelyevaluate the best use of our cash on hand and manage financial statement exposure to interest rate fluctuations by managing our level of indebtedness andthe interest base rate options on such indebtedness. We do not utilize derivative instruments and do not engage in foreign currency transactions or hedgingactivities to manage our interest rate risk. If the interest rate on our debt was to change 1.0% as compared to the rate as of January 3, 2016, our interestexpense would change approximately $0.5 million on an annual basis based on the outstanding balance of our borrowings under our Credit Facility as ofJanuary 3, 2016.Inflationary factors and changes in foreign currency rates can increase the purchase cost of our products. We are evolving our product mix toinclude more branded merchandise, which provides us with greater vendor product return privileges and gives us added flexibility to adjust selling prices forpurchase cost increases. If we are unable to adjust our selling prices for purchase cost increases then our merchandise margins will decline, which willadversely 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 notbelieve that inflation had a material impact on our operating results for the reporting periods. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe financial statements and the supplementary financial information required by this Item and included in this Annual Report on Form 10-Kare 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 DISCLOSURENone. 37 ITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresWe maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information which isrequired to be timely disclosed is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief FinancialOfficer (“CFO”), in a timely fashion. We conducted an evaluation, under the supervision and with the participation of our CEO and CFO, of the effectivenessof 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 SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)) as of January 3, 2016. Based on such evaluation, our CEO and CFO have concluded that, as ofJanuary 3, 2016, our disclosure controls and procedures are effective, at a reasonable assurance level, in recording, processing, summarizing and reporting, ona 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 thatinformation required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to ourmanagement, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.Management’s Annual Report on Internal Control Over Financial ReportingManagement 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 reasonabledetail, accurately and fairly reflect transactions and disposition of assets; provide reasonable assurance that transactions are recorded as necessary to permitpreparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), andthat receipts and expenditures are being made only in accordance with the authorization of our management and directors; and provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidatedfinancial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection of anyevaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.Management conducted an assessment of the effectiveness of our internal control over financial reporting as of January 3, 2016, based uponthe Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on thisassessment, management has concluded that, as of January 3, 2016, we maintained effective internal control over financial reporting. The attestation reportissued 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 ReportingThere has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during themost recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 38 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofBig 5 Sporting Goods CorporationEl Segundo, CaliforniaWe have audited the internal control over financial reporting of Big 5 Sporting Goods Corporation and subsidiaries (the “Company”) as of January 3, 2016,based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over FinancialReporting. 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 thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary 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 principalfinancial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe 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 ofcontrols, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 3, 2016, based on thecriteria established in Internal Control — Integrated Framework (2013) 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 financialstatements and financial statement schedule as of and for the year ended January 3, 2016 of the Company and our report dated March 2, 2016 expressed anunqualified opinion on those consolidated financial statements and financial statement schedule./s/ Deloitte & Touche LLPLos Angeles, CaliforniaMarch 2, 2016 39 ITEM 9B.OTHER INFORMATIONNone. 40 PART III ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy Statement, whichis expected to be filed not later than 120 days after the end of our fiscal year ended January 3, 2016. ITEM 11.EXECUTIVE COMPENSATIONThe information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy Statement, whichis expected to be filed not later than 120 days after the end of our fiscal year ended January 3, 2016. ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy Statement, whichis expected to be filed not later than 120 days after the end of our fiscal year ended January 3, 2016. ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy Statement, whichis expected to be filed not later than 120 days after the end of our fiscal year ended January 3, 2016. ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICESThe information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy Statement, whichis expected to be filed not later than 120 days after the end of our fiscal year ended January 3, 2016. 41 PART IV ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES(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 thisItem 15. Certain exhibits are incorporated by reference from documents previously filed by the Company with the SEC as required by Item 601of Regulation S-K. 42 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized. BIG 5 SPORTING GOODS CORPORATION, a Delaware corporation Date: March 2, 2016By:/s/ Steven G. Miller Steven G. Miller Chairman of the Board of Directors,President, Chief Executive Officer andDirector 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 ofthe registrant and in the capacities and on the dates indicated: Signatures Title Date /s/ Steven G. Miller Chairman of the Board of Directors, March 2, 2016 Steven G. Miller President, Chief Executive Officer and Director of the Company (Principal Executive Officer) /s/ Barry D. Emerson Senior Vice President, March 2, 2016 Barry D. Emerson Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) /s/ Sandra N. Bane Director of the Company March 2, 2016 Sandra N. Bane /s/ Dominic P. DeMarco Director of the Company March 2, 2016 Dominic P. DeMarco /s/ Nicholas E. Donatiello, Jr. Director of the Company March 2, 2016 Nicholas E. Donatiello, Jr. /s/ Jennifer H. Dunbar Director of the Company March 2, 2016 Jennifer H. Dunbar /s/ Robert C. Galvin Director of the Company March 2, 2016 Robert C. Galvin /s/ Van B. Honeycutt Director of the Company March 2, 2016 Van B. Honeycutt /s/ David R. Jessick Director of the Company March 2, 2016 David R. Jessick 43 BIG 5 SPORTING GOODS CORPORATIONINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Index to Consolidated Financial StatementsF-1 Report of Independent Registered Public Accounting FirmF-2 Consolidated Balance Sheets at January 3, 2016 and December 28, 2014F-3 Consolidated Statements of Operations for the fiscal years ended January 3, 2016, December 28, 2014 and December 29, 2013F-4 Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 3, 2016, December 28, 2014 and December 29, 2013F-5 Consolidated Statements of Cash Flows for the fiscal years ended January 3, 2016, December 28, 2014 and December 29, 2013F-6 Notes to Consolidated Financial StatementsF-7 Consolidated Financial Statement Schedule:Schedule Valuation and Qualifying Accounts as of January 3, 2016, December 28, 2014 and December 29, 2013II F-1 Report of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders ofBig 5 Sporting Goods CorporationEl Segundo, CaliforniaWe have audited the accompanying consolidated balance sheets of Big 5 Sporting Goods Corporation and subsidiaries (the “Company”) as of January 3,2016 and December 28, 2014, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended January 3,2016, December 28, 2014, and December 29, 2013. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). Thesefinancial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion onthese 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 thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide 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 andsubsidiaries as of January 3, 2016 and December 28, 2014, and the results of their operations and their cash flows for the years ended January 3, 2016,December 28, 2014, and December 29, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in ouropinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in allmaterial 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 controlover financial reporting as of January 3, 2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committeeof Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2016 expressed an unqualified opinion on the Company's internalcontrol over financial reporting./s/ Deloitte & Touche LLPLos Angeles, CaliforniaMarch 2, 2016 F-2 BIG 5 SPORTING GOODS CORPORATIONCONSOLIDATED BALANCE SHEETS(In thousands, except share amounts) January 3,2016 December 28,2014 ASSETS Current assets: Cash $7,119 $11,503 Accounts receivable, net of allowances of $61 and $110, respectively 14,180 15,680 Merchandise inventories, net 299,446 310,088 Prepaid expenses 12,185 9,358 Deferred income taxes 11,100 11,025 Total current assets 344,030 357,654 Property and equipment, net 82,036 78,440 Deferred income taxes 12,302 12,792 Other assets, net of accumulated amortization of $1,244 and $1,067, respectively 2,228 2,257 Goodwill 4,433 4,433 Total assets $445,029 $455,576 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $89,961 $92,369 Accrued expenses 69,524 70,399 Current portion of capital lease obligations 1,435 1,197 Total current liabilities 160,920 163,965 Deferred rent, less current portion 19,516 20,736 Capital lease obligations, less current portion 2,392 1,155 Long-term debt 54,846 66,312 Other long-term liabilities 8,524 8,404 Total liabilities 246,198 260,572 Commitments and contingencies Stockholders’ equity: Common stock, $0.01 par value, authorized 50,000,000 shares; issued 24,562,799 and 24,445,345 shares, respectively; outstanding 21,917,982 and 22,180,458 shares, respectively 246 245 Additional paid-in capital 112,236 110,707 Retained earnings 118,998 112,521 Less: Treasury stock, at cost; 2,644,817 and 2,264,887 shares, respectively (32,649) (28,469)Total stockholders’ equity 198,831 195,004 Total liabilities and stockholders’ equity $445,029 $455,576 See accompanying notes to consolidated financial statements. F-3 BIG 5 SPORTING GOODS CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data) Year Ended January 3,2016 December 28,2014 December 29,2013 Net sales $1,029,098 $977,860 $993,323 Cost of sales 704,134 664,411 664,583 Gross profit 324,964 313,449 328,740 Selling and administrative expense 298,425 288,274 281,313 Operating income 26,539 25,175 47,427 Interest expense 1,791 1,667 1,745 Income before income taxes 24,748 23,508 45,682 Income taxes 9,451 8,632 17,736 Net income $15,297 $14,876 $27,946 Earnings per share: Basic $0.70 $0.68 $1.28 Diluted $0.70 $0.67 $1.27 Dividends per share $0.40 $0.40 $0.40 Weighted-average shares of common stock outstanding: Basic 21,741 21,933 21,765 Diluted 21,927 22,133 22,083 See accompanying notes to consolidated financial statements. F-4 BIG 5 SPORTING GOODS CORPORATIONCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(In thousands, except share amounts) Additional Treasury Common Stock Paid-In Retained Stock, Shares Amount Capital Earnings At Cost Total Balance as of December 30, 2012 21,741,248 $238 $102,658 $87,464 $(25,940) $164,420 Net income — — — 27,946 — 27,946 Dividends on common stock ($0.40 per share) — — — (8,845) — (8,845)Issuance of nonvested share awards 127,020 1 (1) — — — Exercise of share option awards 482,295 5 4,581 — — 4,586 Share-based compensation — — 1,877 — — 1,877 Tax benefit from share-based awards activity — — 1,427 — — 1,427 Forfeiture of nonvested share awards (11,050) — — — — — Retirement of common stock for payment of withholding tax (41,812) — (641) — — (641) Balance as of December 29, 2013 22,297,701 244 109,901 106,565 (25,940) 190,770 Net income — — — 14,876 — 14,876 Dividends on common stock ($0.40 per share) — — — (8,920) — (8,920)Issuance of nonvested share awards 152,920 2 (2) — — — Exercise of share option awards 18,125 — 121 — — 121 Share-based compensation — — 1,924 — — 1,924 Tax deficiency from share-based awards activity — — (429) — — (429)Forfeiture of nonvested share awards (12,310) — — — — — Retirement of common stock for payment of withholding tax (52,927) (1) (808) — — (809)Purchases of treasury stock (223,051) — — — (2,529) (2,529) Balance as of December 28, 2014 22,180,458 245 110,707 112,521 (28,469) 195,004 Net income — — — 15,297 — 15,297 Dividends on common stock ($0.40 per share) — — — (8,820) — (8,820)Issuance of nonvested share awards 152,140 2 (2) — — — Exercise of share option awards 25,875 — 147 — — 147 Share-based compensation — — 2,235 — — 2,235 Tax deficiency from share-based awards activity — — (167) — — (167)Forfeiture of nonvested share awards (7,940) — — — — — Retirement of common stock for payment of withholding tax (52,621) (1) (684) — — (685)Purchases of treasury stock (379,930) — — — (4,180) (4,180) Balance as of January 3, 2016 21,917,982 $246 $112,236 $118,998 $(32,649) $198,831 See accompanying notes to consolidated financial statements. F-5 BIG 5 SPORTING GOODS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended January 3,2016 December 28,2014 December 29,2013 Cash flows from operating activities: Net income $15,297 $14,876 $27,946 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 21,410 21,505 20,192 Impairment of store assets 192 1,164 72 Share-based compensation 2,235 1,924 1,877 Excess tax benefit related to share-based awards (137) (194) (1,733)Amortization of debt issuance costs 177 177 254 Deferred income taxes 415 1,747 (864)Changes in operating assets and liabilities: Accounts receivable, net 1,500 621 (1,004)Merchandise inventories, net 10,642 (9,136) (30,602)Prepaid expenses and other assets (3,142) (2,591) 3,863 Accounts payable (7,368) (349) 4,234 Accrued expenses and other long-term liabilities (1,576) (1,209) 2,052 Net cash provided by operating activities 39,645 28,535 26,287 Cash flows from investing activities: Purchases of property and equipment (24,567) (22,565) (22,035)Proceeds from solar energy rebate — 100 — Net cash used in investing activities (24,567) (22,465) (22,035) Cash flows from financing activities: Principal borrowings under revolving credit facility 202,218 216,086 248,263 Principal payments under revolving credit facility (213,684) (192,792) (252,706)Changes in book overdraft 6,992 (13,748) 7,115 Debt issuance costs — — (164)Principal payments under capital lease obligations (1,599) (1,602) (1,807)Proceeds from exercise of share option awards 147 121 4,586 Excess tax benefit related to share-based awards 137 194 1,733 Purchases of treasury stock (4,180) (2,529) (75)Tax withholding payments for share-based compensation (685) (809) (641)Dividends paid (8,808) (8,888) (8,791)Net cash used in financing activities (19,462) (3,967) (2,487) Net (decrease) increase in cash (4,384) 2,103 1,765 Cash at beginning of year 11,503 9,400 7,635 Cash at end of year $7,119 $11,503 $9,400 Supplemental disclosures of non-cash investing and financing activities: Property and equipment acquired under capital leases $3,074 $792 $392 Property and equipment additions unpaid $2,663 $5,121 $3,309 Supplemental disclosures of cash flow information: Interest paid $1,691 $1,502 $1,475 Income taxes paid $8,331 $9,995 $18,602 See accompanying notes to consolidated financial statements. F-6 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1)Description of BusinessThe accompanying consolidated financial statements as of January 3, 2016 and December 28, 2014 and for the years ended January 3, 2016(“fiscal 2015”), December 28, 2014 (“fiscal 2014”) and December 29, 2013 (“fiscal 2013”) represent the financial position, results of operations and cashflows of Big 5 Sporting Goods Corporation (the “Company”) and its 100%-owned subsidiary, Big 5 Corp., and Big 5 Corp.’s 100%-owned subsidiary, Big 5Services Corp. The Company is a leading sporting goods retailer in the western United States, operating 438 stores and an e-commerce platform as of January3, 2016. The Company operates as one reportable segment under the “Big 5 Sporting Goods” name and provides a full-line product offering in a traditionalsporting goods store format that averages approximately 11,000 square feet. The Company’s product mix includes athletic shoes, apparel and accessories, aswell as a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, winter and summer recreation androller sports. (2)Summary of Significant Accounting PoliciesConsolidationThe accompanying consolidated financial statements include the accounts of Big 5 Sporting Goods Corporation, Big 5 Corp. and Big 5Services Corp. Intercompany balances and transactions have been eliminated in consolidation.Reporting PeriodThe Company follows the concept of a 52-53 week fiscal year, which ends on the Sunday nearest December 31. Fiscal 2015 included 53 weeksand fiscal 2014 and 2013 each included 52 weeks.Recently Issued Accounting UpdatesIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue fromContracts with Customers (Topic 606), which includes amendments that create Topic 606 and supersede the revenue recognition requirements in Topic 605,Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, theamendments supersede the cost guidance in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts, and create newSubtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizesrevenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to beentitled in exchange for those goods or services. The amendments in ASU No. 2014-09 were originally effective for annual reporting periods beginning afterDecember 15, 2016, including interim periods within that reporting period. Early application was not permitted. On July 9, 2015, the FASB decided to deferfor one year the effective date of ASU No. 2014-09, while also deciding to permit early application. With these changes, ASU No. 2014-09 will becomeeffective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017, with early applicationpermitted as of the original effective date in ASU No. 2014-09 (i.e., annual reporting periods beginning after December 15, 2016). The Company isevaluating the future impact of the issuance of ASU No. 2014-09, as well as the deferral decisions reached by the FASB.In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of DebtIssuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from thecarrying amount of that debt liability, consistent with debt discounts. This ASU requires retrospective adoption and is effective for fiscal years beginningafter December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. In August 2015, the FASB issued ASU No. 2015-15,Interest—Imputation of Interest (Subtopic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-CreditArrangements—Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, which amends Subtopic 835-30 to addSecurities and Exchange Commission (“SEC”) paragraphs relative to the presentation and subsequent measurement of debt issuance costs associated withline-of-credit arrangements. The effective date of ASU No. 2015-03 was unaffected by the issuance of ASU No. 2015-15. When adopted, ASU No. 2015-03and ASU No. 2015-15 are not expected to have a material impact on the Company’s consolidated financial statements.F-7 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) In April 2015, the FASB issued ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) – Customer’sAccounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance to customers about whether a cloud computing arrangementincludes a software license. If an arrangement includes a software license, the customer should account for the fees related to the software license element in amanner consistent with licenses of other intangible assets. If the arrangement does not include a license, the arrangement will be accounted for as a servicecontract. This ASU permits either retrospective or prospective adoption and is effective for fiscal years beginning after December 15, 2015, and interimperiods within those fiscal years. Early adoption is also permitted. When adopted, ASU No. 2015-05 is not expected to have a material impact on theCompany’s consolidated financial statements.In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330)—Simplifying the Measurement of Inventory, which requires allinventory, other than inventory measured at last-in, first-out (“LIFO”) or the retail inventory method, to be measured at the lower of cost and net realizablevalue. Net realizable value represents the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposaland transportation. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The amendments inthis ASU should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. When adopted, ASUNo. 2015-11 is not expected to have a material impact on the Company’s consolidated financial statements.In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740)—Balance Sheet Classification of Deferred Taxes, whichrequires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. Prior to the issuance of this guidance, deferred taxliabilities and assets were required to be separately classified into a current amount and a noncurrent amount in the balance sheet. The new accountingguidance represents a change in accounting principle and the standard is effective for fiscal years beginning after December 15, 2016, and interim periodswithin those fiscal years. The amendments in this ASU should be applied either prospectively or retrospectively, with earlier application permitted as of thebeginning of an interim or annual reporting period. The Company is still evaluating the method of application of ASU No. 2015-17. When adopted, and inaccordance with this ASU, the Company will reclassify current deferred taxes to noncurrent deferred taxes on its consolidated balance sheet. Because theapplication of ASU No. 2015-17 affects classification only, such reclassification is not expected to have a material impact on the Company’s consolidatedfinancial statements.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet assets andliabilities for leases with lease terms of more than 12 months. Consistent with current accounting principles generally accepted in the United States ofAmerica (“GAAP”), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on itsclassification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet—thenew ASU will require both types of leases to be recognized on the balance sheet. The ASU will take effect for public companies for fiscal years, and interimperiods within those fiscal years, beginning after December 15, 2018. This ASU shall be applied at the beginning of the earliest period presented using themodified retrospective approach, which includes a number of practical expedients that an entity may elect to apply. Early application of ASU No. 2016-02 ispermitted. The Company is evaluating the adoption of this ASU and the potential effects on the consolidated financial statements.There have been no other recently issued accounting updates that had a material impact on the Company’s consolidated financial statements.Use of EstimatesManagement has made a number of estimates and assumptions relating to the reporting of assets, liabilities and stockholders’ equity and thedisclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expense during thereporting period to prepare these consolidated financial statements in conformity with GAAP. Certain items subject to such estimates and assumptionsinclude the carrying amount of merchandise inventories, property and equipment, and goodwill; valuation allowances for receivables, sales returns anddeferred income tax assets; estimates related to gift card breakage and the valuation of share-based compensation awards; and obligations related to assetretirements, litigation, self-insurance liabilities and employee benefits. Actual results could differ significantly from these estimates under differentassumptions and conditions.F-8 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) Segment ReportingThe Company operates solely as a sporting goods retailer, which includes both retail stores and an e-commerce platform, that offers a broadrange of products in the western United States and online, and whose Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer. The CODMreviews financial information presented on a consolidated basis, for purposes of allocating resources and evaluating financial performance. The Company’sstores typically have similar square footage, with the stores and e-commerce platform offering a similar general product mix. The Company’s core customerdemographic remains similar across all sales channels, as does the Company’s process for the procurement and marketing of its product mix. Furthermore, theCompany distributes its product mix for both the stores and e-commerce platform from a single distribution center. Given the consolidated level of review bythe CODM, the Company operates as one reportable segment as defined by Accounting Standards Codification (“ASC”) 280, Segment Reporting.The approximate net sales attributable to hard goods, athletic and sport apparel, athletic and sport footwear and other for the periods presentedare set forth as follows: Fiscal Year 2015 2014 2013 (In thousands) Hard goods $534,864 $517,968 $540,698 Athletic and sport apparel 199,109 181,722 174,021 Athletic and sport footwear 291,325 274,355 275,744 Other sales 3,800 3,815 2,860 Net sales $1,029,098 $977,860 $993,323 The Company launched its e-commerce platform in the fourth quarter of fiscal 2014 and e-commerce net sales for fiscal 2015 and 2014 werenot material.Earnings Per ShareThe Company calculates earnings per share in accordance with ASC 260, Earnings Per Share, which requires a dual presentation of basic anddiluted 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 thepotentially dilutive effect of outstanding share option awards, nonvested share awards and nonvested share unit awards.Revenue RecognitionThe Company recognizes revenue from retail sales at the point of sale through its retail stores. For e-commerce sales, revenue is recognizedwhen the merchandise is delivered to the customer. Shipping and handling fees, when billed to customers for e-commerce sales, are included in net sales. Anallowance for sales returns is estimated based upon historical experience and recorded as a reduction in sales in the relevant period.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 isdetermined that the likelihood of redemption is remote (“gift card breakage”) and no liability to relevant jurisdictions exists. The Company determines thegift card breakage rate based upon historical redemption patterns and recognizes gift card breakage on a straight-line basis over the estimated gift cardredemption period (20 quarters as of the end of fiscal 2015). The Company recognized approximately $0.4 million, $0.4 million and $0.4 million in gift cardbreakage revenue for fiscal 2015, 2014 and 2013, respectively. The Company had outstanding gift card liabilities of $4.9 million and $5.2 million as ofJanuary 3, 2016 and December 28, 2014, respectively, which are included in accrued expenses.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.F-9 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) Cost of SalesCost of sales includes the cost of merchandise, net of discounts or allowances earned, freight, inventory reserves, buying, distribution centerexpense, including depreciation, and store occupancy expense. Store occupancy expense includes rent, amortization of leasehold improvements, commonarea maintenance, property taxes and insurance.Selling and Administrative ExpenseSelling and administrative expense includes store-related expense, other than store occupancy expense, as well as advertising, depreciation andamortization, expense associated with operating the Company’s corporate headquarters and impairment charges, if any.Vendor AllowancesThe 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 reasonablyestimable, in accordance with ASC 605. Amounts relating to the purchase of merchandise are treated as a reduction of inventory cost and reduce cost ofgoods sold as the merchandise is sold. Amounts that represent a reimbursement of costs incurred, such as advertising, are recorded as a reduction in sellingand administrative expense. The Company performs detailed analyses to determine the appropriate amount of vendor allowances to be applied as a reductionof merchandise cost and selling and administrative expense.Advertising ExpenseAdvertising is expensed when the advertising first occurs. Advertising expense, net of co-operative advertising allowances, amounted to $39.8million, $42.6 million and $44.5 million for fiscal 2015, 2014 and 2013, respectively. Advertising expense is included in selling and administrative expensein the accompanying consolidated statements of operations. The Company receives co-operative advertising allowances from product vendors in order tosubsidize qualifying advertising and similar promotional expenditures made relating to vendors’ products. These advertising allowances are recognized as areduction to selling and administrative expense when the Company incurs the advertising expense eligible for the credit. Co-operative advertisingallowances recognized as a reduction to selling and administrative expense amounted to $6.0 million, $5.9 million and $6.2 million for fiscal 2015, 2014and 2013, respectively.Share-Based CompensationThe Company accounts for its share-based compensation in accordance with ASC 718, Compensation—Stock Compensation. The Companyrecognizes compensation expense on a straight-line basis over the requisite service period using the fair-value method for share option awards, nonvestedshare awards and nonvested share unit awards granted with service-only conditions. See Note 14 to the consolidated financial statements for a furtherdiscussion on share-based compensation.Pre-opening CostsPre-opening costs for new stores, which are not material, consist primarily of payroll and recruiting expense, training, marketing, rent, traveland supplies, and are expensed as incurred.CashCash consists of cash on hand, and the Company has no cash equivalents. Book overdrafts are classified as current liabilities.Accounts ReceivableAccounts 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 aredetermined to be uncollectible.F-10 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) Valuation of Merchandise Inventories, NetThe 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, netof certain vendor allowances and cash discounts, in-bound freight-related expense and allocated overhead expense associated with the Company’sdistribution center.Management regularly reviews inventories and records valuation reserves for damaged and defective merchandise, merchandise items withslow-moving or obsolescence exposure and merchandise that has a carrying value that exceeds market value. Because of its merchandise mix, the Companyhas 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 performsphysical inventories of its stores at least once per year and cycle counts inventories at its distribution center throughout the year. The reserve for inventoryshrinkage primarily 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 ExpensesPrepaid expenses include the prepayment of various operating expenses such as insurance, rent, income and property taxes, softwaremaintenance and supplies, which are expensed when the operating cost is realized.Property and Equipment, NetProperty and equipment are stated at cost and are being depreciated or amortized utilizing the straight-line method over the followingestimated useful lives: Leasehold improvements Shorter of estimated useful life or term of leaseFurniture and equipment 3 – 10 yearsInternal-use software 3 – 7 years Maintenance and repairs are expensed as incurred.In fiscal 2015 and 2014, the Company incurred costs to purchase and develop software for internal use which included costs for its websiteassociated with the development and implementation of an e-commerce platform, and also included costs related to the development of a new point-of-salesystem. Costs related to the application development stage are capitalized and amortized over the estimated useful life of the software. Costs related to thedesign or maintenance of internal-use software are expensed as incurred. The Company placed software relating to website development for its e-commerceinitiative into service in fiscal 2014, at which time amortization commenced.GoodwillGoodwill 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 berecoverable.The Company performed an annual impairment test as of the end of fiscal 2015, 2014 and 2013, and determined that goodwill was notimpaired. Furthermore, the Company has no accumulated impairment losses as of January 3, 2016.Valuation of Long-Lived AssetsThe Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of anasset may not be recoverable.F-11 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) Long-lived assets are reviewed for recoverability at the lowest level in which there are identifiable cash flows (“asset group”), usually at thestore level. Each store typically requires net investments of approximately $0.5 million in long-lived assets to be held and used, subject to recoverabilitytesting. 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 theuse 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 theamount by which the carrying amount of the asset group exceeds its fair value, determined using discounted cash flow valuation techniques, as defined inASC 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, grossmargin and operating expense for each store under evaluation for impairment. The estimates of future cash flows involve management judgment and arebased upon assumptions about expected future operating performance. Assumptions used in these forecasts are consistent with internal planning, and includeassumptions 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 2015, 2014 and 2013, the Company recognized pre-tax non-cash impairment charges of $0.2 million, $1.2 million and $0.1 million,respectively, related to certain underperforming stores. These impairment charges are included in selling and administrative expense in the consolidatedstatements of operations. Leases and Deferred RentThe 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 leasecommitments consist principally of leases for the Company’s retail store facilities, distribution center and corporate office. Capital lease obligations consistprincipally of leases for some of the Company’s distribution center delivery tractors, information technology systems hardware and point-of-sale equipmentfor 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, whichare 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 rentincreases, and certain leases include an initial period of free or reduced rent as an inducement to enter into the lease agreement (“rent holidays”). TheCompany recognizes rent expense for rent increases and rent holidays on a straight-line basis over the term of the underlying leases, without regard to whenrent 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 theinitial 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 ObligationsThe Company accounts for its asset retirement obligations (“ARO”) in accordance with ASC 410, Asset Retirement and EnvironmentalObligations, which requires the recognition of a liability for the fair value of a legally required asset retirement obligation when incurred if the liability’s fairvalue can be reasonably estimated. The Company’s ARO liabilities are associated with the disposal and retirement of leasehold improvements resulting fromcontractual obligations at the end of a lease to restore the facility back to a condition specified in the lease agreement.F-12 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) 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 thatcontractually obligate the Company with an asset retirement obligation. The estimate of the ARO liability is based on a number of assumptions includingstore closing costs, inflation rates and discount rates. Accretion expense related to the ARO liability is recognized as operating expense. The capitalized assetis depreciated on a straight-line basis over the useful life of the leasehold improvement. Upon ARO removal, any difference between the actual retirementexpense incurred and the recorded estimated ARO liability is recognized as an operating gain or loss in the consolidated statements of operations. The AROliability, which totaled $0.8 million and $0.7 million as of January 3, 2016 and December 28, 2014, respectively, is included in other long-term liabilities inthe accompanying consolidated balance sheets.Self-Insurance LiabilitiesThe 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, theCompany 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 ofpaid and incurred claims, and other actuarial assumptions. If actual claims trends under these programs, including the severity or frequency of claims, differfrom the Company’s estimates, its financial results may be significantly impacted. The Company’s estimated self-insurance liabilities, which are reportedgross of expected workers’ compensation insurance reimbursements, are classified on the balance sheet as accrued expenses or other long-term liabilitiesbased upon whether they are expected to be paid during or beyond the normal operating cycle of 12 months from the date of the consolidated financialstatements. Self-insurance liabilities totaled $11.2 million and $10.7 million as of January 3, 2016 and December 28, 2014, respectively, of which $4.8million and $4.4 million were recorded as a component of accrued expenses as of January 3, 2016 and December 28, 2014, respectively, and $6.4 million and$6.3 million were recorded as a component of other long-term liabilities as of January 3, 2016 and December 28, 2014, respectively, in the accompanyingconsolidated balance sheets.Income TaxesUnder the asset and liability method prescribed within ASC 740, Income Taxes, the Company recognizes deferred tax assets and liabilities forthe 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 differencesare 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 thatincludes the enactment date. The realizability of deferred tax assets is assessed throughout the year and a valuation allowance is recorded if necessary toreduce net deferred tax assets to the amount more likely than not to be realized. Certain prior period deferred tax disclosures may be reclassified to conformwith current period presentation.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 besustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. ASC 740 alsoprovides 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 operatingexpense. At January 3, 2016 and December 28, 2014, the Company had no accrued interest or penalties.Concentration of RiskThe Company maintains its cash accounts in financial institutions, and accounts at these institutions are insured by the Federal DepositInsurance Corporation (“FDIC”) up to $250,000.The Company primarily operates traditional sporting goods retail stores located in the western United States. Because of this, the Company issubject to regional risks, such as the economy, including downturns in the housing market, state financial conditions, unemployment and gas prices. Otherregional risks include weather conditions, power outages, droughts, earthquakes and other natural disasters specific to the states in which the Companyoperates.F-13 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) The Company relies on a single distribution center located in Riverside, California, which services all of its stores and e-commerce platform.Any natural disaster or other serious disruption to the distribution center due to fire, earthquake or any other cause could damage a significant portion ofinventory and could materially impair the Company’s ability to adequately stock its stores and fulfill its e-commerce business.A substantial amount of the Company’s 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. A contract dispute, such as the one the Companyexperienced in the Ports of Los Angeles and Long Beach in 2015, may lead to protracted delays in the movement of the Company’s products, which couldfurther delay the delivery of products to the Company’s stores and impact net sales and profitability. In addition, other conditions outside of the Company’scontrol, such as adverse weather conditions or acts of terrorism, could significantly disrupt operations at shipping ports or otherwise impact transportation ofthe imported merchandise we sell.The Company purchases merchandise from over 700 suppliers, and the Company’s 20 largest suppliers accounted for 41.5% of total purchasesin fiscal 2015. One vendor represented greater than 5% of total purchases, at 10.8%, in fiscal 2015. A significant portion of the Company’s inventory ismanufactured abroad in China and other countries. If a disruption of trade were to occur from the countries in which the suppliers of the Company’s vendorsare 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 thefinancial and capital markets brings additional potential risks to the Company, including higher costs of credit, potential lender defaults, and potentialcommercial bank failures. The Company has received no indication that any such events will negatively impact the lenders under its current revolving creditfacility; however, the possibility does exist. (3)Property and Equipment, NetProperty and equipment, net, consist of the following: January 3,2016 December 28,2014 (In thousands) Furniture and equipment $128,781 $118,297 Leasehold improvements 150,617 143,056 Internal-use software 25,215 24,264 304,613 285,617 Accumulated depreciation and amortization (1) (228,701) (211,422) 75,912 74,195 Assets not placed into service (2) 6,124 4,245 Property and equipment, net $82,036 $78,440 (1)Includes accumulated amortization for internal-use software development costs of $20.5 million and $19.0 million as of January 3, 2016 and December 28, 2014,respectively.(2)Includes internal-use software development costs of $5.2 million and $2.7 million related to the development of a new point-of-sale system as of January 3, 2016 andDecember 28, 2014, respectively.As of January 3, 2016, to provide additional information, the Company separately disclosed internal-use software and related amortizationexpense. Prior year amounts related to this footnote have also been reclassified to conform to the current year presentation.F-14 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) Depreciation expense associated with property and equipment, including assets leased under capital leases, was $8.3 million, $8.8 million and$9.0 million for fiscal 2015, 2014 and 2013, respectively. Amortization expense for leasehold improvements was $11.6 million, $11.5 million and $10.2million for fiscal 2015, 2014 and 2013, respectively. Amortization expense for internal-use software was $1.5 million, $1.2 million and $1.0 million for fiscal2015, 2014 and 2013, respectively. The gross cost of equipment under capital leases, included above, was $9.4 million and $8.5 million as of January 3,2016 and December 28, 2014, respectively. The accumulated amortization related to these capital leases was $5.6 million and $5.9 million as of January 3,2016 and December 28, 2014, respectively. (4)Impairment of Long-Lived AssetsLong-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset maynot be recoverable. In fiscal 2015, 2014 and 2013, the Company recognized pre-tax non-cash impairment charges of $0.2 million, $1.2 million and $0.1million, 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 flowprojections. When projecting the stream of future cash flows associated with an individual store for purposes of determining long-lived asset recoverability,management considers local market conditions and makes assumptions about key store variables including sales growth rates, gross profit and operatingexpense. If economic conditions deteriorate in the markets in which the Company conducts business, or if other negative market conditions develop, theCompany may experience additional impairment charges in the future for underperforming stores. These impairment charges are included in selling andadministrative expense for fiscal 2015, 2014 and 2013 in the consolidated statements of operations. (5)Fair Value MeasurementsThe carrying values of cash, accounts receivable, accounts payable and accrued expenses approximate the fair values of these instruments dueto their short-term nature. The carrying amount for borrowings under the revolving credit facility approximates fair value because of the variable marketinterest rate charged to the Company for these borrowings. When the Company recognizes impairment on certain of its underperforming stores, the carryingvalues of these stores are reduced to their estimated fair values.As of January 3, 2016 and December 28, 2014, the Company’s only significant assets or liabilities measured at fair value on a nonrecurringbasis subsequent to their initial recognition were assets subject to long-lived asset impairment related to certain underperforming stores. As discussed in Note4 to the consolidated financial statements, the Company estimated the fair values of these long-lived assets based on the Company’s own judgments aboutthe assumptions that market participants would use in pricing the asset and on observable market data, when available. The Company classified these fairvalue measurements as Level 3 inputs, which are unobservable inputs for which market data are not available and that are developed using the bestinformation available about pricing assumptions used by market participants in accordance with ASC 820, Fair Value Measurement. After the impairmentcharges, the carrying values of the remaining assets of these stores were not material. (6)Accrued ExpensesThe major components of accrued expenses are as follows: January 3,2016 December 28,2014 (In thousands) Payroll and related expense $24,090 $22,568 Sales tax 11,307 10,432 Occupancy expense 10,693 9,412 Other 23,434 27,987 Accrued expenses $69,524 $70,399 F-15 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) (7)Lease Commitments The Company currently leases stores, distribution and headquarters facilities under non-cancelable operating leases. The Company’s leasesgenerally contain multiple renewal options for periods ranging from five to ten years and require the Company to pay all executory costs such asmaintenance 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: Year Ended January 3,2016 December 28,2014 December 29,2013 (In thousands) Rent expense $71,541 $66,276 $62,777 Contingent rent 654 858 1,081 Total rent expense $72,195 $67,134 $63,858 Rent expense includes sublease rent income of $0.1 million, $0.1 million and $0.1 million for fiscal 2015, 2014 and 2013, respectively.Future minimum lease payments under non-cancelable leases as of January 3, 2016 are as follows: Year Ending: CapitalLeases OperatingLeases Total (In thousands) 2016 $1,533 $78,426 $79,959 2017 1,138 70,385 71,523 2018 845 61,611 62,456 2019 437 50,145 50,582 2020 64 36,461 36,525 Thereafter — 71,985 71,985 Total minimum lease payments 4,017 $369,013 $373,030 Imputed interest (190) Present value of minimum lease payments $3,827 In February 2008, the Company entered into a lease for a parcel of land with an existing building adjacent to its corporate headquarterslocation. The lease term commenced in 2009 and the primary term expires on February 28, 2019, which may be renewed for six successive periods of fiveyears 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 theprimary term expires in 2019, regardless of whether or not any renewal options are exercised.In November 2015, the Company commenced operations at an additional 171,000 square foot distribution space adjacent to its distributioncenter in Riverside, California that will enable the Company to more efficiently fulfill its expanding distribution requirements. The lease for this additionalfacility is scheduled to expire on August 31, 2020, and includes four additional five-year renewal options. (8)Long-Term DebtOn October 18, 2010, the Company entered into a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), asadministrative agent, and a syndicate of other lenders, which was amended on October 31, 2011 and December 19, 2013 (as so amended, the “CreditAgreement”). The maturity date of the Credit Agreement is December 19, 2018.F-16 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) The Credit Agreement provides for a revolving credit facility (the “Credit Facility”) with an aggregate committed availability of up to $140.0million, which amount may be increased at the Company’s option up to a maximum of $165.0 million. The Company may also request additional increasesin 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 increasetheir commitments to accommodate the requested increase. If such existing lenders do not exercise that option, the Company may (with the consent of WellsFargo, not to be unreasonably withheld) seek other lenders willing to provide such commitments. The Credit Facility includes a $50.0 million sublimit forissuances of letters of credit and a $20.0 million sublimit for swingline loans. The Company may borrow under the Credit Facility from time to time, provided the amounts outstanding will not exceed the lesser of the thenaggregate availability (as discussed above) and the Borrowing Base (such lesser amount being referred to as the “Loan Cap”). 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 (otherthan 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-transitinventory), 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. Theapplicable interest rate on the Company’s borrowings are a function of the daily average, over the preceding fiscal quarter, of the excess of the Loan Cap overamounts borrowed (such amount being referred to as the “Average Daily Excess Availability”). Those loans designated as LIBO rate loans shall bear interestat 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 bearinterest 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 totime, 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 interestin effect for such day as publicly announced from time to time by Wells Fargo as its “prime rate.” The applicable margin for all loans are set forth below as afunction of Average Daily Excess Availability for the preceding fiscal quarter. Level Average Daily Excess Availability LIBO RateApplicable Margin Base RateApplicable Margin I Greater than or equal to $100,000,000 1.25% 0.25% II Less than $100,000,000 but greater than or equal to $40,000,000 1.50% 0.50% III Less than $40,000,000 1.75% 0.75% 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 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 certaincircumstances, and limit the ability to, among other things, incur liens, incur additional indebtedness, transfer or dispose of assets, change the nature of thebusiness, guarantee obligations, pay dividends or make other distributions or repurchase stock, and make advances, loans or investments. The Company maydeclare 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 orrepurchase 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 theCredit Facility, failure to pay any interest or other amounts under the Credit Facility for five days after becoming due, failure to comply with certainagreements or covenants contained in the Credit Agreement, failure to satisfy certain judgments against the Company, failure to pay when due (or any otherdefault which does or may lead to the acceleration of) certain other material indebtedness in principal amount in excess of $5.0 million, and certaininsolvency and bankruptcy events.F-17 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) As of January 3, 2016 and December 28, 2014, the one-month LIBO rate was 0.5% and 0.2%, respectively, and the Wells Fargo Bank primelending rate was 3.50% and 3.25%, respectively. The average interest rate on the Company’s revolving credit borrowings during fiscal 2015 and 2014 was1.90% and 1.90%, respectively. As of January 3, 2016 and December 28, 2014, the Company had long-term revolving credit borrowings outstanding bearinginterest at both LIBO and the prime lending rates as follows: January 3,2016 December 28,2014 (In thousands) LIBO rate $53,000 $62,000 Prime rate 1,846 4,312 Total borrowings $54,846 $66,312 Total remaining borrowing availability, after subtracting letters of credit, was $84.7 million and $73.2 million as of January 3, 2016 andDecember 28, 2014, respectively, and letter of credit commitments were $0.5 million and $0.5 million as of January 3, 2016 and December 28, 2014,respectively.(9)Income TaxesTotal income tax expense (benefit) consists of the following: Current Deferred Total (In thousands) Fiscal 2015: Federal $7,478 $378 $7,856 State 1,558 37 1,595 $9,036 $415 $9,451 Fiscal 2014: Federal $5,582 $1,687 $7,269 State 1,303 60 1,363 $6,885 $1,747 $8,632 Fiscal 2013: Federal $15,307 $(777) $14,530 State 3,293 (87) 3,206 $18,600 $(864) $17,736 The provision for income taxes differs from the amounts computed by applying the federal statutory tax rate of 35% to earnings before incometaxes, as follows: Year Ended January 3,2016 December 28,2014 December 29,2013 (In thousands) Tax expense at statutory rate $8,662 $8,228 $15,989 State taxes, net of federal benefit 1,118 1,062 2,110 Tax credits and other (329) (658) (363) $9,451 $8,632 $17,736 F-18 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) Deferred tax assets and liabilities consist of the following tax-effected temporary differences: January 3,2016 December 28,2014 (In thousands) Deferred tax assets: Deferred rent $9,530 $9,978 Insurance liabilities 4,391 4,219 Employee benefit-related liabilities 4,077 3,927 Share-based compensation 2,569 2,662 Inventory 1,941 1,320 Gift card liability 1,300 1,211 Accrued legal fees 192 1,129 Other 3,337 3,514 Deferred tax assets 27,337 27,960 Basis difference in fixed assets (1,252) (1,447)Federal liability on state deferred tax assets (2,683) (2,696)Deferred tax liabilities (3,935) (4,143)Net deferred tax assets $23,402 $23,817 As of January 3, 2016, the Company separately disclosed deferred tax assets and liabilities related to insurance liabilities, employee benefit-related liabilities, gift card liability and federal liability on state deferred tax assets to provide additional information about components of deferred tax. Prioryear amounts related to this footnote have also been reclassified to conform to the current year presentation.In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of thedeferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during theperiods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected futuretaxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections of future taxableincome over the periods during which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize thebenefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced if estimates of future taxableincome are reduced.The Company files a consolidated federal income tax return and files tax returns in various state and local jurisdictions. The statutes oflimitations for its consolidated federal income tax returns are open for fiscal years 2012 and after, and state and local income tax returns are open for fiscalyears 2011 and after. As of January 3, 2016 and December 28, 2014, the Company had no unrecognized tax benefits that, if recognized, would affect the Company’seffective income tax rate over the next 12 months. The Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interestexpense and penalties in operating expense. As of January 3, 2016 and December 28, 2014, the Company had no accrued interest or penalties. (10)Earnings Per ShareThe Company calculates earnings per share in accordance with ASC 260, Earnings Per Share, which requires a dual presentation of basic anddiluted 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 thepotentially dilutive effect of outstanding share option awards, nonvested share awards and nonvested share unit awards.F-19 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) The following table sets forth the computation of basic and diluted earnings per common share: Year Ended January 3,2016 December 28,2014 December 29,2013 (In thousands, except per share data) Net income $15,297 $14,876 $27,946 Weighted-average shares of common stock outstanding: Basic 21,741 21,933 21,765 Dilutive effect of common stock equivalents arising from share option, nonvested share and nonvested share unit awards 186 200 318 Diluted 21,927 22,133 22,083 Basic earnings per share $0.70 $0.68 $1.28 Diluted earnings per share $0.70 $0.67 $1.27 Antidilutive share option awards excluded from diluted calculation 480,599 513,885 763,688 Antidilutive nonvested share and nonvested share unit awards excluded from diluted calculation 165 1,208 10,236 The computation of diluted earnings per share for fiscal 2015, 2014 and 2013 does not include share option awards that were outstanding andantidilutive (i.e., including such share option awards would result in higher earnings per share), since the exercise prices of these share option awardsexceeded the average market price of the Company’s common shares. Additionally, the computation of diluted earnings per share for fiscal 2015, 2014 and2013 does not include nonvested share awards and nonvested share unit awards that were outstanding and antidilutive, since the grant date fair values ofthese nonvested share awards and nonvested share unit awards exceeded the average market price of the Company’s common shares.The Company repurchased 379,930 shares of common stock for $4.2 million in fiscal 2015 and 223,051 shares of common stock for $2.5million in fiscal 2014. The Company did not repurchase shares of common stock during fiscal 2013. Since the inception of the Company’s initial sharerepurchase program in May 2006 through January 3, 2016, the Company has repurchased a total of 2,530,607 shares for $32.1 million, leaving a total of $2.9million available for share repurchases under the current share repurchase program. (11)Employee Benefit PlansThe Company has a 401(k) plan covering eligible employees. Employee contributions are supplemented by Company contributions subject to401(k) plan terms. The Company recognized employer matching and profit-sharing contributions of $2.0 million, $1.8 million and $2.3 million for fiscal2015, 2014 and 2013, respectively. (12)Related Party TransactionsG. Michael Brown, who retired from the Company’s Board of Directors in June 2015, is a partner of the law firm of Musick, Peeler & GarrettLLP. From time to time, the Company retains Musick, Peeler & Garrett LLP to handle various litigation matters. The Company received services fromMusick, Peeler & Garrett LLP amounting to $0.7 million, $0.7 million and $0.7 million in fiscal 2015, 2014 and 2013, respectively. Amounts due to Musick,Peeler & Garrett LLP totaled $41,000 and $60,000 as of January 3, 2016 and December 28, 2014, respectively.F-20 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) Prior to his death in fiscal 2008, the Company had an employment agreement with Robert W. Miller (“Mr. Miller”), co-founder of the Companyand the father of Steven G. Miller, Chairman of the Board, President, Chief Executive Officer and a director of the Company. The employment agreementprovided for Mr. Miller to receive an annual base salary of $350,000. The employment agreement further provided that, following his death, the Companywill pay his surviving wife $350,000 per year and provide her specified benefits for the remainder of her life. During each of fiscal 2015, 2014 and 2013, theCompany made a payment of $350,000 to Mr. Miller’s wife. The Company recognized expense of $0.3 million, $0.4 million and $0.3 million in fiscal 2015,2014 and 2013, respectively, to provide for a liability for the future obligations under this agreement. Based upon actuarial valuation estimates related to thisagreement, the Company had a recorded liability of $1.5 million and $1.5 million as of January 3, 2016 and December 28, 2014, respectively. The short-termportion of this liability is recorded in accrued expenses and the long-term portion is recorded in other long-term liabilities. (13)Commitments and ContingenciesOn September 10, 2014, a complaint was filed in the California Superior Court for the County of Los Angeles, entitled Pedro Duran v. Big 5Corp., et al., Case No. BC557154. On October 7, 2014, an amended complaint was filed. As amended, the complaint alleged the Company violated theCalifornia Labor Code and the California Business and Professions Code. The complaint was brought as a purported class action on behalf of certain of theCompany’s hourly employees who worked as “warehousemen” in the Company’s distribution center in California for the four years prior to the filing of thecomplaint. The plaintiff alleged, among other things, that the Company failed to pay such employees for all time worked, failed to provide such employeeswith compliant meal and rest periods, failed to properly itemize wage statements, and failed to pay wages within required time periods during employmentand upon termination of employment. The plaintiff sought, on behalf of the purported class members, an award of statutory and civil damages and penalties,including restitution and recovery of unpaid wages; pre-judgment interest; an award of attorneys’ fees and costs; and injunctive and declaratory relief. TheCompany believed that the complaint was without merit. The Company was not served with the complaint or the amended complaint. In an effort tonegotiate a settlement of this litigation, the Company and plaintiff engaged in mediation on January 28, 2015. On April 1, 2015, the parties agreed to settlethe lawsuit. On June 22, 2015, the court granted preliminary approval of the proposed settlement. On October 20, 2015, the court granted final approval ofthe settlement. Under the terms of the settlement, the Company agreed to pay approximately $1.4 million, which includes payments to class members,plaintiff’s attorneys’ fees and expenses, an enhancement payment to the class representative, claims administration fees and payment to the California Laborand Workforce Development Agency. The Company’s total payments pursuant to this settlement have been reflected in a legal settlement accrual initiallyrecorded in the fourth quarter of fiscal 2014 prior to the settlement and subsequently adjusted in the first quarter of fiscal 2015 to reflect the settlement. TheCompany admitted no liability or wrongdoing with respect to the claims set forth in the lawsuit. The settlement constitutes a full and complete settlementand release of all claims related to the lawsuit.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. (14)Share-Based Compensation Plans2002 Stock Incentive PlanIn June 2002, the Company adopted the 2002 Stock Incentive Plan (“2002 Plan”). The 2002 Plan provided for the grant of incentive shareoption awards and non-qualified share option awards to the Company’s employees, directors and specified consultants. Share option awards granted underthe 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 optionawards, shares are expected to be issued from new shares previously registered for the 2002 Plan. The 2002 Plan was terminated in connection with theapproval of the 2007 Equity and Performance Incentive Plan, as described below. Consequently, at January 3, 2016, no shares remained available for futuregrant and 323,790 share option awards remained outstanding under the 2002 Plan, subject to adjustment to reflect any changes in the outstanding commonstock of the Company by reason of reorganization, recapitalization, reclassification, stock combination, stock dividend, stock split, reverse stock split, spinoff or other similar transaction.F-21 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) 2007 Equity and Performance Incentive PlanIn June 2007, the Company adopted the 2007 Equity and Performance Incentive Plan (“2007 Plan”) and terminated the 2002 Plan. Theaggregate 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 toawards granted under the 2002 Plan which are forfeited, expire or are cancelled after April 24, 2007 (the effective date of the 2007 Plan). This amountrepresents the amount of shares that remained available for grant under the 2002 Plan as of April 24, 2007. Awards under the 2007 Plan may consist of shareoption awards (both incentive share option awards and non-qualified share option awards), stock appreciation rights, nonvested share awards, other stock unitawards, performance awards, or dividend equivalents. Any shares that are subject to awards of options or stock appreciation rights shall be counted againstthis 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 dividendequivalents) 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 sharesavailable under the 2007 Plan and the number of shares subject to outstanding share option awards will be increased or decreased to reflect any changes inthe 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 yearwith a maximum life of ten years. Share option awards, nonvested share awards and nonvested share unit awards provide for accelerated vesting if there is achange 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 wereregistered for the 2007 Plan.Amendment and Restatement of 2007 PlanOn June 14, 2011, the Company’s shareholders approved an amendment and restatement of the Company's 2007 Equity and PerformanceIncentive 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’soutstanding share-based payment awards. Generally, the amendment and restatement made the following revisions to the 2007 Plan: ·the maximum number of shares of the Company’s common stock that may be issued or subject to awards under the Amended 2007 Plan wasincreased 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 ofthe 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 RevenueCode; and ·certain technical updates and enhancements were implemented, including an exception to certain vesting requirements for up to 10% of theshares 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 2015, the Company granted 152,140 nonvested share awards, 25,200 nonvested share unit awards and 20,000 share option awards todirectors and certain employees, as defined by ASC 718, Compensation—Stock Compensation, under the Amended 2007 Plan. At January 3, 2016, 597,202shares remained available for future grant and 330,840 share option awards, 348,490 nonvested share awards and 43,200 nonvested share unit awardsremained outstanding under the Amended 2007 Plan.F-22 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) The Company accounts for its share-based compensation in accordance with ASC 718 and recognizes compensation expense on a straight-linebasis over the requisite service period, net of estimated forfeitures, using the fair-value method for share option awards, nonvested share awards andnonvested share unit awards granted with service-only conditions. The estimated forfeiture rate considers historical employee turnover rates stratified intoemployee pools in comparison with an overall employee turnover rate, as well as expectations about the future. The Company periodically revises theestimated forfeiture rate in subsequent periods if actual forfeitures differ from those estimates. Compensation expense recorded under this method for fiscal2015, 2014 and 2013 was $2.2 million, $1.9 million and $1.9 million, respectively, which reduced operating income and income before income taxes by thesame amount. Compensation expense recognized in cost of sales was $0.1 million, $0.1 million and $0.1 million in fiscal 2015, 2014 and 2013, respectively,and compensation expense recognized in selling and administrative expense was $2.1 million, $1.8 million and $1.8 million in fiscal 2015, 2014 and 2013,respectively. The recognized tax benefit related to compensation expense for fiscal 2015, 2014 and 2013 was $0.8 million, $0.7 million and $0.7 million,respectively. Net income for fiscal 2015, 2014 and 2013 was reduced by $1.4 million, $1.2 million and $1.2 million, respectively, or $0.06, $0.05 and $0.05per basic and diluted share, respectively.Share Option AwardsThe 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: Year Ended January 3,2016 December 28,2014 December 29,2013 Risk-free interest rate 1.8% 1.8% 1.4%Expected term 5.8 years 5.8 years 6.9 years Expected volatility 57.0% 57.0% 57.5%Expected dividend yield 2.8% 3.3% 2.3% 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 expectedterm of the option award; the expected term represents the weighted-average period of time that option awards granted are expected to be outstanding givingconsideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’scommon 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 2015, 2014 and 2013 was $6.02 per share, $4.80 per shareand $8.37 per share, respectively.A summary of the status of the Company’s share option awards is presented below: Shares Weighted-AverageExercisePrice Weighted-AverageRemainingContractualLife(In Years) AggregateIntrinsicValue Outstanding at December 28, 2014 729,905 $15.73 Granted 20,000 14.31 Exercised (25,875) 5.70 Forfeited or Expired (69,400) 24.36 Outstanding at January 3, 2016 654,630 $15.16 2.35 $723,150 Exercisable at January 3, 2016 602,130 $15.25 1.83 $708,163 Vested and Expected to Vest at January 3, 2016 654,088 $15.17 2.35 $723,133 The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based upon the Company’s closing stock priceof $9.99 per share as of January 3, 2016, which would have been received by the share option award holders had all share option award holders exercisedtheir share option awards as of that date.F-23 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) The total intrinsic value of share option awards exercised for fiscal 2015, 2014 and 2013 was approximately $0.2 million, $0.2 million and$5.1 million, respectively. The total cash received from employees as a result of employee share option award exercises for fiscal 2015, 2014 and 2013 wasapproximately $0.1 million, $0.1 million and $4.6 million, respectively. The actual tax benefit realized for the tax deduction from share option awardexercises in fiscal 2015, 2014 and 2013 totaled $0.1 million, $0.1 million and $2.0 million, respectively.As of January 3, 2016, there was $0.2 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 2.4 years.Nonvested Share Awards and Nonvested Share Unit AwardsNonvested share awards and nonvested share unit awards granted by the Company have historically vested from the date of grant in four equalannual installments of 25% per year. In accordance with the Company’s Director Compensation Program, as amended on July 24, 2014, nonvested shareawards and nonvested share unit awards granted by the Company to non-employee directors shall vest 100% on the first anniversary of the grant date. Thisone-year vesting for non-employee directors became effective for nonvested share awards and nonvested share unit awards granted in fiscal 2015.Nonvested share awards are delivered to the recipient upon their vesting. With respect to nonvested share unit awards, vested shares will bedelivered 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 fairvalue of nonvested share awards which vested during fiscal 2015, 2014 and 2013 was $1.7 million, $2.1 million and $1.8 million, respectively. The total fairvalue of nonvested share unit awards which vested during fiscal 2015, 2014 and 2013 was $0.1 million, $0.1 million and $38,000, respectively.The following table details the Company’s nonvested share awards activity for fiscal 2015: Shares Weighted-Average Grant-Date Fair Value Balance at December 28, 2014 336,765 $13.47 Granted 152,140 13.06 Vested (132,475) 12.57 Forfeited (7,940) 13.84 Balance at January 3, 2016 348,490 $13.63 The following table details the Company’s nonvested share unit awards activity for fiscal 2015: Units Weighted-Average Grant-Date Fair Value Balance at December 28, 2014 29,250 $13.07 Granted 25,200 14.67 Vested (11,250) 11.93 Forfeited — — Balance at January 3, 2016 43,200 $14.30 The weighted-average grant-date fair value of nonvested share awards and nonvested share unit awards is the quoted market price of theCompany’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 grantedin fiscal 2015, 2014 and 2013 was $13.06 per share, $15.14 per share and $15.56 per share, respectively. The weighted-average grant-date fair value per shareof the Company’s nonvested share unit awards granted in fiscal 2015, 2014 and 2013 was $14.67 per share, $11.93 per share and $20.29 per share,respectively.F-24 BIG 5 SPORTING GOODS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) As of January 3, 2016, there was $3.2 million and $0.3 million of total unrecognized compensation expense related to nonvested share awardsand nonvested share unit awards, respectively. That expense is expected to be recognized over a weighted-average period of approximately 2.2 years and 1.0years 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 retiresa portion of the vesting common shares, unless an employee elects to pay cash. In fiscal 2015, the Company withheld 52,621 common shares with a totalvalue of $0.7 million. This amount is presented as a cash outflow from financing activities in the accompanying consolidated statements of cash flows. (15)Selected Quarterly Financial Data (unaudited)Fiscal 2015 First Second Third Fourth Quarter(1)(2) Quarter(2) Quarter Quarter(3)(4) (In thousands, except per share data) Net sales $243,555 $240,407 $270,130 $275,006 Gross profit $76,684 $77,276 $85,165 $85,839 Net income $2,314 $2,578 $6,130 $4,275 Basic earnings per share $0.11 $0.12 $0.28 $0.20 Diluted earnings per share $0.11 $0.12 $0.28 $0.20 Fiscal 2014 First Second Third Fourth Quarter Quarter(4) Quarter Quarter(1)(4) (In thousands, except per share data) Net sales $231,263 $231,150 $265,115 $250,332 Gross profit $72,678 $75,573 $86,060 $79,139 Net income $2,060 $2,535 $7,466 $2,815 Basic earnings per share $0.09 $0.12 $0.34 $0.13 Diluted earnings per share $0.09 $0.11 $0.34 $0.13 (1)The Company recorded pre-tax charges in the first quarter of fiscal 2015 and the fourth quarter of fiscal 2014 of $0.4 million and $1.4 million, respectively, related to legalaccruals. These charges were included in selling and administrative expense and reduced net income in the first quarter of fiscal 2015 and fourth quarter of fiscal 2014 by$0.2 million, or $0.01 per diluted share, and $0.9 million, or $0.04 per diluted share, respectively.(2)The Company recorded pre-tax charges of $0.5 million and $1.1 million in the first quarter and second quarter of fiscal 2015, respectively, related to a publicly-disclosedproxy contest. These charges were included in selling and administrative expense, and reduced net income in the first quarter and second quarter of fiscal 2015 by $0.3million, or $0.01 per diluted share, and $0.7 million, or $0.03 per diluted share, respectively.(3)The Company recorded pre-tax charges of $0.4 million in the fourth quarter of fiscal 2015 related to the evaluation of store growth strategies and potential profitimprovement opportunities. These charges were included in selling and administrative expense, and reduced net income in the fourth quarter of fiscal 2015 by $0.2 million,or $0.01 per diluted share.(4)The Company recorded pre-tax non-cash impairment charges of $0.2 million, $0.8 million and $0.4 million in the fourth quarter of fiscal 2015 and the second quarter andfourth quarter of fiscal 2014, respectively, related to certain underperforming stores. These impairment charges were included in selling and administrative expense, andreduced net income by $0.1 million, or $0.00 per diluted share, and $0.5 million, or $0.02 per diluted share, and $0.3 million, or $0.01 per diluted share, in the fourthquarter of fiscal 2015 and the second quarter and fourth quarter of fiscal 2014, respectively.(16)Subsequent EventIn the first quarter of fiscal 2016, the Company’s Board of Directors declared a quarterly cash dividend of $0.125 per share of outstandingcommon stock, which will be paid on March 22, 2016 to stockholders of record as of March 8, 2016. F-25 BIG 5 SPORTING GOODS CORPORATIONSCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS(In thousands) Balance atBeginning ofPeriod Charged toCosts andExpenses Deductions Balance atEnd of Period January 3, 2016 Allowance for doubtful receivables $110 $50 $(99) $61 Allowance for sales returns $1,320 $5 (1) $— $1,325 Inventory reserves $5,349 $6,556 $(5,651) $6,254 December 28, 2014 Allowance for doubtful receivables $105 $24 $(19) $110 Allowance for sales returns $1,436 $(116)(1) $— $1,320 Inventory reserves $5,282 $5,139 $(5,072) $5,349 December 29, 2013 Allowance for doubtful receivables $99 $59 $(53) $105 Allowance for sales returns $1,475 $(39)(1) $— $1,436 Inventory reserves $5,151 $5,444 $(5,313) $5,282 (1)Represents an increase (decrease) in the required reserve based upon the Company’s evaluation of anticipated merchandise returns. II BIG 5 SPORTING GOODS CORPORATIONEXHIBIT INDEX ExhibitNumber Exhibit Description 3.1 Amended and Restated Certificate of Incorporation of Big 5 Sporting Goods Corporation. (1) 3.2 Amended and Restated Bylaws. (17) 4.1 Specimen of Common Stock Certificate. (2) 10.1 2002 Stock Incentive Plan. (3) 10.2 Form of Amended and Restated Employment Agreement between Robert W. Miller and Big 5 Sporting Goods Corporation. (3) 10.3 Second Amended and Restated Employment Agreement, dated as of December 31, 2008, between Steven G. Miller and Big 5 SportingGoods Corporation. (14) 10.4 Amended and Restated Indemnification Implementation Agreement between Big 5 Corp. (successor to United Merchandising Corp.) andThrifty PayLess Holdings, Inc. dated as of April 20, 1994. (1) 10.5 Agreement and Release among Pacific Enterprises, Thrifty PayLess Holdings, Inc., Thrifty PayLess, Inc., Thrifty and Big 5 Corp. (successorto United Merchandising Corp.) dated as of March 11, 1994. (1) 10.6 Form of Indemnification Agreement. (1) 10.7 Form of Indemnification Letter Agreement. (2) 10.8 Credit Agreement, dated as of October 18, 2010, among Big 5 Corp., Big 5 Services Corp. and Big 5 Sporting Goods Corporation, WellsFargo Bank, National Association, as Administrative Agent and Collateral Agent and Swingline Lender, the Lenders named therein, andBank of America, N.A. as Documentation Agent. (5) 10.9 Security Agreement, dated as of October 18, 2010, among Big 5 Corp., Big 5 Services Corp. and Big 5 Sporting Goods Corporation andWells Fargo Bank, National Association, as Collateral Agent. (5) 10.10 Guaranty, dated as of October 18, 2010, by Big 5 Sporting Goods Corporation in favor of Wells Fargo Bank, National Association, asAdministrative Agent and Collateral Agent for the Lenders described therein. (5) 10.11 First Amendment to Credit Agreement, dated as of October 31, 2011 among Big 5 Corp., Big 5 Services Corp., Big 5 Sporting GoodsCorporation, 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. (6) 10.12 Second Amendment to Credit Agreement, dated as of December 19, 2013 among Big 5 Corp., Big 5 Services Corp., Big 5 Sporting GoodsCorporation, 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. (7) 10.13 Lease dated as of April 14, 2004 by and between Pannatoni Development Company, LLC and Big 5 Corp.(8) 10.14 Form of Big 5 Sporting Goods Corporation Stock Option Grant Notice and Stock Option Agreement for use with Steven G. Miller with the2002 Stock Incentive Plan. (9) 10.15 Form of Big 5 Sporting Goods Corporation Stock Option Grant Notice and Stock Option Agreement for use with 2002 Stock IncentivePlan. (9) 10.16 Employment Offer Letter dated August 15, 2005 between Barry D. Emerson and Big 5 Corp. (10) 10.17 Severance Agreement dated as of August 9, 2006 between Barry D. Emerson and Big 5 Corp. (11) 10.18 Big 5 Sporting Goods Corporation 2007 Equity and Performance Incentive Plan (Amended and Restated as of April 26, 2011). (15) 10.19 Form of Big 5 Sporting Goods Corporation Stock Option Grant Notice and Stock Option Agreement for use with 2007 Equity andPerformance Incentive Plan. (12) 10.20 Form of Big 5 Sporting Goods Corporation Restricted Stock Grant Notice and Restricted Stock Agreement for use with 2007 Equity andPerformance Incentive Plan. (13)E-1 BIG 5 SPORTING GOODS CORPORATIONEXHIBIT INDEX(continued) ExhibitNumber Exhibit Description 10.21 Form of Big 5 Sporting Goods Corporation Restricted Stock Unit Agreement and Restricted Stock Unit Grant Notice approved for use withAmended and Restated 2007 Equity and Performance Incentive Plan. (15) 10.22 Settlement Agreement, dated April 30, 2015, by and among the persons and entities listed on Schedule A thereto, Big 5 Sporting GoodsCorporation, Dominic P. DeMarco and Nicholas Donatiello, Jr..(16) 10.23 Form of Change of Control Severance Agreement, dated as of August 5, 2015. (18) 14.1 Code of Business Conduct and Ethics. (4) 21.1 Subsidiaries of Big 5 Sporting Goods Corporation. (9) 23.1 Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP. (19) 31.1 Rule 13a-14(a) Certification of Chief Executive Officer. (19) 31.2 Rule 13a-14(a) Certification of Chief Financial Officer. (19) 32.1 Section 1350 Certification of Chief Executive Officer. (19) 32.2 Section 1350 Certification of Chief Financial Officer. (19) 101.INS XBRL Instance Document. (19) 101.SCH XBRL Taxonomy Extension Schema Document. (19) 101.CAL XBRL Taxonomy Calculation Linkbase Document. (19) 101.DEF XBRL Taxonomy Definition Linkbase Document. (19) 101.LAB XBRL Taxonomy Label Linkbase Document. (19) 101.PRE XBRL Taxonomy Presentation Linkbase Document. (19) (1)Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on March 31, 2003.(2)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.(3)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.(4)Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on March 12, 2004.(5)Incorporated by reference to the Quarterly Report on Form 10-Q filed by Big 5 Sporting Goods Corporation on November 3, 2010.(6)Incorporated by reference to the Quarterly Report on Form 10-Q filed by Big 5 Sporting Goods Corporation on November 3, 2011.(7)Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on December 20, 2013.(8)Incorporated by reference to the Quarterly Report on Form 10-Q filed by Big 5 Sporting Goods Corporation on August 6, 2004.(9)Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on September 6, 2005.(10)Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on March 16, 2006.(11)Incorporated by reference to the Quarterly Report on Form 10-Q filed by Big 5 Sporting Goods Corporation on August 11, 2006.(12)Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on June 25, 2007.(13)Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on March 10, 2008.(14)Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on January 6, 2009.(15)Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on June 20, 2011.(16)Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on May 1, 2015.(17)Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on July 10, 2015.(18)Incorporated by reference to the Quarterly Report on Form 10-Q filed by Big 5 Sporting Goods Corporation on October 28, 2015.(19)Filed herewith. E-2 Exhibit 23.1 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-8of our reports dated March 2, 2016, relating to the financial statements and financial statement schedule of Big 5 Sporting GoodsCorporation and subsidiaries, and the effectiveness of Big 5 Sporting Goods Corporation and subsidiaries’ internal control overfinancial reporting, appearing in this Annual Report on Form 10-K of Big 5 Sporting Goods Corporation for the fiscal year endedJanuary 3, 2016. /s/ Deloitte & Touche LLP Los Angeles, CaliforniaMarch 2, 2016 Exhibit 31.1CERTIFICATIONS I, Steven G. Miller, certify that: 1.I have reviewed this Annual Report on Form 10-K of Big 5 Sporting Goods Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this report; 4.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 inExchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or personsperforming the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant's internal control over financial reporting. Date: March 2, 2016/s/Steven G. Miller Steven G. Miller President and Chief Executive Officer Exhibit 31.2CERTIFICATIONS I, Barry D. Emerson, certify that: 1.I have reviewed this Annual Report on Form 10-K of Big 5 Sporting Goods Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this report; 4.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 inExchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or personsperforming the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant's internal control over financial reporting. Date: March 2, 2016/s/Barry D. Emerson Barry D. Emerson Senior Vice President, Chief Financial Officer and Treasurer Exhibit 32.1CERTIFICATIONPURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OFTHE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Big 5 Sporting Goods Corporation (the "Company") for the periodending January 3, 2016 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 theSarbanes-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 of1934, as amended; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and resultsof operations of the Company. /s/Steven G. Miller Steven G. Miller President and Chief Executive Officer March 2, 2016A signed original of this written statement required by Section 906 has been provided to Big 5 Sporting Goods Corporation and will beretained by Big 5 Sporting Goods Corporation and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 32.2CERTIFICATIONPURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OFTHE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Big 5 Sporting Goods Corporation (the "Company") for the periodending January 3, 2016 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 adoptedpursuant 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 of1934, as amended; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and resultsof operations of the Company. /s/Barry D. Emerson Barry D. Emerson Senior Vice President, Chief Financial Officer and TreasurerMarch 2, 2016A signed original of this written statement required by Section 906 has been provided to Big 5 Sporting Goods Corporation and will beretained by Big 5 Sporting Goods Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
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