Big 5 Sporting Goods

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

For the fiscal year ended January 2, 2022
or

For the transition period from

to

Commission file number: 000-49850

BIG 5 SPORTING GOODS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

2525 East El Segundo Boulevard
El Segundo, California
(Address of principal executive offices)

95-4388794
(I.R.S. Employer
Identification No.)

90245
(Zip Code)

Title of each class

Registrant’s telephone number, including area code: (310) 536-0611
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

The NASDAQ Stock Market LLC

BGFV
Securities registered pursuant to section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes ‘ No Í

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes

‘ No Í

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted 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 required to submit such files). Yes Í No ‘

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ‘
Non-accelerated filer ‘

Í
Accelerated filer
Smaller reporting company Í
Emerging growth company ‘

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period

for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit report. Í

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No Í
The aggregate market value of the voting stock held by non-affiliates of the registrant was $510,240,815 as of July 4, 2021
(the last business day of the registrant’s most recently completed second fiscal quarter) based upon the closing price of the registrant’s
common stock on the NASDAQ Stock Market LLC reported for July 2, 2021. 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% of the outstanding voting stock
have been excluded in that such persons may be deemed to be affiliates of the registrant under certain circumstances. This determination of
affiliate status is not necessarily a conclusive determination of affiliate status for any other purpose.

The registrant had 22,219,839 shares of common stock outstanding at February 22, 2022.

Documents Incorporated by Reference

Part III of this Form 10-K incorporates by reference certain information from the registrant’s 2022 definitive proxy statement
(the “Proxy Statement”) to be filed with the Securities and Exchange Commission no later than 120 days after the end of the registrant’s
fiscal year.

TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4. MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . . . .
ITEM 6. [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . .
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . .
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT

INSPECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . .
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . .

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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PART IV

48
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . .
49
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

Forward-Looking Statements

This document includes certain “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, our
financial condition, our results of operations, our growth strategy and the business of our company generally. In
some cases, you can identify such statements by terminology such as “may,” “could,” “project,” “estimate,”
“potential,” “continue,” “should,” “expects,” “plans,” “anticipates,” “believes,” “intends” or other such
terminology. These forward-looking statements involve known and unknown risks and uncertainties and other
factors that may cause our actual results in current or future periods to differ materially from forecasted results.
These risks and uncertainties include, among other things, the economic impacts of COVID-19, including any
potential variants, on our business operations, including as a result of regulations that may be issued in response
to COVID-19, changes in the consumer spending environment, fluctuations in consumer holiday spending
increased competition from e-commerce retailers, breach of data security or other unauthorized
patterns,
disclosure of sensitive personal or confidential information, the competitive environment in the sporting goods
industry in general and in our specific market areas, inflation, product availability and growth opportunities,
changes in the current market for (or regulation of) firearm-related products, a reduction or loss of product from a
key supplier, disruption in product flow, seasonal fluctuations, weather conditions, changes in cost of goods,
operating expense fluctuations, increases in labor and benefit-related expense, changes in laws or regulations,
including those related to tariffs and duties, public health issues (including those caused by COVID-19 or any
potential variants), impacts from civil unrest or widespread vandalism, lower than expected profitability of our
e-commerce platform or cannibalization of sales from our existing store base which could occur as a result of
operating the e-commerce platform, litigation risks, stockholder campaigns and proxy contests, risks related to
our historically leveraged financial condition, changes in interest rates, credit availability, higher expense
associated with sources of credit resulting from uncertainty in financial markets and economic conditions in
general. Those and other risks and uncertainties are more fully described in Part I, Item 1A, Risk Factors, in this
report. We caution that the risk factors set forth in this report and the other reports that we file with the SEC are
not exclusive. In addition, we conduct our business in a highly competitive and rapidly changing environment.
Accordingly, new risk factors may arise. It is not possible for management to predict all such risk factors, nor to
assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or
combination of factors, may cause results to differ materially from those contained in any forward-looking
statement. We undertake no obligation to revise or update any forward-looking statement that may be made from
time to time by us or on our behalf.

3

ITEM 1.

BUSINESS

General

PART I

Big 5 Sporting Goods Corporation (“we,” “our,” “us” or the “Company”) is a leading sporting goods
retailer in the western United States, operating 431 stores and an e-commerce platform under the “Big 5 Sporting
Goods” name as of January 2, 2022. Throughout this section, our fiscal years ended January 2, 2022 and
January 3, 2021 are referred to as fiscal 2021 and 2020, respectively. We provide a full-line product offering in a
traditional sporting goods store format that averages approximately 11,000 square feet. Our product mix includes
athletic shoes, apparel and accessories, as well as a broad selection of outdoor and athletic equipment for team
sports, fitness, camping, hunting, fishing, home recreation, tennis, golf, and winter and summer recreation. We
supplement our traditional sports merchandise mix with an assortment of other products that we purchase
through opportunistic buys of vendor over-stock or close-out merchandise.

We believe that over our 67-year history we have developed a reputation with the competitive and
recreational sporting goods customer as a convenient neighborhood sporting goods retailer that consistently
delivers value on quality merchandise. Our stores carry a wide range of products at competitive prices from well-
known brand name manufacturers,
including adidas, Coleman, Columbia, 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 we purchase through opportunistic
buys of vendor over-stock and close-out merchandise. We reinforce our value reputation through digital
marketing programs, print advertising in major and local newspapers, and direct mailers designed to generate
customer traffic, drive net sales and maintain brand awareness. We also maintain social media sites to enhance
distribution capabilities for our promotional offers and to enable communication with our customers.

Robert W. Miller co-founded our company in 1955 with the establishment of five retail locations in
California. We sold World War II surplus items until 1963, when we began focusing exclusively on sporting
goods and changed our trade name to “Big 5 Sporting Goods.” In 1971, we were acquired by Thrifty
Corporation, which was subsequently purchased by Pacific Enterprises. In 1992, management bought our
company in conjunction with Green Equity Investors, L.P., an affiliate of Leonard Green & Partners, L.P. In
1997, Robert W. Miller, Steven G. Miller and Green Equity Investors, L.P. recapitalized our company so that the
majority of our common stock would be owned by our management and employees. In 2002, we completed an
initial public offering of our common stock and became a publicly-traded company.

Our accumulated management experience and expertise in sporting goods merchandising,
advertising, operations, store development and overall cost management have enabled us to generally produce
profitable results. We believe our historical success can be attributed to a value-based and execution-driven
information
operating philosophy, a controlled growth strategy and a proven business model. Additional
regarding our management experience is available in Item 1, Business, under the sub-heading “Management
Experience,” of this Annual Report on Form 10-K.

We are a holding company incorporated in Delaware on October 31, 1997. We conduct our business
through Big 5 Corp., a 100%-owned subsidiary incorporated in Delaware on October 27, 1997. We conduct our
gift card operations through Big 5 Services Corp., a 100%-owned subsidiary of Big 5 Corp. incorporated in
Virginia on December 19, 2003.

Our corporate headquarters are located at 2525 East El Segundo Boulevard, El Segundo, California
90245. Our Internet address is www.big5sportinggoods.com. Our Annual Report on Form 10-K, our Quarterly
Reports on Form 10-Q, our Current Reports on Form 8-K and amendments, if any, to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act, are available on our website, free of
charge, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
Securities and Exchange Commission.

4

COVID-19 Update

In March 2020,

the World Health Organization declared the rapidly growing novel coronavirus
(“COVID-19”) outbreak to be a global pandemic. The COVID-19 pandemic has significantly impacted health and
economic conditions throughout the United States, as public concern about becoming ill with the virus has led to the
issuance of recommendations and/or mandates from federal, state and local authorities to practice social distancing or
self-quarantine.

Beginning on March 20, 2020 and continuing into the second quarter of fiscal 2020, we temporarily closed
more than one-half of our retail store locations in response to state and local shelter orders related to the COVID-19
outbreak. We were subsequently able to gradually reopen all store locations based initially on qualifying as an
“essential” business under applicable regulations and later as a result of the easing of regulatory restrictions on retail
operations in our market areas. Throughout fiscal 2020, the pandemic and the shelter orders that were in place in our
market areas negatively impacted customer traffic into our stores that were operating, and certain stores required
additional closures during the remainder of the year. In an effort to promote social distancing protocols, we
implemented reduced store hours for our open stores and limited the number of customers in our stores at any one
time. While these temporary store closures, limited hours of operation and shelter orders in our market areas related to
the initial COVID-19 outbreak had an unfavorable impact on our operations initially, as we began reopening stores we
recognized significant shifts in consumer demand in favor of fitness and outdoor recreational products and we rapidly
evolved our product assortment, which had a favorable impact on our operating results throughout the remainder of
fiscal 2020. In fiscal 2021, as COVID-19 restrictions continued easing in many of our markets, we experienced strong
consumer demand across a broad assortment of product categories, including increased consumer demand for team
sports products, which was weak during the prior year due to the COVID-19 pandemic.

implementing temporary and permanent workforce reductions throughout

During fiscal 2020, in response to COVID-19, we initially took measures to reduce expense and preserve
capital across the organization, including negotiating lease concessions with landlords that would reduce or defer our
lease-related payments, scaling back merchandise inventory orders and extending payment terms with merchandise
vendors,
the organization, reducing
advertising and the amount of planned capital spending, and suspending our quarterly dividend payment, among other
measures. Although a certain portion of the expense reduction initiatives only benefited the second quarter of fiscal
2020, the remainder of fiscal 2020 continued to reflect labor expense savings due primarily to continued reduced store
operating hours throughout most of the period, as well as advertising expense savings due to significantly reduced
advertising activity. In fiscal 2021, our labor expense gradually increased as we increased wage rates in a tightening
labor market and increased our store operating hours compared to the same period in the prior year. While store
operating hours were higher in fiscal 2021 compared with the same period in the prior year, store operating hours
remain below pre-pandemic levels for the comparable periods, and we expect this trend to continue during fiscal 2022.
We continue to maintain reduced advertising expense in comparison to historical levels and expect this trend to
continue during fiscal 2022 as we continue to evaluate the impact on our sales. We will continue to evaluate the impact
of COVID-19 on our future operations.

Expansion and Store Development

Throughout our operating history, we have sought to expand our business with the addition of new
stores through a disciplined strategy of controlled growth. Our expansion within the western United States has
typically been systematic and designed to capitalize on our name recognition, economical store format and
economies of scale related to distribution and advertising. Over the past five fiscal years, we have opened 18
stores including relocations, of which 56% were in California. Our store openings over the past five fiscal years

5

reflect our cautious approach toward store expansion in the current retail environment, which includes increasing
ecommerce competition and the COVID-19 pandemic in fiscal 2020 and 2021. The following table reflects our
store opening, closing and relocation activity during the periods indicated:

Year

California

Other Markets

Total

Stores Opened

Stores
Relocated

Stores
Closed

Number of
Stores
at Period End

2017 . . . .
2018 . . . .
2019 . . . .
2020 . . . .
2021 . . . .

2
4
2
—
2

4
—
1
—
3

6
4
3
—
5

(1)
(1)
(1)
—
(2)

(2)
(2)
(4)
(4)
(2)

435
436
434
430
431

Our store format enables us to have substantial flexibility regarding new store locations. We have
successfully operated stores in major metropolitan areas and in areas with as few as 30,000 people. Our 11,000
average square foot store format differentiates us from superstores that typically average over 35,000 square feet,
require larger target markets, are more expensive to operate and require higher net sales per store for
profitability.

New store openings typically represent attractive investment opportunities due to the relatively low
investment required and the relatively short time necessary before our stores typically become profitable. Our
store format normally requires investments of approximately $0.6 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 real estate expense related to leased locations that are built to our specifications. We seek to
maximize new store performance by staffing new store management with experienced personnel from our
existing stores.

Our in-house store development personnel analyze new store locations with the assistance of real
estate firms that specialize in retail properties. Historically, we seek expansion opportunities to further penetrate
our established markets, develop recently entered markets and expand into new, contiguous markets with
attractive demographic, competitive and economic profiles.

Merchandising

We target the competitive and recreational sporting goods customer with a full-line product offering
at a wide variety of price points. We offer a product mix that includes athletic shoes, apparel and accessories, as
well as a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing,
home recreation, tennis, golf, and winter and summer recreation. We believe we deliver consistent value to
consumers by offering a distinctive merchandise mix that includes a combination of well-known brand name
merchandise, merchandise produced exclusively for us under a manufacturer’s brand name, private label
merchandise and specials on quality items we purchase through opportunistic buys of vendor over-stock and
close-out merchandise.

Through our 67 years of experience across different demographic, competitive and economic
markets, we have refined our merchandising strategy in an effort to offer a selection of products that meets
customer demand. Specifically, we continue to strategically refine our merchandise and marketing strategies in
order to better align our product mix and promotional efforts with today’s consumer.

The following table illustrates our mix of soft goods, which are non-durable items such as shirts and
shoes, and hard goods, which are durable items such as exercise equipment and baseball gloves, as a percentage
of net sales. The change in sales mix for fiscal 2020 reflects the change in consumer demand resulting from the

6

COVID-19 pandemic, including higher sales related to fitness and outdoor recreational activities and reduced
sales for team sports and back to school products:

Hard goods . . . . . . . . . . . . . . . . .
Soft goods

Athletic and sport footwear . . .
Athletic and sport apparel . . . .

Total soft goods . . . . . . . . . .

2021

2020

Fiscal Year
2019

2018

2017

55.0%

60.2%

49.7%

50.4%

50.7%

24.1
20.9

45.0

22.0
17.8

39.8

28.2
22.1

50.3

28.6
21.0

49.6

28.7
20.6

49.3

Total

. . . . . . . . . . . . . . . . . .

100.0% 100.0% 100.0% 100.0% 100.0%

We sell our popular branded merchandise from an extensive list of major sporting goods equipment,

athletic footwear and apparel manufacturers. Below is a selection of some of the brands we carry:

Coleman Footjoy
Columbia Franklin

adidas
Asics
Bearpaw Crosman Gildan
Bushnell Daisy
Callaway Dickies Heelys
Camp Chef Easton
Carhartt
Casio

Everlast
Fila

Head

Impex
JanSport
Lifetime
McDavid
Mizuno

Nike
Rawlings
Razor
Remington
Rollerblade
Russell Athletic Under Armour

Skechers
Spalding
Speedo
Timex
Titleist

Hillerich & Bradsby Mossberg
iFit (Proform)
Igloo

Mueller Sports Medicine Saucony
Shimano
New Balance

Wilson
Winchester

We believe we enjoy significant advantages in making opportunistic buys of vendor over-stock and
close-out merchandise because of our strong vendor relationships, purchasing volume and rapid decision-making
process. Our strong vendor relationships and purchasing volume also enable us to purchase merchandise
produced exclusively for us under a manufacturer’s brand name which allows us to differentiate our product
selection from competition, obtain volume pricing discounts from vendors and offer unique value to our
customers. Our advertising highlights our opportunistic buys together with merchandise produced exclusively for
us in order to reinforce our reputation as a retailer that offers attractive values to our customers.

In order to complement our branded product offerings, we offer a variety of private label
merchandise, which has historically represented approximately 2% of our net sales. Our sale of private label
merchandise enables us to provide our customers with a broader selection of quality merchandise at a wider
range of price points and allows us the potential to achieve higher margins than on sales of comparable name
brand products. Our private label items include shoes, apparel, camping equipment, fishing supplies and
snowsport equipment.

Seasonality influences our buying patterns and we purchase merchandise for seasonal activities in
advance of a season and supplement our merchandise assortment as necessary and when possible during the
season. We tailor our merchandise selection on a store-by-store basis in an effort to satisfy each region’s specific
needs and seasonal buying habits. In the fourth fiscal quarter we normally experience higher inventory purchase
volumes in anticipation of the winter and holiday selling season.

Our buyers, who average 14 years of experience with us, work in collaboration with senior
management to determine and enhance product selection, promotion and pricing of our merchandise mix.
Management utilizes integrated merchandising, business intelligence analytics, distribution, point-of-sale and
financial
information systems to continuously refine our merchandise mix, pricing strategy, advertising
effectiveness and inventory levels to best serve the needs of our customers.

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Advertising and Marketing

Through years of targeted advertising, we have solidified our reputation for offering quality products
at attractive prices. We drive customer traffic through the effective use of both digital communications as well as
print media.

We built our value-based brand through weekly print advertisements since 1955, and we provide
print advertisements and other targeted promotional offers through carrier delivery and direct mail. Over the last
several years we have been shifting our advertising spend away from print media towards digital advertising. In
fiscal 2020, we accelerated the reduction of print advertising in response to the COVID-19 pandemic and our
print advertising remained substantially reduced (from pre-pandemic levels) in fiscal 2021 as we continued to
evaluate our advertising programs. The consistency and reach of our digital and print advertising programs have
historically driven sales and create high customer awareness of the name “Big 5 Sporting Goods.”

We promote our products through digital marketing programs that include sending regular digital
communications to our customers (e-mail marketing to our “E-Team”), search engine marketing, social media
including Facebook, Twitter and Instagram, mobile programs and other website initiatives.

Our digital promotional strategy is designed to provide opportunities to connect with potential
customers and enable us to promote the Big 5 brand. Our e-mail marketing program invites our customers to
subscribe to our E-Team for daily special deals, weekly advertisements and product information disseminated on
a regular basis. We use search engine marketing methods as a means to reach those customers searching the
Internet to gather information about our products. Within our social media program, our customers have the
opportunity to engage in conversations with other sports-minded people and receive exclusive information about
new products and unique weekly offers. All of these marketing methods are intended to simplify the shopping
experience for our customers and further demonstrate our commitment to provide great brands at great values.

Our website features a broad representation of our product assortment and provides visibility of store
inventory to our customers, thereby enabling them to determine if items featured on our website are in-stock in
one or more of our store locations. Our e-commerce platform delivers an online shopping experience to our
customers, and we continue to develop our online capabilities to meet customer expectations of being able to
shop at their convenience.

We have developed a strong cause marketing platform through our support of the American Red
Cross annual fundraising campaign and numerous 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” in Albuquerque, New Mexico, for which we are the title sponsor.

Vendor Relationships

We have developed strong vendor relationships over the past 67 years. We currently purchase
merchandise from over 700 vendors. In fiscal 2021, only one vendor, Nike, represented greater than 5% of total
purchases, at 7.6%, and accounted for 8.7% of our total sales in fiscal 2021. In early fiscal 2021, we were
informed of an expansion of Nike’s direct-to-consumer initiatives that will impact certain multi-branded retailers,
including us, and which will lead to a significant reduction in our future supply chain relative to this vendor. This
transition is not expected to impact our ability to continue to purchase certain Nike branded products from
authorized licensees, and did not have a material impact on our sales for fiscal 2021. We have been actively
expanding our relationships with other new and existing vendors in an effort to replace the affected Nike product
within our product mix. We believe current relationships with our vendors are good. We benefit from the long-
term working relationships with vendors that our senior management and our buyers have carefully nurtured
throughout our history.

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Information Technology Systems

We have fully integrated information technology (“IT”) systems that support critical business
functions, such as sales reporting, inventory management and distribution functions and provide pertinent
information for financial reporting, as well as robust business intelligence and retail analytics tools. We manage
IT solutions for e-commerce, email and networks that connect our employees to appropriate technology solutions
and tools. This includes connecting our stores via a managed wide area network connection for purchasing card
(i.e., credit and debit card) encryption, tokenization, authorization and processing, as well as providing access to
valuable tools such as collaboration, online training, workforce management, online hiring, Company website
functions and corporate communications. Our separate disaster recovery facility and solutions, which we plan to
migrate to a cloud-based environment beginning in fiscal 2022, provide redundant networks and applications to
be used in the event of an emergency or unplanned outage. We believe our IT systems are effectively supporting
our current operations and provide a foundation for future growth and new business initiatives.

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 about our employees, our
suppliers and our Company. We rely on commercially available systems, software, tools and monitoring to
provide security for processing, transmission and storage of all such data, including confidential information.
Despite the security measures we have in place, our facilities and systems, and those of our third-party service
providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, data theft, 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 other means, including deceiving our employees or third-party
service providers. The methods used to obtain unauthorized access, disable or degrade service, or sabotage
systems are also constantly changing and evolving, and may be difficult to anticipate or detect for long periods of
time. We have implemented and regularly review and update our control systems, processes and procedures to
protect against unauthorized access to or use of secured data and to prevent data loss.

Distribution

We operate a distribution center located in Riverside, California, that services all of our stores. The
facility has 953,000 square feet of storage and office space, along with an additional 172,000 square-foot
distribution space adjacent to our distribution center that enables us to more efficiently fulfill our expanding
distribution requirements. The distribution center warehouse management system is fully integrated with our
enterprise-level IT systems and provides comprehensive warehousing and distribution capabilities. We regularly
distribute merchandise from our distribution center to our stores using our fleet of leased tractors, as well as
contract carriers.

Industry and Competition

The retail market for sporting goods is highly competitive. In general, competition tends to fall into

the following six basic categories:

Sporting Goods Superstores. Stores in this category typically are larger than 35,000 square feet and
tend to be free-standing locations. These stores emphasize high volume sales and a large number of stock-
keeping units. Examples include Academy Sports & Outdoors and Dick’s Sporting Goods.

Traditional Sporting Goods Stores. This category consists of traditional sporting goods chains,
including us. These stores range in size from 5,000 to 20,000 square feet and are frequently located in regional
malls and multi-store shopping centers. The traditional chains typically carry a varied assortment of merchandise
and attempt to position themselves as convenient neighborhood stores. Sporting goods retailers operating stores
within this category include Hibbett.

9

Specialty Sporting Goods Stores. Specialty sporting goods retailers are stores that typically carry a
wide assortment of one specific product category or brand, such as athletic shoes, golf, or outdoor equipment.
Examples of these retailers include Bass Pro Shops, Cabela’s, Foot Locker, Sportsman’s Warehouse and REI.
This category also includes pro shops that often are single-store operations.

Mass Merchandisers. This category includes discount retailers such as Walmart and Target and
department stores such as JC Penney and Kohl’s. These stores range in size from 50,000 to 200,000 square feet
and are primarily located in regional malls, shopping centers or on free-standing sites. Sporting goods
merchandise and apparel represent a small portion of the total merchandise in these stores and the selection is
often more limited than in other sporting goods retailers.

E-commerce Retailers. This category consists of many retailers that sell a broad array of new and
used sporting goods products via e-commerce or catalogs, including Amazon.com. The types of retailers
mentioned above may also sell their products through e-commerce. E-commerce has been a rapidly growing
sales channel, particularly with younger consumers, and an increasing source of competition in the sporting
goods retail industry.

Athletic and Sporting Goods Brands. This category consists of athletic and sporting goods brands
that engage in direct-to-consumer sales through traditional retail channels, e-commerce or a combination of both.
These brands may also sell their products to us and other competitors. Examples of brands that sell directly to
consumers include Nike, adidas and Under Armour.

In competing with the retailers discussed above, we focus on what we believe are the primary factors
of competition in the sporting goods retail industry, including breadth, depth, price and quality of merchandise
offered; advertising; purchasing and pricing policies; experienced and knowledgeable personnel; customer
involvement of senior officers in monitoring store operations;
service; effective sales techniques; direct
enterprise-level IT systems; and convenience of store location and format.

Human Capital

We believe the experience and tenure of our professional staff in the retail industry contributes to
enhanced performance and gives us a competitive advantage. The table below indicates the tenure of our
professional staff in some of our key functional areas as of January 2, 2022:

Number of
Employees

Average
Number of
Years With Us

Executive Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buyers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Store District / Regional Supervisors . . . . . . . . . . . . . . . . . .
Store Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8
25
20
48
420

33
21
14
25
13

As of January 2, 2022, we had approximately 7,800 active employees, of which approximately 2,400
were full-time. The General Teamsters, Airline, Aerospace and Allied Employees, Warehousemen, Drivers,
Construction, Rock and Sand, Local Union No. 986, affiliated with the International Brotherhood of Teamsters
(“Local 986”) represents approximately 400 hourly employees in our distribution center and select stores. In
December 2017, we negotiated a five-year contract with Local 986 for the covered distribution center employees,
and in January 2018, we negotiated a five-year contract with Local 986 for the covered store employees. Both
contracts were retroactive to September 1, 2017, and expire on August 31, 2022. We have not had a strike or
work stoppage in over 30 years, although such a disruption could have a significant negative impact on our
business operations and financial results. We believe we provide working conditions and wages that are
comparable to those offered by other retailers in the sporting goods industry and that employee relations are
good.

10

We utilize an automated Learning Management System (“LMS”) and have developed comprehensive
training that can be expressly tailored for store and corporate positions. Our LMS allows us to rapidly convey and
track the dissemination of important information as it develops, such as product merchandising strategies, policy
changes, safety rules, cash handling procedures, systems resolution and utilization, loss prevention updates and
inventory control guidelines. All new store employees are assigned introductory LMS learning material as well
as provided with a live orientation highlighting basic policies and responsibilities and our expectation that each
employee strives to deliver excellence in customer service, product knowledge and salesmanship. New full-time
store salespeople, cashiers and manager trainees receive supplementary training and evaluations specific to their
job responsibilities and their ongoing development. The versatility of the LMS provides us with the ability to
track and monitor many different types of training and the flexibility we need to deliver our message to widely
dispersed personnel within the structure of our on-the-go work environment. Our employee training programs
include self-directed online courses, live webinars, production of soft and hard copy reference materials,
one-on-one training, hands-on training and progressive developmental training. In the stores, manager trainees
are expected to complete a progressive series of outlines and evaluations in order to be considered for each
successive level of advancement. Experienced store management training includes advanced merchandising,
delegation, personnel management, scheduling, payroll control, harassment and discrimination prevention and
loss prevention. Our overall training strategy and LMS enable us to efficiently manage, monitor, assign and
report employee training results online and in real time.

During the COVID-19 pandemic, to provide for the safety of our employees and customers, we have
taken many actions in our stores, corporate office and distribution center spaces based on the needs, risks, and
regulations present
in each community and facility. Measures we have taken include cleaning facilities
professionally on a regular basis, equipping facilities with hand sanitizer stations and signage illustrating how to
socially distance, requiring face coverings, limiting the number of people admitted to a facility at one time,
installing protective shields at cash registers and other countertops and providing free masks and hand sanitizer.
We continue to monitor the rapidly evolving situation and expect to continue to adapt our operations to address
federal, state, and local requirements, as well as to implement standards or processes that we determine to be in
the best interest of our employees and customers.

Description of Service Marks and Trademarks

We use the “Big 5” and “Big 5 Sporting Goods” names as service marks in connection with our
business operations and have registered these names as federal service marks. The renewal dates for these service
mark registrations are in 2025 and 2023, respectively. We have also registered the names Golden Bear, Harsh,
Pacifica and Rugged Exposure as federal trademarks under which we sell a variety of merchandise. The renewal
dates for these trademark registrations range from 2026 to 2028. We intend to renew these service mark and
trademark registrations if we are still using the marks in commerce and they continue to provide value to us at the
time of renewal.

11

ITEM 1A. RISK FACTORS

An investment in the Company entails risks and uncertainties including the following. You should
carefully consider these risk factors when evaluating any investment in the Company. Any of these risks and
uncertainties could cause our actual results to differ materially from the results contemplated by the forward-
looking statements set forth herein, and could otherwise have a significant adverse impact on our business,
prospects, financial condition or results of operations or on the price of our common stock.

Risks Related to Our Business and Industry

Intense competition in the sporting goods industry could limit our growth and reduce our profitability.

The retail market for sporting goods is highly fragmented and intensely competitive. We compete
directly or indirectly with the following categories of companies, through traditional retail and e-commerce
channels:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

sporting goods superstores, such as Academy Sports & Outdoors and Dick’s Sporting Goods;

traditional sporting goods stores and chains, such as Hibbett Sports;

specialty sporting goods shops and pro shops, such as Bass Pro Shops, Cabela’s, Foot Locker,
Sportsman’s Warehouse and REI;

mass merchandisers, discount stores and department stores, such as Walmart, Target, Kohl’s and JC
Penney;

e-commerce retailers, such as Amazon.com; and

athletic and sporting goods brands that engage in direct-to-consumer sales, such as Nike, adidas and
Under Armour.

Some of our competitors have a larger number of stores, greater e-commerce capabilities or greater
financial, distribution, marketing and other resources than we have. If our competitors reduce their prices, it may
be difficult for us to retain market share without reducing our prices, which could impact our margins. As a result
of this competition, we may also need to spend more on advertising and promotion than we anticipate. Increased
competition in our current markets or the adoption or proliferation by competitors of innovative store formats,
aggressive pricing strategies and retail sales methods, such as e-commerce, could cause us to lose market share
and could have a material adverse effect on our business.

While e-commerce has been a rapidly growing sales channel and an increasing source of competition
in the retail industry, sales from our e-commerce channel are not material to our operations. We have no
assurance that our e-commerce efforts will prove profitable, whether due to product preferences of online buyers,
ability to compete with other (often more established) online retailers, or for other reasons, such as the
cannibalization of sales from our existing store base. If we are unable to compete successfully, our operating
results may suffer.

A reduction or loss of product from a key supplier could cause our net sales and profitability to suffer.

In fiscal 2021, we purchased merchandise from over 700 vendors, and our 20 largest vendors
collectively accounted for 36.8% of our total purchases. One vendor, Nike, represented greater than 5% of total
purchases, at 7.6%, in fiscal 2021 and accounted for 8.7% of our total sales in fiscal 2021. Early in fiscal 2021,
we were informed of an expansion of Nike’s direct-to-consumer initiatives that will impact certain multi-branded
retailers, including us, and which will lead to a significant reduction in our future supply chain relative to this
vendor. This transition is not expected to impact our ability to continue to purchase certain Nike branded
products from authorized licensees, and did not have a material impact on our sales for fiscal 2021. We have
been actively expanding our relationships with other new and existing vendors in an effort to replace the affected
Nike product within our product mix. If we are unable to develop a suitable alternative to satisfy product demand
in fiscal 2022 and beyond, sales could decline which could negatively impact future operating results.

12

Additionally, if there are other disruptions in supply from a principal supplier or distributor, we may
be unable to obtain merchandise that we desire to sell and that consumers desire to purchase. A vendor could
discontinue or restrict selling products to us at any time for reasons that may or may not be within our control.
The increased development of direct-to-consumer initiatives by athletic and sporting goods brands could result in
additional restrictions on the products available for us to purchase and sell. Our net sales and profitability could
decline if we are unable to promptly replace a product vendor that is unwilling or unable to satisfy our
requirements with a vendor providing equally appealing products. Moreover, many of our key suppliers provide
us with incentives, such as return privileges, volume purchase allowances and co-operative advertising. A decline
or discontinuation of these incentives could reduce our profits.

If we fail to anticipate changes in consumer preferences, we may experience lower net sales, higher inventory,
higher inventory markdowns and lower margins.

Our products must appeal to a broad range of consumers whose preferences cannot be predicted with
certainty. These preferences are also subject to change and can be impacted by various factors, including sports
participation levels in our market areas, the performance of sports teams for which we sell licensed products,
weather conditions in our market areas and regulatory or political changes. During the novel coronavirus
(“COVID-19”) pandemic, our product offerings have resonated with consumers who are looking for ways to stay
healthy and active to fulfill their fitness and outdoor recreational needs. Our success depends upon our ability to
anticipate and respond in a timely manner to consumer trends and consumers’ participation in sports and other
recreational activities for which we sell products. If we fail to identify and respond in a timely manner to these
changes, our net sales and profitability may decline. In addition, because we often make commitments to
purchase products from our vendors up to nine months in advance of the proposed delivery, if we misjudge the
market for our merchandise or conditions change after we have committed to purchase products, we may
overstock unpopular products and be forced to take inventory markdowns that could have a negative impact on
profitability.

If we are unable to effectively and efficiently connect with our customers through our advertising and
marketing programs, our operating results may suffer.

We historically utilized print advertising programs that included newspaper inserts, direct mailers
and courier-delivered inserts in order to effectively deliver our message to our targeted markets. Newspaper
circulation and readership has been declining, and in recent years we have been shifting more of our advertising
from print to digital. In 2020, in response to the COVID-19 pandemic, we accelerated the reduction of our print
advertising programs. The consumer preferences for certain of our product categories that have driven positive
sales during the COVID-19 outbreak may not continue after the outbreak has subsided, and we may need to
increase advertising and promotional activity from the current historically low levels in an effort to drive
customer traffic and sales, which could impact our profitability. If our efforts to evolve our advertising programs
fail or we are unable to develop other effective strategies to reach potential customers within our desired markets,
awareness of our stores, products and promotions could decline and our net sales could suffer.

The COVID-19 pandemic has disrupted and is expected to continue to disrupt our business, which could have
a material adverse impact on our business, results of operations, liquidity and financial condition for an
extended period of time.

In March 2020, the World Health Organization declared the rapidly growing COVID-19 outbreak to
be a global pandemic. The COVID-19 pandemic has significantly impacted health and economic conditions
throughout the United States, as public concern about becoming ill with the virus has led to the issuance of
recommendations and/or mandates from federal, state and local authorities to practice social distancing or self-
quarantine. Beginning on March 20, 2020, we temporarily closed more than one-half of our retail store locations
in response to state and local shelter orders related to the COVID-19 outbreak. We were subsequently able to
gradually reopen all of our store locations based on either qualifying as an “essential” business under applicable

13

regulations or as a result of the easing of regulatory restrictions on retail operations in our market areas. New
temporary closures of stores may be required if additional orders are issued in response to changing health
conditions. We implemented reduced store hours, limited the number of customers in our stores at any one time
and have generally implemented social-distancing guidelines throughout our store operating space. As a result of
the reduced customer traffic and sales at the start of the pandemic, and in an effort to preserve capital, we
implemented temporary and permanent workforce reductions throughout the Company, reduced advertising and
planned capital spending in fiscal 2020 and initially suspended our quarterly dividend payment.

While these temporary store closures, limited hours of operation and shelter orders in our market
areas related to the initial COVID-19 outbreak had an unfavorable impact on our operations initially, as we began
reopening stores we recognized significant shifts in consumer demand in favor of fitness and outdoor recreational
products and we rapidly evolved our product assortment, which had a favorable impact on our operating results
throughout the remainder of fiscal 2020. In fiscal 2021, as COVID-19 restrictions continued easing in many of
our markets, we experienced strong consumer demand across a broad assortment of product categories, including
increased consumer demand for team sports products, which was weak during the prior year due to the
COVID-19 pandemic. Additionally, our store operating hours and advertising and promotional activity have been
reduced as a result of COVID-19, which has resulted in lower expense and higher profitability.

As the pandemic continues to evolve, we may be further required to restrict the operations of our
stores or our distribution facility if we deem this necessary or if recommended or mandated by authorities. If the
classification of what is an “essential” business changes in jurisdictions where our stores are located, or the
restrictions on retail operations in our markets are reinstituted, or other government regulations are adopted
pertaining to how we may operate our stores, we may be required to temporarily close or restrict operations at
more, if not all, of our stores, or incur additional expense to operate our stores, which would significantly impact
our sales and results of operations. For example, the Department of Labor’s Occupational Safety and Health
Administration (“OSHA”) announced an emergency temporary standard on November 5, 2021, which would
have required COVID-19 vaccinations or weekly COVID-19 testing for all employees of United States
employers with 100 or more employees. While OSHA has since withdrawn this emergency temporary standard
following review by the United States Supreme Court, similar mandates may be proposed or issued at the state
and local level, which if enacted could negatively impact our ability to attract and retain employees, increase
expenses, and pose operational issues with respect to testing requirements. Furthermore, certain jurisdictions in
which we operate have mandated employer-paid supplemental leave benefits associated with the COVID-19
pandemic, and such programs may be extended into the future. The cost of maintaining such mandated benefits
may increase our operating costs and negatively impact our results of operations. Additionally, if we do not
respond appropriately to the pandemic, or if customers do not perceive our response to be adequate for a
particular region or our company as a whole, we could suffer damage to our reputation and our brand, which
could adversely affect our business in the future.

COVID-19 has also impacted our supply chain for products we sell, particularly those products that
are sourced from Asia. To the extent one or more of our vendors is negatively impacted by COVID-19, including
due to the closure of its distribution centers or manufacturing facilities, we may be unable to maintain delivery
schedules or adequate inventory in our stores. Additionally, during the second half of fiscal 2021, we experienced
significant shipping delays of products sourced from overseas vendors to be received at the Ports of Los Angeles
and Long Beach, which reflected increased shipping volume and insufficient labor resources at the ports that
have significantly increased cargo backlogs. These factors, in addition to workforce shortages in the trucking
industry, have limited our ability to obtain desired quantities of inventory for various merchandise categories.
While we have generally been able to sufficiently stock product in our stores to meet most consumer demand
during the pandemic, future prolonged and sustained delays in product reaching our stores from overseas
vendors, particularly during the holiday season, could result in our inability to obtain adequate levels of
merchandise inventories to meet our consumers’ needs, which could have an adverse impact on our net sales and
profitability.

14

The extent to which the COVID-19 outbreak impacts our business, results of operations, liquidity and
financial condition will depend on future developments, which are highly uncertain and cannot be predicted,
including, but not limited to the duration, spread, severity and impact of the COVID-19 outbreak, the effects of
the outbreak on our customers, employees and vendors, the regulatory response and impact of stimulus measures
adopted by local, state and federal governments, and to what extent normal economic and operating conditions
can resume. Even after the COVID-19 outbreak has subsided, we could experience materially adverse impacts to
our business as a result of any economic recession or depression that has occurred or may occur in the future due
to a continued erosion in consumer sentiment or the effect of high unemployment on our consumer base.
Additionally, the consumer preferences for certain product categories that have driven positive sales during the
COVID-19 outbreak may not continue after the outbreak has subsided, and any change in consumer preferences
could negatively impact our results of operations. We may need to increase advertising and promotional activity
from the current historically low levels in an effort to drive customer traffic and sales, which could impact our
profitability. As business conditions evolve, we may need to increase our staffing from the current reduced
levels, which could impact profitability. Furthermore, the financial condition of our customers and vendors may
be adversely impacted by the pandemic, which may result in a decrease in discretionary consumer spending and
our store traffic and sales, and an increase in bankruptcies or insolvencies with respect to our vendors. These
events may, in turn, have a material adverse impact on our business, results of operations, liquidity and financial
condition. In the event of a prolonged material economic downturn, including circumstances that require us to
close a large portion of our stores or cause us to experience a further reduction in store traffic, we may not be
able to comply with the financial covenants in our credit facility, which could negatively impact our ability to
borrow under that facility or with other lenders, negatively impact our liquidity position and may increase our
risk of insolvency.

Because our stores are concentrated in the western United States, we are subject to regional risks.

Our stores are located in the western United States. Because of this, we are subject to regional risks,
such as the economy, including downturns in the housing market, state financial conditions, unemployment and
gas prices. Other regional risks include adverse weather and climate conditions, power outages, earthquakes and
other natural disasters specific to the states in which we operate. For example, particularly in California where
we have a high concentration of stores, seasonal factors such as unfavorable weather conditions or other localized
conditions such as flooding, drought, fires (such as the wildfires of 2021 that resulted in the closing of certain
national parks and led to a negative impact on various outdoor activities, particularly camping and watersports,
and the wildfires of 2018 that destroyed our store located in Paradise, CA), earthquakes or electricity blackouts
(such as the rolling blackouts of 2019 that impacted certain California stores) could impact our sales and harm
our operations. State and local regulatory compliance, such as with recent minimum wage increases in our
market areas, also can impact our financial results. Economic downturns or other adverse regional events could
have an adverse impact upon our net sales and profitability and our ability to open additional stores in the manner
that we have in the past.

Additionally, California is subject to a property tax law commonly referred to as Proposition 13,
which allows properties to be reassessed only at the time of change in ownership or completion of construction,
and annual property reassessments are limited to a 2% increase from previously-assessed values thereafter. As a
result, Proposition 13 generally results in significant below-market assessed values over time. From time to time,
and recently, lawmakers and political coalitions have initiated efforts to repeal or amend Proposition 13 to
eliminate its application to commercial and industrial properties. Since we lease all of our store locations, as well
as our corporate offices and distribution center facilities in California, and are required under the terms of our
leases to pay property taxes thereon, any repeal of Proposition 13 could substantially increase the assessed values
and property taxes we pay for our leased properties in California.

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 and recreational
activities, our business is significantly impacted by weather and climate conditions in our markets. For example,

15

our winter sports and apparel sales are dependent on cold winter weather and snowfall in our markets and can be
negatively impacted by unseasonably warm or dry weather in our markets during the winter product selling
season. Conversely, sales of our spring products and summer products, such as baseball gear and camping and
water sports equipment, can be adversely impacted by unseasonably cold or wet weather in those periods.
Accordingly, our sales results and financial condition will typically suffer when weather and climate 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 impacts our merchandise and accounts payable levels and cash flows. We
purchase merchandise for seasonal activities in advance of a season and supplement our merchandise assortment
as necessary and when possible during the season. Our efforts to replenish products during a season are not
always successful. In the fourth fiscal quarter, which includes the holiday selling season and the start of the
winter selling season, we normally experience higher inventory purchase volumes and increased expense for
staffing and advertising. If we miscalculate the consumer demand for our products generally or for our product
mix in advance of a season, our net sales can decline, which can harm our financial performance. A significant
shortfall from expected net sales, particularly in the fourth fiscal quarter, can negatively impact our annual
operating results.

All of our stores rely on a single distribution center. Any disruption or other operational difficulties at this
distribution center could reduce our net sales or increase our operating expense.

We rely on a single distribution center facility located in Riverside, California to service our
business. Any natural disaster or other serious disruption to the distribution center due to fire, earthquake or any
other cause could damage a significant portion of our inventory and could materially impair both our ability to
adequately stock our stores and our net sales and profitability. If the security measures used at our distribution
center do not prevent inventory theft, our gross profit may significantly decrease. Our distribution center is
staffed in part by employees represented by Local 986. We have not had a strike or work stoppage in over 30
years, although such a disruption could have a significant negative impact on our business operations and
financial results. Further, in the event that we are unable to grow our net sales sufficiently to allow us to leverage
the costs of this distribution center in the manner we anticipate, our financial results could be negatively
impacted.

Additionally, because we rely on a single distribution center, our store growth could be limited to the
geographic areas to which we can efficiently distribute products from this facility. Our store growth also could be
limited if our distribution center reaches full capacity. Such constraints 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 financial condition
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. Our ability to
successfully implement and capitalize on our growth strategy could be negatively affected by various factors
including:

(cid:129)

(cid:129)

we may slow our expansion efforts, or close underperforming stores, as a result of challenging
conditions in the retail industry and the economy overall;

we may not be able to find suitable sites available for leasing within our existing market areas, and
our distribution capabilities may limit our ability to expand beyond our current market areas;

16

(cid:129)

(cid:129)

(cid:129)

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 recent years, we have slowed our store openings and strategically closed certain stores as we
maintained a cautious approach toward store expansion in the current retail environment, which included
increasing e-commerce competition and the COVID-19 pandemic in fiscal 2020 and 2021. If we are unable to
resume our store expansion efforts for any of the reasons discussed above, our operating results could suffer.

In addition, our expansion in new and existing markets may present competitive, merchandising,
marketing and distribution challenges that differ from our current challenges. These potential new challenges
include competition among our stores, added strain on our distribution center, additional information to be
processed by our information technology (“IT”) systems, diversion of management attention from ongoing
operations and challenges associated with managing a larger enterprise. We face additional challenges in entering
new markets, including consumers’ lack of awareness of us, difficulties in hiring personnel and problems due to
our unfamiliarity with local real estate markets and demographics. New markets may also have different
competitive conditions, consumer tastes, responsiveness to print advertising and discretionary spending patterns
than our existing markets. To the extent that we are not able to meet these new challenges, our net sales could
decrease and our operating expense could increase.

Because many of the products that we sell are manufactured abroad, we may face delays, increased cost or
quality control deficiencies in the importation of these products, which could reduce our net sales and
profitability.

Like many other sporting goods retailers, a significant portion of the products that we purchase for
resale, including those purchased from domestic suppliers, is manufactured abroad in Asia. In addition, we
believe most, if not all, of our private label merchandise is manufactured abroad. Foreign imports subject us to
the risks of changes in, or the imposition of new, import tariffs, duties or quotas, new restrictions on imports, loss
of “most favored nation” status with the United States for a particular foreign country, antidumping or
countervailing duty orders, retaliatory actions in response to illegal trade practices, work stoppages, delays in
shipment, freight expense increases, product cost increases due to foreign currency fluctuations or revaluations,
public health issues that could lead to temporary closures of or delays at facilities or shipping ports, such as the
COVID-19 pandemic, and other economic uncertainties. If any of these or other factors were to cause a
disruption of trade from the countries in which the suppliers of our vendors are located or impose additional costs
in connection with the purchase of our products, we may be unable to obtain sufficient quantities of products to
satisfy our requirements and our results of operations could be adversely affected.

To the extent that any foreign manufacturers which supply products to us directly or indirectly utilize
quality control standards, labor practices or other practices that vary from those legally mandated or commonly
accepted in the United States, we could be hurt by any resulting negative publicity or increases in operating costs
or, in some cases, face potential liability.

In addition, instability in the political and economic environments of the countries in which our
vendors or we obtain our products, or general international instability, could have an adverse effect on our
operations. In the event of disruptions or delays in supply due to economic or political conditions in foreign
countries, such disruptions or delays could adversely affect our results of operations unless and until alternative
supply arrangements could be made. In addition, merchandise purchased from alternative sources may be of
lesser quality or more expensive than the merchandise we currently purchase abroad.

17

Disruptions in transportation,
including disruptions at shipping ports through which our products are
imported, could prevent us from timely distribution and delivery of inventory, which could reduce our net sales
and profitability.

A substantial amount of our inventory is manufactured abroad. From time to time, shipping ports
experience capacity constraints, labor strikes, work stoppages or other disruptions that may delay the delivery of
imported products. A contract dispute at the ports through which our products travel, particularly the Ports of Los
Angeles and Long Beach, could lead to protracted delays in the movement of our products, which could further
delay the delivery of products to our stores and impact net sales and profitability. In addition, other conditions
outside of our control, such as adverse weather conditions, acts of terrorism or public health issues that could
lead to temporary closures of or delays at facilities or shipping ports, such as the COVID-19 pandemic, could
significantly disrupt operations at shipping ports or otherwise impact transportation of the imported merchandise
we sell. During the second half of fiscal 2021, we experienced significant shipping delays of products sourced
from overseas vendors to be received at the Ports of Los Angeles and Long Beach, which reflected increased
shipping volume and insufficient labor resources at the ports that have significantly increased cargo backlogs.
These factors, in addition to workforce shortages in the trucking industry, have limited our ability to obtain
desired quantities of inventory for various merchandise categories. While we have generally been able to
sufficiently stock product in our stores to meet most consumer demand during the pandemic, future prolonged
and sustained delays in product reaching our stores from overseas vendors, particularly during the holiday
season, could result in our inability to obtain adequate levels of merchandise inventories to meet our consumers’
needs, which could have an adverse impact on our net sales and profitability.

Our costs may change as a result of currency exchange rate fluctuations or inflation in the purchase cost of
merchandise manufactured abroad.

We and our suppliers source goods from various countries, including Asia, and thus changes in the
value of the U.S. dollar compared to other currencies, or foreign labor and raw material cost inflation, may affect
the cost of goods that we purchase. If the cost of goods that we purchase increases, we may not be able to
similarly increase the retail prices of goods that we charge consumers without impacting our sales and our
operating profits may suffer.

Increases in transportation costs due to rising fuel costs, climate change regulation and other factors may
negatively impact our operating results.

We rely upon various means of transportation, including ship and truck, to deliver products from
vendors to our distribution center and from our distribution center to our stores. Consequently, our results can
vary depending upon the price of fuel. The price of oil has fluctuated drastically over the last few years, creating
volatility in our fuel costs. In addition, efforts to combat climate change through reduction of greenhouse gases
may result in higher fuel costs through taxation or other means. Any such future increases in fuel costs would
increase our transportation costs for delivery of product to our distribution center and distribution to our stores, as
well as our vendors’ transportation costs, which could decrease our operating profits.

In addition, labor shortages or other factors in the transportation industry could negatively affect
transportation costs and our ability to supply our stores in a timely manner. In particular, our business is highly
dependent on the trucking industry to deliver products to our distribution center and our stores. Our operating
results may be adversely affected if we or our vendors are unable to secure adequate trucking resources at
competitive prices to fulfill our delivery schedules to our distribution center or stores.

18

Risks Related to Our Capital Structure

Our future cash flows may not be sufficient to meet our obligations and we might have difficulty obtaining
more financing or refinancing any existing indebtedness on favorable terms.

As of January 2, 2022, our long-term revolving credit borrowings outstanding were zero. However,

we have historically maintained a leveraged financial position. This means:

(cid:129)

(cid:129)

(cid:129)

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. In addition, in the event of bankruptcy, insolvency or a material breach of
any covenant contained in our revolving credit facility, our debt may be accelerated. This acceleration could also
result in the acceleration of other indebtedness that we may have outstanding at that time.

The level of our indebtedness, and our ability to service our indebtedness, is directly affected by our
cash flows from operations. If we are unable to generate sufficient cash flows from operations to meet our
obligations, commitments and covenants of our revolving credit facility, we may be required to refinance or
restructure our indebtedness, raise additional debt or equity capital, sell material assets or operations, delay or
forego expansion opportunities, or cease or curtail our quarterly dividends or share repurchase plans. These
alternative strategies might not be effected on satisfactory terms, if at all.

The terms of our revolving credit facility impose operating and financial restrictions on us, which may impair
our ability to respond to changing business and economic conditions.

The terms of our revolving credit facility impose operating and financial restrictions on us, including,
among other things, covenants that require us to maintain a fixed-charge coverage ratio of not less than 1.0 to 1.0
in certain circumstances, restrictions on our ability to incur liens, incur additional indebtedness, transfer or
dispose of assets, change the nature of the business, guarantee obligations, pay dividends or make other
distributions or repurchase stock, and make advances, loans or investments. For example, our ability to engage in
the foregoing transactions will depend upon, among other things, our level of indebtedness at the time of the
proposed transaction and whether we are in default under our revolving credit facility. As a result, our ability to
respond to changing business and economic conditions and to secure additional financing, if needed, may be
significantly restricted, and we may be prevented from engaging in transactions that might further our growth
strategy or otherwise benefit us and our stockholders without obtaining consent from our lenders. In addition, our
revolving credit facility is secured by a perfected security interest in our assets. In the event of our insolvency,
liquidation, dissolution or reorganization, the lenders under our revolving credit facility would be entitled to
payment in full from our assets before distributions, if any, were made to our stockholders.

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 information available to us, the lender under our revolving credit facility is
currently able to fulfill its commitments thereunder. However, circumstances could arise that may impact its

19

ability to fund its obligations in the future. Although we believe the commitments from our lenders under the
revolving credit facility, together with our cash on hand and anticipated operating cash flows, should be
sufficient to meet our near-term borrowing requirements, if Bank of America, National Association, our lender,
or any other lender under the credit facility from time to time, is for any reason unable to perform its lending or
administrative commitments under the facility, then disruptions to our business could result and may require us
to replace this facility with a new facility or to raise capital from alternative sources on less favorable terms,
including higher rates of interest.

Risks Related to Regulatory, Legislative and Legal Matters

Current and future government regulation may negatively impact demand for our products and increase our
cost of conducting business.

The conduct of our business, and the distribution, sale, advertising, labeling, safety, transportation
and use of many of our products are subject to various laws and regulations administered by federal, state and
local governmental agencies in the United States, as well as regulations administered by various youth sports
leagues and organizations. These laws and regulations may change, sometimes dramatically, as a result of
political, economic or social events, such as the state and local stay-at-home orders issued in our markets in
response to the COVID-19 pandemic. Changes in laws, regulations or governmental policy may alter the
environment in which we do business and the demand for our products and, therefore, may impact our financial
results or increase our liabilities. Some of these laws and regulations include:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

laws and regulations governing how our stores may operate during the COVID-19 pandemic;

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 Safety Improvement 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;

U.S. customs laws and regulations pertaining to duties and tariffs,
classification, quotas and payment of duties and tariffs; and

including proper

item

laws and regulations governing consumer privacy, such as the California Consumer Privacy Act.

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 cost of obtaining products and our operating expense to increase. This could adversely affect our net sales
and profitability.

We may be subject to periodic litigation that may adversely affect our business and financial performance.

From time to time, we may be involved in lawsuits and regulatory actions relating to our business,
certain of which may be maintained in jurisdictions with reputations for aggressive application of laws and
procedures against corporate defendants. Due to the inherent uncertainties of litigation and regulatory
proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable
outcome could have a material adverse impact on our business, results of operations and financial condition. In
addition, regardless of the outcome of any litigation or regulatory proceedings, these proceedings could result in
substantial costs and may require that we devote substantial resources to defend against these claims, which
could impact our results of operations.

20

In particular, we may be involved in lawsuits related to employment, advertising and other matters,
including class action lawsuits brought against us for alleged violations of the Fair Labor Standards Act, state
wage and hour laws, state or federal advertising laws and other laws. An unfavorable outcome or settlement in
any such proceeding could, in addition to requiring us to pay any settlement or judgment amount, increase our
operating expense as a consequence of any resulting changes we might be required to make in employment,
advertising or other business practices.

In addition, we sell products manufactured by third parties, some of which may be defective. Many
such products are manufactured overseas in countries which may utilize quality control standards that vary from
those legally allowed or commonly accepted in the United States, which may increase our risk that such products
may be defective. If any products that we sell were to cause physical injury or injury to property, the injured
party or parties could bring claims against us as the retailer of the products based upon strict product liability. In
addition, our products are subject to the federal Consumer Product Safety Act and the Consumer Product Safety
Improvement Act, which empower the Consumer Product Safety Commission to protect consumers from
hazardous products. The Consumer Product Safety Commission has the authority to exclude from the market and
recall certain consumer products that are found to be hazardous. Similar laws exist in some states and cities in the
United States. If we fail to comply with government and industry safety standards or reporting requirements, we
may be subject to claims, lawsuits, product recalls, fines and negative publicity that could harm our results of
operations and financial condition.

We also sell firearm-related products, which may be associated with an increased risk of injury and
related lawsuits. We may incur losses due to lawsuits relating to our compliance with firearm and ammunition
laws as mandated by city, municipality, state and federal law, or the performance of background checks in
connection with firearms or ammunition purchases, or the improper use of firearms sold by us. This may include,
for example, lawsuits by individuals, government entities or other organizations attempting to recover damages
or costs from firearms manufacturers and retailers relating to the sale, advertisement, misuse, loss, or release of
firearms or ammunition. Commencement of these lawsuits against us could reduce our net sales and decrease our
profitability. The sale of firearm-related products also may present reputational risks and negative publicity that
could affect consumers’ perception of us or willingness to shop with us, which could harm our results of
operations and financial condition.

The insurance coverage under policies that we maintain or that our product vendors maintain and
under which we may be insured may not be adequate to cover claims that could be asserted against us. If a
successful claim was to be brought against us in excess of our insurance coverage, or for which we have no
insurance coverage, it could harm our business. Even unsuccessful claims could result in the expenditure of
substantial funds and management time and could have a negative impact on our business. In addition, the cost of
maintaining adequate insurance coverage could increase based on claims asserted against us, the type of products
that we sell and market conditions generally.

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 the purchase, storage, transfer and sale of such products. These laws and regulations
require us to, among other things, obtain and maintain federal, state or local permits or licenses in order to sell
firearms or ammunition, ensure that certain employees obtain licenses to sell firearms or ammunition, ensure that
all purchasers of firearms are subjected to a pre-sale background check and other requirements, record the details
of each firearm sale on appropriate government-issued forms, record each receipt or transfer of a firearm at our
distribution center or any store location on acquisition and disposition records, and maintain these records for a
specified period of time. Additionally, in certain jurisdictions we are required to obtain a license to sell
ammunition or record the details of each ammunition sale and maintain these records for a specified period of
time. We also are required to timely respond to traces of firearms by law enforcement agencies. Over the past
several years, the purchase and sale of firearm-related products has been the subject of increased federal, state

21

and local regulation, such as requirements related to performing a safe-handling demonstration of firearms in
California, new minimum age restriction laws, ammunition sales laws, and new security laws. These regulatory
efforts are likely to continue in our current markets and other markets into which we may expand. If enacted, new
laws and regulations could limit the types of firearm-related products that we are permitted to purchase and sell,
impose new restrictions and requirements on the manner in which we purchase, sell and store these products,
increase regulatory fees charged to the consumer and impact our ability to offer these products in certain retail
locations or markets. If we fail to comply with existing or newly enacted laws and regulations relating to the
purchase and sale of firearm-related products, our permits or licenses to sell firearm-related products at our stores
or maintain inventory of firearm-related products at our distribution center may be suspended or revoked. We
may also incur losses related to these products if we fail to obtain or timely renew a necessary license. 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 our operating expense to increase and this could adversely affect our
results of operations.

Risks Related to Investing in Our Common Stock

The declaration of discretionary dividend payments or the repurchase of our common stock pursuant to our
share repurchase program may not continue.

We currently pay quarterly dividends subject to capital availability and periodic determinations by
our Board of Directors that cash dividends are in the best interest of us and our stockholders. In fiscal 2021, we
also paid two special dividends. Our dividend policy may be affected by, among other items, business conditions,
our financial condition, 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. In early fiscal 2020, we
suspended dividend payments in an effort to preserve capital in response to the initial impact of the COVID-19
pandemic. While we have since reinstated and increased our quarterly dividend and paid special dividends, our
dividend policy may change from time to time and we may or may not continue to declare discretionary dividend
payments. Additionally, although we repurchased shares in fiscal 2021 pursuant to our share repurchase program
authorized by our Board of Directors, we are not obligated to make any purchases under the program and we may
reduce the amount of purchases we make under the program or discontinue the program 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 our stockholders.

Provisions of our amended and restated certificate of incorporation and amended and restated bylaws
as well as provisions of Delaware law could discourage, delay or prevent a merger, acquisition or other change in
control of our Company, even if such change in control would be beneficial to our stockholders. The provisions
of our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law that
could discourage, delay or prevent a merger, acquisition or other change in control include:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

a Board of Directors that is classified such that two or three of the seven directors, depending on
classification, are elected each year and each director is elected for a three-year term;

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 of incorporation must be approved by 80% of the outstanding
shares of our capital stock;

authorization of the issuance of “blank check” preferred stock that could be issued by our Board of
Directors to increase the number of outstanding shares and thwart a takeover attempt; and

22

(cid:129)

establishment of advance notice requirements for nominations for election to the Board of Directors
or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition, Section 203 of the Delaware General Corporations Law limits business combination
transactions with 15% stockholders that have not been approved by the Board of Directors. These provisions and
other similar provisions make it more difficult for a third party to acquire us without negotiation. These
provisions may apply even if the transaction may be considered beneficial by some stockholders.

Significant stockholders or potential stockholders may attempt to effect changes or acquire control over our
Company, which could adversely affect our results of operations and financial condition.

Stockholders may from time to time attempt to effect changes, engage in proxy solicitations or
advance stockholder proposals. Responding to proxy contests and other actions by activist stockholders can be
costly and time-consuming, disrupting our operations and diverting the attention of our Board of Directors and
senior management from the pursuit of business strategies. As a result, stockholder campaigns could adversely
affect our results of operations and financial condition.

General Risk Factors

Disruptions 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 is affected by many factors,
including general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer
credit, currency exchange rates, taxation, gasoline prices, income, unemployment trends, home values and other
matters that influence consumer confidence and spending. Many of these factors are outside of our control. We
are experiencing, and may continue to experience, increased inflationary pressure on our product costs. The
higher product purchase costs we are experiencing reflect increased labor and freight costs initially resulting
from shortages related to COVID-19, as well as strong consumer demand. Shipping capacity constraints and
labor shortages at the ports are also contributing to higher freight costs and are adversely impacting our ability to
obtain sufficient quantities of certain products in our stores to meet the higher demand. 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. Deterioration of the consumer spending environment could be harmful to our financial position and
results of operations, could adversely affect our ability to comply with covenants under our credit facility and, as
a result, may negatively impact our ability to continue payment of our quarterly dividend, to repurchase our stock
and to open additional stores in the manner that we have in the past.

Our quarterly net sales and operating results, reported and expected, can fluctuate substantially, which may
adversely affect the market price of our common stock.

Our net and same store sales and results of operations, reported and expected, have fluctuated in the
past and will vary from quarter to quarter in the future. These fluctuations may adversely affect our financial
condition and the market price of our common stock. A number of factors, many of which are outside our
control, have historically caused and will continue to cause variations in our quarterly net and same store sales
and operating results, including changes in consumer demand for our products, competition in our markets,
inflation, increases in operating expense, changes in pricing or other actions taken by our competitors, weather
conditions in our markets, natural disasters, litigation, political events, government regulation, changes in
accounting standards, changes in management’s accounting estimates or assumptions and economic conditions,
including those specific to our western United States markets.

23

If we lose key management or are unable to attract and retain the talent required for our business, our
operating results could suffer.

Our future success depends to a significant degree on the skills, experience and efforts of Steven G.
Miller, our Chairman, President and Chief Executive Officer, and other key personnel with longstanding tenure
who are not obligated to stay with us. The loss of the services of any of these individuals for any reason could
harm our business and operations. In addition, as our business grows, we will need to attract and retain additional
qualified personnel in a timely manner and develop, train and manage an increasing number of management-
level sales associates and other employees. Competition for qualified employees and increases in the cost of
living in our market areas could require us to pay higher wages and benefits to attract a sufficient number of
qualified employees, and increases in the minimum wage or other employee benefit costs could increase our
operating expense. If we are unable to attract and retain personnel as needed in the future, our net sales growth
and operating results may suffer.

Our information technology systems are critical to the functioning of our business and are vulnerable to
failure, damage, theft or intrusion that could harm our operations.

Our success, in particular our ability to successfully manage inventory levels and process customer
transactions, largely depends upon the efficient operation of our IT systems. We use IT systems to track
inventory at the store level and aggregate daily sales information, communicate customer information and
process purchasing card transactions, process shipments of goods and report financial information. These
systems and our operations are vulnerable to damage or interruption from:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

earthquake, fire, flood and other natural disasters;

failed system implementations;

power loss, computer systems failures, Internet and telecommunications or data network failures,
third-party vendor system failures, operator negligence, improper operation by or supervision of
employees;

physical and electronic loss of data, security breaches, misappropriation, data theft and similar
events; and

computer viruses, worms, Trojan horses, intrusions, or other external threats.

Any failure of our IT systems that causes an interruption in our operations, loss of data, or a decrease
in inventory tracking could result in reduced net sales and profitability. Additionally, if any data intrusion,
security breach, misappropriation or theft were to occur, we could incur significant costs in responding to such
event, including responding to any resulting claims, litigation or investigations, which could harm our operating
results.

Breach of data security or other unauthorized disclosure of sensitive or confidential information could harm
our business, employees and standing with our 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 about our employees, our
suppliers and our Company. We rely on commercially available systems, software, tools and monitoring to
provide security for processing, transmission and storage of all such data, including confidential information.
Despite the security measures we have in place, our facilities and systems, and those of our third-party service
providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, data theft, 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 other means, including deceiving our employees or third-party
service providers. The methods used to obtain unauthorized access, disable or degrade service, or sabotage

24

systems are also constantly changing and evolving, and may be difficult to anticipate or detect for long periods of
time. We have implemented and regularly review and update our control systems, processes and procedures to
protect against unauthorized access to or use of secured data and to prevent data loss. However, the ever-evolving
threats mean we must continually evaluate and adapt our systems and processes, and there is no guarantee that
they will be adequate to safeguard against all data security breaches or misuses of data. Any security breach
involving the misappropriation, loss or other unauthorized disclosure of customer payment card or personal
information or employee personal or confidential information, whether by us or our vendors, could damage our
reputation, expose us to risk of regulatory enforcement, litigation and liability, disrupt our operations, harm our
business and have an adverse impact upon our net sales and profitability. 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.

Terrorism and the uncertainty of war may harm our operating results.

Terrorist attacks or acts of war may cause damage or disruption to us and our employees, facilities,
information systems, vendors and customers, which could significantly impact our net sales, profitability and
financial condition. Terrorist attacks could also have a significant impact on ports or international shipping on
which we are substantially dependent for the supply of much of the merchandise we sell. Our corporate
headquarters is located near Los Angeles International Airport and the Port of Los Angeles, which have been
identified as potential terrorism targets. The potential for future terrorist attacks, the national and international
responses to terrorist attacks and other acts of war or hostility may cause greater uncertainty and cause our
business to suffer in ways that we cannot currently predict. Military action taken in response to such attacks
could also have a short or long-term negative economic impact upon the financial markets, international shipping
and our business in general.

Changes in accounting standards and subjective assumptions, estimates and judgments by management
related to complex accounting matters could significantly affect our financial results.

Accounting principles generally accepted in the United States of America and related accounting
standards, implementation guidelines and interpretations with regard to a wide range of matters that are relevant
to our business, such as revenue recognition; income taxes; the carrying amount of merchandise inventories,
property and equipment, lease assets and lease liabilities; valuation allowances for receivables, sales returns and
deferred income tax assets; estimates related to stored-value card breakage and the valuation of share-based
compensation awards; and obligations related to litigation, self-insurance liabilities and employee benefits are
highly complex and may involve many subjective assumptions, estimates and judgments by our management.
Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by
our management could significantly change our reported or expected financial performance.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

Properties

Our primary corporate headquarters are located at 2525 East El Segundo Boulevard, El Segundo,
California 90245, with a satellite office located nearby at 2401 East El Segundo Boulevard, El Segundo,
California 90245. We lease 55,000 square feet of office and adjoining retail space related to our primary
corporate headquarters, and we lease 11,500 square feet related to our satellite office. The lease for the primary
corporate headquarters is scheduled to expire on February 28, 2026 and provides us with one five-year renewal
option, while the lease for the satellite office is scheduled to expire on February 28, 2026 and provides us with no
remaining options.

25

We own a parcel of land with an existing building adjacent to our corporate headquarters location.
We currently lease a portion of the parcel of land, including the building, to a restaurant retailer. The lease is
scheduled to expire on February 28, 2030, or earlier by providing the lessee with a one-year written notice. The
that we currently use for our corporate
remaining portion of the parcel of land includes a parking lot
headquarters.

Our distribution facility is located in Riverside, California and has 953,000 square feet of warehouse
and office space. Our lease for the distribution center is scheduled to expire on August 31, 2025 and includes one
additional five-year renewal option. We lease 172,000 square feet of additional distribution space adjacent to our
distribution center in Riverside, California that enables us to more efficiently fulfill our expanding distribution
requirements. Our lease for this additional facility is scheduled to expire on August 31, 2025 and includes three
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 years per option. As of January 2, 2022, of our total store leases, 53
leases are due to expire in the next five years without renewal options. In most cases, as current leases expire, we
believe we will be able to obtain lease renewals for existing store locations or new leases for substantially
equivalent locations in the same general area.

Our Stores

Throughout our history, we have focused on operating traditional, full-line sporting goods stores. Our
stores generally range from 8,000 to 15,000 square feet and average approximately 11,000 square feet. Our
typical store is located in either a free-standing street location or a multi-store shopping center. Our numerous
convenient locations and accessible store format encourage frequent customer visits, resulting in approximately
25.2 million sales transactions and an average transaction size of approximately $46 in fiscal 2021. The
following table details our store locations by state as of January 2, 2022:

State

California . . . . . . . . . . . . .
Washington . . . . . . . . . . .
Arizona . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . .
New Mexico . . . . . . . . . . .
Nevada . . . . . . . . . . . . . . .
Utah . . . . . . . . . . . . . . . . .
Idaho . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . .
Wyoming . . . . . . . . . . . . .

Total . . . . . . . . . . . . .

Year
Entered

Number
of Stores

Percentage of Total
Number of Stores

1955
1984
1993
1995
2001
1995
1978
1997
1994
1995
2010

222
46
41
29
23
19
18
18
11
3
1

431

51.5%
10.7
9.5
6.7
5.3
4.4
4.2
4.2
2.6
0.7
0.2

100.0%

Our same store sales per square foot were approximately $234 for fiscal 2021. Our same store sales
per square foot combined with our efficient store-level operations and low store maintenance costs have allowed
us to historically generate strong store-level returns.

26

ITEM 3.

LEGAL PROCEEDINGS

The Company is involved in various claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these matters is not expected to have a
material adverse effect on the Company’s results of operations or financial condition.

ITEM 4. MINE SAFETY DISCLOSURES

None.

27

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock, par value $0.01 per share, trades on The NASDAQ Stock Market LLC under the

symbol “BGFV.”

As of February 22, 2022, there were 22,219,839 shares of common stock outstanding held by 473

holders of record.

Dividend Policy

Dividends are paid at the discretion of the Board of Directors. In the first quarter of fiscal 2020, we
paid a quarterly cash dividend of $0.05 per share of outstanding common stock. In the second quarter of fiscal
2020, our Board of Directors suspended our quarterly cash dividend as a result of COVID-19. In response to the
improved strength of our balance sheet, operations and cash flow generation, in the third quarter of fiscal 2020,
our Board of Directors reinstated our quarterly cash dividend at the previous rate of $0.05 per share of
outstanding common stock and declared a cash dividend of $0.10 per share of outstanding common stock. The
$0.10 cash dividend reflected our reinstated quarterly cash dividend of $0.05 per share of outstanding common
stock for the third quarter of fiscal 2020, and also included an additional $0.05 per share in recognition that we
did not pay a dividend in the second quarter of fiscal 2020. In the fourth quarter of fiscal 2020, first quarter of
fiscal 2021, second quarter of fiscal 2021 and third quarter of fiscal 2021, our Board of Directors declared
increases in our quarterly cash dividends to $0.10 per share of outstanding common stock, $0.15 per share of
outstanding common stock, $0.18 per share of outstanding common stock and $0.25 per share of outstanding
common stock, respectively. Additionally, in the second quarter of fiscal 2021, our Board of Directors declared a
special cash dividend of $1.00 per share of outstanding common stock, which was paid on June 1, 2021. In the
fourth quarter of fiscal 2021, our Board of Directors declared a quarterly cash dividend of $0.25 per share of
outstanding common stock, which was paid on December 15, 2021 to stockholders of record as of December 1,
2021, and also declared a special cash dividend of $1.00 per share of outstanding common stock, which was paid
on December 1, 2021 to stockholders of record as of November 17, 2021. In the first quarter of fiscal 2022, our
Board of Directors declared a quarterly cash dividend of $0.25 per share of outstanding common stock, which
will be paid on March 25, 2022 to stockholders of record as of March 11, 2022.

The agreement governing our revolving credit facility imposes restrictions on our ability to make
dividend payments. For example, our ability to pay cash dividends on our common stock will depend upon,
among other things, our compliance with certain availability and fixed charge coverage ratio requirements at the
time of the proposed dividend or distribution, and whether we are in default under the agreement. Our future
dividend policy will also depend on the requirements of any future credit or other financing agreements to which
we may be a party and other factors considered relevant by our Board of Directors, including the General
Corporation Law of the State of Delaware, which provides that dividends are only payable out of surplus or
current net profits.

28

Issuer Purchases

The following tabular summary reflects our share repurchase activity during the fiscal quarter ended

January 2, 2022:

ISSUER PURCHASES OF EQUITY SECURITIES

Period

Total Number
of Shares
Purchased

Average
Price Paid
per Share

October 4 – October 31 . . . . . . . .
November 1 – November 28 . . . .
November 29 – January 2 . . . . . .

— $
— $
$

260,825

—
—
20.43

Total . . . . . . . . . . . . . . . . . . .

260,825

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)(2)

Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs (1)(2)(3)

—
—
260,825

260,825

$
$
$

$

13,005,000
13,005,000
7,678,000

7,678,000

(1)

(2)

(3)

In the first quarter of fiscal 2022, the Company’s Board of Directors authorized a new share repurchase
program for the purchase of up to an additional $25.0 million of the Company’s common stock. This
program replaced the Company’s previous share repurchase program, under which $7.7 million remained
available for repurchase. All share repurchases shown in this table were made under the Company’s
previous share repurchase program. Under these programs, the Company may purchase shares from time to
time in the open market or in privately negotiated transactions in compliance with the applicable rules and
regulations of the Securities and Exchange Commission. However, the timing and amount of such
purchases, if any, would be at the discretion of the Company’s management and Board of Directors and
would depend upon market conditions and other considerations. Since the inception of its initial share
repurchase program in May 2006 through its previous share repurchase program as of January 2, 2022, the
Company repurchased a total of 3,890,295 shares for $49.4 million.
The Company’s dividends and stock repurchases are generally funded by distributions from its subsidiary,
Big 5 Corp. The Company’s Loan Agreement generally permits the Company to declare or pay cash
dividends or repurchase stock only if, among other things, no default or event of default then exists or
would arise from such dividend or repurchase of stock and, after giving effect to such dividend or
repurchase, certain availability and/or fixed charge coverage ratio requirements are satisfied, although the
Company is permitted to make up to $5.0 million of dividend payments or stock repurchases per year
without satisfaction of the availability or fixed charge coverage ratio requirements, but dividends or stock
repurchases made without satisfying the availability and/or fixed charge coverage ratio requirements will
require the establishment of an additional reserve that will reduce borrowing availability under the Loan
Agreement for 75 days.
This amount reflects the dollar value of shares remaining available to repurchase under the Company’s
previous share repurchase program, which was replaced by a new share repurchase program in the first
quarter of fiscal 2022.

ITEM 6.

[RESERVED]

29

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Throughout this section, the Big 5 Sporting Goods Corporation (“we,” “our,” “us”) fiscal years ended
January 2, 2022 and January 3, 2021 are referred to as fiscal 2021 and 2020, respectively. The following
discussion and analysis of our financial condition and results of operations for fiscal 2021 and 2020 includes
information with respect to our plans and strategies for our business and should be read in conjunction with the
consolidated financial statements and related notes, the risk factors and the cautionary statement regarding
forward-looking information included elsewhere in this Annual Report on Form 10-K.

Our fiscal year ends on the Sunday nearest December 31. Fiscal 2021 included 52 weeks and fiscal

2020 included 53 weeks.

Impact of COVID-19

In March 2020, the World Health Organization declared the rapidly growing novel coronavirus
(“COVID-19”) outbreak to be a global pandemic. The COVID-19 pandemic has significantly impacted health
and economic conditions throughout the United States, as public concern about becoming ill with the virus has
led to the issuance of recommendations and/or mandates from federal, state and local authorities to practice
social distancing or self-quarantine.

Beginning on March 20, 2020 and continuing into the second quarter of fiscal 2020, we temporarily
closed more than one-half of our retail store locations in response to state and local shelter orders related to the
COVID-19 outbreak. We were subsequently able to gradually reopen all store locations based initially on
qualifying as an “essential” business under applicable regulations and later as a result of the easing of regulatory
restrictions on retail operations in our market areas. Throughout fiscal 2020, the pandemic and the shelter orders
that were in place in our market areas negatively impacted customer traffic into the stores that were operating,
and certain stores required additional closures during the remainder of the year. In an effort to promote social
distancing protocols, we implemented reduced store hours for our open stores and limited the number of
customers in our stores at any one time. While these temporary store closures, limited hours of operation and
shelter orders in our market areas related to the initial COVID-19 outbreak had an unfavorable impact on our
operations initially, as we began reopening stores we recognized significant shifts in consumer demand in favor
of fitness and outdoor recreational products and we rapidly evolved our product assortment, which had a
favorable impact on our operating results throughout the remainder of fiscal 2020. In fiscal 2021, as COVID-19
restrictions continued easing in many of our markets, we experienced strong consumer demand across a broad
assortment of product categories, including increased consumer demand for team sports products, which was
weak during the prior year due to the COVID-19 pandemic.

implementing temporary and permanent workforce reductions throughout

During fiscal 2020, in response to COVID-19, we also initially took measures to reduce expense and
preserve capital across the organization, including negotiating lease concessions with landlords that would reduce
or defer our lease-related payments, scaling back merchandise inventory orders and extending payment terms
the
with merchandise vendors,
organization, reducing advertising and the amount of planned capital spending, and suspending our quarterly
dividend payment, among other measures. Although a certain portion of the expense reduction initiatives only
benefited the second quarter of fiscal 2020, the remainder of fiscal 2020 continued to reflect labor expense
savings due primarily to continued reduced store operating hours throughout most of the period, as well as
advertising expense savings due to significantly reduced advertising activity. In fiscal 2021, our labor expense
gradually increased as we increased wage rates in a tightening labor market and increased our store operating
hours compared to the same period in the prior year. While store operating hours were higher in fiscal 2021
compared with the same period last year, store operating hours remained below pre-pandemic levels for the
comparable periods, and we expect this trend to continue during fiscal 2022. We continue to maintain reduced
advertising expense in comparison to historical levels and expect this trend to remain during fiscal 2022 as we

30

continue to evaluate the impact on our sales. We will continue to evaluate the impact of COVID-19 on our future
operations.

The initial unfavorable impacts caused by the COVID-19 outbreak also led us to take various actions
to enhance our liquidity. We initially increased borrowings and exercised the accordion feature under our
previous revolving credit facility, and we drew down additional amounts that resulted in our highest borrowing
level of $143.3 million as of March 31, 2020. However, with our favorable operating results throughout the
remainder of fiscal 2020, we were able to fully repay our borrowings while increasing our levels of cash and cash
equivalents. Our financial condition was further enhanced during fiscal 2021, reflecting our strong sales and
operating cash flow for the period. As of January 2, 2022 and January 3, 2021, we had zero revolving credit
borrowings and cash and cash equivalents of $97.4 million and $64.7 million, respectively.

A substantial amount of our inventory is manufactured abroad. COVID-19, and surging consumer
demand initially associated with the pandemic, has impacted our supply chain for products sold, particularly
those products that are sourced from Asia. To the extent one or more vendors is negatively impacted by
continued supply chain disruptions or by COVID-19, including due to interruptions at or closure of those
vendors’ distribution centers or manufacturing facilities, or we or our vendors are unable to obtain the necessary
shipping capacity to transport products to our distribution center, we may be unable to maintain delivery
schedules or adequate inventory in our stores. During the second half of fiscal 2021, we experienced significant
shipping delays of products sourced from overseas vendors to be received at the Ports of Los Angeles and Long
Beach, which reflected increased shipping volume and insufficient labor resources at the ports that have
significantly increased cargo backlogs. These factors, in addition to workforce shortages in the trucking industry,
have limited our ability to obtain desired quantities of inventory for various merchandise categories. While we
have generally been able to sufficiently stock product in our stores to meet most consumer demand during the
pandemic, future prolonged and sustained delays in product reaching our stores from overseas vendors,
particularly during the holiday season, could result in our inability to obtain adequate levels of merchandise
inventories to meet our consumers’ needs, which could have an adverse impact on our net sales and profitability.

Overview

We are a leading sporting goods retailer in the western United States, operating 431 stores and an
e-commerce platform under the name “Big 5 Sporting Goods” as of January 2, 2022. We provide a full-line
product offering in a traditional sporting goods store format that averages approximately 11,000 square feet.
Through our e-commerce platform, we also offer selected products online. E-commerce sales for fiscal 2021 and
2020 were not material. Our product mix includes athletic shoes, apparel and accessories, as well as a broad
selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, home recreation,
tennis, golf, and winter and summer recreation.

We believe that over our 67-year history we have developed a reputation with the competitive and
recreational sporting goods customer as a convenient neighborhood sporting goods retailer that consistently
delivers value on quality merchandise. Our stores carry a wide range of products at competitive prices from well-
including adidas, Coleman, Columbia, Everlast, New Balance, Nike,
known brand name manufacturers,
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 we purchase through opportunistic
buys of vendor over-stock and close-out merchandise. We reinforce our value reputation through digital
marketing and print advertising in major and local newspapers and direct mailers, in an effort to generate
customer traffic, drive sales and build brand awareness. We have gradually been decreasing our print advertising
over recent years while simultaneously increasing our digital advertising, which we believe allows us to more
effectively manage our advertising expense while expanding our consumer outreach. We also maintain social
media sites to enhance distribution capabilities for our promotional offers and to enable communication with our
customers.

31

Throughout our history, we have emphasized controlled growth. Our store openings during recent
years reflect our cautious approach toward store expansion in the current retail environment, which includes
increasing e-commerce competition, especially in response to changing consumer buying habits resulting from
concerns surrounding the COVID-19 pandemic. The following table summarizes our store count for the periods
presented:

Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stores relocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stores closed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Stores opened (closed) per year, net

. . . . . . . . . . . . . .

Fiscal Year

2021

2020

430
5
(2)
(2)

431

1

434
—
—
(4)

430

(4)

(1)

Stores that are relocated are classified as new stores. Sales from the prior location are treated
as sales from a closed store and thus are excluded from same store sales calculations.

For fiscal 2022, we anticipate opening approximately six new stores and closing two stores.

Executive Summary

Our increased net income for fiscal 2021 compared to fiscal 2020 was mainly attributable to higher
net sales and merchandise margins, partially offset by higher selling and administrative expense year over year.
Higher net sales in fiscal 2021 primarily reflected strong consumer demand for various sporting goods products
as a result of the COVID-19 pandemic and consumers’ desire to recreate and stay active. Merchandise margins
increased in fiscal 2021 due primarily to reduced promotional activity, a shift in our product sales mix and higher
sales prices in response to increases in product purchase costs. Selling and administrative expense for fiscal 2021
increased over the prior year mainly reflecting higher employee labor and benefit-related expense and higher
company performance-based incentive accruals.

(cid:129)

(cid:129)

(cid:129)

(cid:129)

Net sales for fiscal 2021 increased 11.6% to $1,161.8 million compared to $1,041.2 million for fiscal
2020. The increase in net sales was primarily attributable to an increase in sales from same stores and
added sales from new stores, partially offset by lower sales from closed stores. As a result of our
fiscal calendar, net sales in fiscal 2020 also reflected one extra week of activity compared with fiscal
2021.

Our same store sales for fiscal 2021, which are computed on a comparable 52-week basis, increased
13.9% versus the prior year. We experienced strong same store sales increases for each of our major
merchandise categories of apparel, footwear and hardgoods in fiscal 2021. Same store sales for a
period reflect sales from stores that operated throughout the period as well as the full corresponding
prior-year period, and same store sales comparisons exclude sales from stores closed during the
comparable periods.

Gross profit for fiscal 2021 represented 37.5% of net sales, compared with 33.5% in the prior year.
Merchandise margins were 250 basis points higher than the prior year, while occupancy expense as a
percentage of net sales and distribution expense, including costs capitalized into inventory, as a
percentage of net sales were lower compared with fiscal 2020.

Selling and administrative expense for fiscal 2021 increased 8.9% to $299.8 million, or 25.8% of net
sales, compared to $275.4 million, or 26.5% of net sales, for fiscal 2020. The increase in selling and

32

administrative expense primarily reflects higher employee labor expense, due in part to store closures
in the prior year as a result of COVID-19, and higher company performance-based incentive accruals
year over year.

(cid:129)

Net income for fiscal 2021 was $102.4 million, or $4.55 per diluted share, compared to net income of
$55.9 million, or $2.58 per diluted share, for fiscal 2020. The increase was driven primarily by
increased net sales and merchandise margins, partially offset by increased selling and administrative
expense in fiscal 2021.

Our principal liquidity requirements are for working capital, capital expenditures and cash dividends.
We fund our liquidity requirements primarily through cash and cash equivalents, cash flows from operations and
borrowings from our revolving credit facility.

(cid:129)

(cid:129)

(cid:129)

(cid:129)

Operating cash flow for fiscal 2021 was a positive $115.5 million compared to a positive $148.7 million in
the prior year. The decrease in operating cash flow primarily reflected increased funding for merchandise
inventory as a result of healthy consumer demand for various products, after reducing inventory in fiscal
2020 in response to COVID-19, partially offset by higher net income in fiscal 2021.

Capital expenditures for fiscal 2021 increased to $10.9 million from $7.3 million in fiscal 2020, primarily
reflecting the opening of new stores in fiscal 2021 compared with fiscal 2020, in which no new stores
were opened.

Borrowings under our credit facility were zero as of January 2, 2022 and January 3, 2021, which reflected
a full pay-down of the credit facility since the end of the third quarter of fiscal 2020. We had cash and cash
equivalents of $97.4 million and $64.7 million as of January 2, 2022 and January 3, 2021, respectively,
which included cash equivalents of $75.0 million and $50.0 million, respectively, related to investments in
highly-liquid U.S. Treasury bills.

We paid cash dividends in fiscal 2021 of $61.8 million, or $2.83 per share, compared with $5.5 million, or
$0.25 per share, in fiscal 2020. In response to the improved strength of our balance sheet, operations and
cash flow generation, in the first quarter of fiscal 2021, second quarter of fiscal 2021 and third quarter of
fiscal 2021, our Board of Directors declared increases in our quarterly cash dividends to $0.15 per share of
outstanding common stock, $0.18 per share of outstanding common stock and $0.25 per share of
outstanding common stock, respectively. Additionally, in the second quarter of fiscal 2021, our Board of
Directors declared a special cash dividend of $1.00 per share of outstanding common stock. In the fourth
quarter of fiscal 2021, our Board of Directors declared a quarterly cash dividend of $0.25 per share of
outstanding common stock and also declared a special cash dividend of $1.00 per share of outstanding
common stock.

(cid:129)

We repurchased 361,323 shares of common stock for $7.6 million in fiscal 2021.

33

Results of Operations

The following table sets forth selected items from our consolidated statements of operations by dollar

and as a percentage of our net sales, and other financial data, for the periods indicated:

Statement of Operations Data:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Cost of sales (2)
Gross profit . . . . . . . . . . . . . . . . . . .
. .
Selling and administrative expense (3)
Other income . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . .
Income tax expense . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .

Other Financial Data:

Net sales change . . . . . . . . . . . . . . .
Same store sales change (4) . . . . . . .

Fiscal Year (1)

2021

2020

(Dollars in thousands)

$ 1,161,820
725,991
435,829
299,812
—
136,017
893
135,124
32,738
102,386

$

100.0% $ 1,041,212
692,041
62.5
349,171
37.5
275,406
25.8
(2,500)
—
76,265
11.7
1,880
0.1
74,385
11.6
18,445
2.8
55,940
8.8% $

11.6%
13.9%

100.0%
66.5
33.5
26.5
(0.2)
7.2
0.2
7.0
1.8
5.2%

4.5%
3.0%

(1)

(2)

(3)

(4)

Fiscal 2021 and 2020 included 52 weeks and 53 weeks, respectively.
Cost of sales includes the cost of merchandise, net of discounts or allowances earned,
freight, inventory reserves, buying, distribution center expense, including depreciation, and
store occupancy expense. Store occupancy expense includes rent, amortization of leasehold
improvements, common area maintenance, property taxes and insurance.
Selling and administrative expense includes store-related expense, other
than store
occupancy expense, as well as advertising, depreciation and amortization, expense
associated with operating our corporate headquarters and impairment charges, if any.
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 and sales from e-commerce. For purposes
of reporting same store sales comparisons to the prior year for fiscal 2021, we used
comparable 52-week periods. For purposes of reporting same store sales comparisons to the
prior year for fiscal 2020, we used comparable 53-week periods.

Net Sales. Net sales increased by $120.6 million, or 11.6%, to $1,161.8 million for fiscal 2021 from

$1,041.2 million for fiscal 2020. The change in net sales was primarily attributable to the following:

(cid:129)

Same store sales increased by $139.7 million, or 13.9%, for fiscal 2021 versus the comparable prior-
year period. The increase in same store sales reflected the following:

(cid:129) We experienced strong same store sales increases for each of our major merchandise

categories of apparel, footwear and hardgoods.

(cid:129)

Continued healthy demand for many categories of sporting goods products, particularly
winter-related products, was a result of COVID-19 and consumers’ desire to recreate and
stay active during the pandemic, and increased consumer demand for team sports products

34

was a result of COVID-19 restrictions easing in many of our markets over the course of the
year. Sales were negatively impacted by an active wildfire season in some of our markets
during the third quarter of fiscal 2021 that resulted in the closing of certain national parks and
affected various outdoor activities, including camping and watersports.

(cid:129)

(cid:129)

The increase in same store sales in fiscal 2021 was based on a 52-week comparison to the
prior fiscal year, which reflected temporary store closures related to COVID-19 in the prior
year and unfavorable winter weather in the first quarter of fiscal 2020.

Same store sales for a period normally consist of sales for stores that operated throughout the
period and the full corresponding prior-year period, along with sales from e-commerce. Same
store sales comparisons exclude sales from stores permanently closed, or stores in the process
of permanently closing, during the comparable periods. Sales from e-commerce in fiscal
2021 and 2020 were not material.

(cid:129)

(cid:129)

We experienced increased customer transactions and a slightly higher average sale per transaction in
fiscal 2021 compared to the prior year.

The net sales increase in fiscal 2021 was partially offset by a reduction of $19.4 million in sales due
to one less week of activity compared with fiscal 2020 as a result of the 53-week fiscal year in 2020.

Gross Profit. Gross profit increased by $86.6 million to $435.8 million, or 37.5% of net sales, in
fiscal 2021 from $349.2 million, or 33.5% of net sales, in fiscal 2020. The change in gross profit was primarily
attributable to the following:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

Net sales increased by $120.6 million, or 11.6%, in fiscal 2021 compared to the prior year.

Merchandise margins, which exclude buying, occupancy and distribution expense, increased by a
favorable 250 basis points compared with fiscal 2020, when merchandise margins increased by a
favorable 190 basis points over the prior year. The increase primarily reflects lower promotional
activities, a shift in our product sales mix and higher sales prices in response to increases in product
purchase costs. The higher product purchase costs we are experiencing reflect increased labor and
freight costs initially resulting from shortages related to COVID-19, as well as strong consumer
demand. Shipping capacity constraints and labor shortages at the ports are also contributing to higher
freight costs and are adversely impacting our ability to obtain sufficient quantities of certain products
in our stores to meet the higher demand.

Distribution expense, including costs capitalized into inventory, decreased by $0.3 million, or a
favorable 56 basis points, compared to the prior year. The decrease primarily reflected higher costs
capitalized into inventory corresponding to the increase in merchandise inventories compared with
fiscal 2020, largely offset by higher employee labor and benefit-related expense, as well as higher
trucking and fuel expense, in order to meet the increased demand for our products. Higher fuel
expense also resulted from gas price inflation, which we experienced over the last three quarters of
fiscal 2021.

Store occupancy expense increased by $1.7 million, but declined by a favorable 83 basis points as a
percentage of net sales, year over year in fiscal 2021. Store occupancy expense for fiscal 2020
reflected the favorable impact from lease concessions in the amount of $3.1 million that we
negotiated in response to the COVID-19 pandemic.

Selling and Administrative Expense. Selling and administrative expense increased by $24.4 million,
or 8.9%, to $299.8 million, or 25.8% of net sales, in fiscal 2021 from $275.4 million, or 26.5% of net sales, in
fiscal 2020. The change in selling and administrative expense was primarily attributable to the following:

(cid:129)

Store-related expense, excluding occupancy, increased by $17.1 million, due largely to increased
employee labor and benefit-related expense as a result of increased store operating hours compared to

35

the same period in the prior year that reflected temporary workforce reductions and reduced store
operating hours in response to the COVID-19 pandemic, and increased wage rates in a tightening
labor market, as well as increases in credit card fees and business insurance premiums.

(cid:129)

(cid:129)

(cid:129)

the incremental

The increase in employee labor-related expense included wage pressures that continue to
reflect
impact of legislated minimum wage rate increases primarily in
California, where over fifty percent of our stores are located. In April 2016, California passed
legislation to enact additional state-wide minimum wage rate increases from $10.00 to
$15.00 per hour to be implemented in annual increments through fiscal 2022, with annual
increases of $1.00 per hour effective in fiscal 2019 through fiscal 2022. Additionally, certain
other jurisdictions within California, including Los Angeles and San Francisco, as well as
various other states in which we do business, are implementing their own scheduled
increases, which may also include interim impacts effective at various points throughout the
year. We estimate that the impact of the California state-wide minimum wage rate increase,
combined with the impact of the additional minimum wage rate increases in certain other
jurisdictions within California and other states, caused our labor expense to increase by
approximately $1.9 million for fiscal 2021 compared with fiscal 2020.

The increase in employee labor and benefit-related expense included an increase in sick leave
expense reflecting a California regulatory requirement that employers provide two weeks of
COVID-19-related sick-time benefits to employees while they are self-quarantining.

The increase in employee labor and benefit-related expense also reflects an employee
retention credit provided by the U.S. Coronavirus Aid, Relief and Economic Security Act
(the “CARES Act”) to provide relief for employers subject to closure due to the impact of
COVID-19, which reduced employee labor and benefit-related expense by $0.9 million for
fiscal 2020.

(cid:129)

(cid:129)

Administrative expense increased by $6.9 million, primarily attributable to an increase in company
performance-based incentive accruals and certain increased staffing-related expenses, as well as
comparison to an insurance recovery of $1.7 million recognized in fiscal 2020 related to a store damaged
as a result of a fire.

Advertising expense increased by $0.3 million, due mainly to increased digital advertising in fiscal 2021,
partially offset by lower print advertising in the prior fiscal year. Advertising expense in fiscal 2020 was
significantly lower than fiscal 2019 as a result of the impact of the COVID-19 pandemic.

Other Income. Other income in fiscal 2020 consisted of a cash condemnation settlement related to eminent
domain proceedings, as more fully described in Note 12 to the Consolidated Financial Statements included in Part II,
Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Interest Expense. Interest expense decreased to $0.9 million in fiscal 2021 compared with $1.9 million in

fiscal 2020, primarily reflecting a zero balance in borrowings under our existing credit facility since July 2020.

Income Taxes. The provision for income taxes increased to $32.7 million for fiscal 2021 compared to
$18.4 million for fiscal 2020, primarily reflecting higher pre-tax income in fiscal 2021 compared to fiscal 2020. Our
effective tax rate of 24.2% for fiscal 2021 compared with 24.8% for fiscal 2020. Our effective tax rate for fiscal 2021
reflects an increased tax benefit related to the deduction for share-based compensation, a $0.3 million favorable
reduction of our previously established valuation allowance related to unused California Enterprise Zone Tax Credits
and a $0.2 million disaster recovery credit related to fires in California. Our effective tax rate for fiscal 2020 reflects a
$0.4 million favorable reduction of our previously established valuation allowance related to unused California
Enterprise Zone Tax Credits and the write-off of deferred tax assets related to share-based compensation of
$0.3 million. As a result of the U.S. Coronavirus Aid, Relief and Economic Security Act enacted on March 27, 2020, to
provide relief from the impact of COVID-19, we amended our 2018 income tax return and our effective tax rate for
fiscal 2020 reflects the carryback of our 2018 net operating loss to a period with a higher statutory income tax rate.

36

Liquidity and Capital Resources

Our principal liquidity requirements are for working capital, capital expenditures and cash dividends. We
fund our liquidity requirements primarily through cash and cash equivalents, cash flows from operations and
borrowings from our revolving credit facility. We believe our cash and cash equivalents, future cash flows from
operations and borrowings from our revolving credit facility will be sufficient to fund our cash requirements for at least
the next 12 months.

We ended fiscal 2021 and 2020 with $97.4 million and $64.7 million of cash and cash equivalents,
respectively, and no revolving credit borrowings. The following table summarizes our cash flows from operating,
investing and financing activities for each of the past two fiscal years:

Total cash provided by (used in):

Fiscal Year

2021

2020

(In thousands)

Operating activities . . . . . . . . . . . . . . . . . . . . . . . . $
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . .

115,528 $
(10,615)
(72,147)

148,743
(5,360)
(86,952)

Net increase in cash and cash equivalents . . . $

32,766 $

56,431

The seasonality of our business historically provides greater cash flows from operations during the
holiday and winter selling season. We use operating cash flows and borrowings under our revolving credit
facility, if necessary, to fund inventory increases in anticipation of the holidays and our inventory levels are
normally at their highest in the months leading up to Christmas. As holiday sales typically reduce inventory
levels, this reduction, combined with net income, historically provides us with strong cash flows from operations
at the end of our fiscal year.

For fiscal 2021, as COVID-19 restrictions continued easing in many of our markets, we experienced
continued strong consumer demand across a broad assortment of product categories,
including increased
consumer demand for team sports products, which was weak last year due to the COVID-19 pandemic. This
strong consumer demand for fiscal 2021 contributed to higher sales and margins and increased net income year-
over-year. After reducing merchandise inventory in fiscal 2020 in response to COVID-19, we increased
purchases of merchandise inventory in fiscal 2021 to support the strong consumer demand. Although our
operating cash flow for fiscal 2021 was healthy, reflecting our higher earnings, the increased funding of
merchandise inventory for the year contributed to reduced operating cash flow compared to fiscal 2020.

For fiscal 2020, we experienced weak customer demand for winter-related products in the first
quarter as a result of unfavorable warm and dry weather in most of our markets which contributed to higher
merchandise inventory and lower operating cash flow compared to the first quarter of 2019. Also beginning on
March 20, 2020, we temporarily closed more than one-half of our retail store locations in response to state and
local shelter orders related to the COVID-19 outbreak and took measures to reduce expenses across the
organization and enhance liquidity, including scaling back merchandise inventory orders and extending payment
terms with merchandise vendors, among other measures. We were subsequently able to gradually reopen all store
locations during the second quarter and, as we began reopening stores, we recognized significant increases in
consumer demand. The combination of increasing sales and margins, reduced expenses and scaled back
inventory purchases contributed to substantially higher operating cash flow for the second quarter and first half
of fiscal 2020. In the second half of fiscal 2020, strong consumer demand related to COVID-19 continued to
drive higher sales and margins which, combined with a reduced cost structure and lower merchandise inventory,
produced meaningfully-higher operating cash flow for the year and enabled us to entirely pay down our credit
facility borrowings.

37

Operating Activities. Operating cash flows for fiscal 2021 and 2020 were a positive $115.5 million
and a positive $148.7 million, respectively. While we experienced strong cash flows from operating activities for
both periods, the decrease in cash flow from operating activities for fiscal 2021 compared to fiscal 2020
primarily reflects increased funding for merchandise inventory as a result of strong consumer demand for various
products, after reducing merchandise inventory in the prior year in response to COVID-19. The lower operating
cash flow year over year also reflects decreased accrued expenses primarily related to taxes, partially offset by
higher net income and decreased credit card receivables in fiscal 2021.

Investing Activities. Net cash used in investing activities for fiscal 2021 and 2020 was $10.6 million
and $5.4 million, respectively. Capital expenditures, excluding non-cash acquisitions, represented substantially
all of the cash used in investing activities for each period. In fiscal 2021, capital expenditures of $10.9 million
were partially offset by a portion of settlement proceeds related to a civil unrest
insurance recovery of
$0.2 million, and in fiscal 2020, capital expenditures of $7.3 million were partially offset by proceeds from
insurance recoveries of $1.8 million and a portion of settlement proceeds from an eminent domain condemnation
of $0.2 million. Our capital spending is primarily to fund store-related remodeling, the opening of new stores,
distribution center equipment, and computer hardware and software purchases. Capital expenditures by category
for each of the last two fiscal years are as follows:

Fiscal Year

2021

2020

Store-related remodels . . . . . . . . . . . . . . . . . . . . . $
New stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer hardware, software and other . . . . . . .
Distribution center . . . . . . . . . . . . . . . . . . . . . . . .

$

(In thousands)
5,381
2,727
1,579
1,177

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

10,864

$

4,849
169
1,489
840

7,347

Capital expenditures in both fiscal years included investment in existing store remodeling to support
our merchandising initiatives and enhancement of information security measures to support our infrastructure.
Our capital expenditures included five new stores, including relocations, in fiscal 2021 and, in response to the
COVID-19 pandemic, our capital expenditures included no new stores in fiscal 2020.

Financing Activities. Financing cash flows for fiscal 2021 and 2020 were a negative $72.1 million
and a negative $87.0 million, respectively. For fiscal 2021, net cash was used primarily to fund dividend
payments, treasury stock purchases and finance lease payments, partially offset by proceeds received from the
exercise of share option awards. For fiscal 2020, net cash was used primarily to pay down borrowings under the
credit facility and fund payments of outstanding checks, dividend payments and finance lease payments. The
decreased cash flow used in financing activities for fiscal 2021 compared to the prior year primarily reflects a full
pay-down of borrowings under the credit facility during fiscal 2020 to zero, partially offset by substantially
higher dividends paid in fiscal 2021, as a result of improved profitability and cash generation.

As of January 2, 2022, we had no revolving credit borrowings and letter of credit commitments of
$1.1 million outstanding. These balances compare to no revolving credit borrowings and letter of credit
commitments of $2.6 million outstanding as of January 3, 2021.

In the first quarter of fiscal 2020, we paid a quarterly cash dividend of $0.05 per share of outstanding
common stock. In the second quarter of fiscal 2020, our Board of Directors suspended our quarterly cash
dividend as a result of COVID-19. In response to the improved strength of our balance sheet, operations and cash
flow generation, in the third quarter of fiscal 2020, our Board of Directors reinstated our quarterly cash dividend
at the previous rate of $0.05 per share of outstanding common stock and declared a cash dividend of $0.10 per

38

share of outstanding common stock. The $0.10 cash dividend reflected our reinstated quarterly cash dividend of
$0.05 per share of outstanding common stock for the third quarter of fiscal 2020, and also included an additional
$0.05 per share in recognition that we did not pay a dividend in the second quarter of fiscal 2020. In the fourth
quarter of fiscal 2020, first quarter of fiscal 2021, second quarter of fiscal 2021 and third quarter of fiscal 2021,
our Board of Directors declared increases in our quarterly cash dividends to $0.10 per share of outstanding
common stock, $0.15 per share of outstanding common stock, $0.18 per share of outstanding common stock and
$0.25 per share of outstanding common stock, respectively. Additionally, in the second quarter of fiscal 2021,
our Board of Directors declared a special cash dividend of $1.00 per share of outstanding common stock. In the
fourth quarter of fiscal 2021, our Board of Directors declared a quarterly cash dividend of $0.25 per share of
outstanding common stock and also declared a special cash dividend of $1.00 per share of outstanding common
stock. In the first quarter of fiscal 2022, our Board of Directors declared a quarterly cash dividend of $0.25 per
share of outstanding common stock, which will be paid on March 25, 2022 to stockholders of record as of
March 11, 2022.

Periodically, we repurchase our common stock in the open market pursuant to programs approved by
our Board of Directors. We may repurchase our common stock for a variety of reasons, including, among other
things, our alternative cash requirements, existing business conditions and the current market price of our stock.
In fiscal 2016, our Board of Directors authorized a share repurchase program for the purchase of up to
$25.0 million of our common stock, which was in effect through the fourth quarter of fiscal 2021 and under
which a total of $7.7 million remained available for share repurchases as of January 2, 2022. In the first quarter
of fiscal 2022, our Board of Directors authorized a new share repurchase program of up to $25.0 million of our
common stock, which replaced the previous share repurchase program. Under these programs, we may purchase
shares from time to time in the open market or in privately negotiated transactions in compliance with the
applicable rules and regulations of the Securities and Exchange Commission. However, the timing and amount of
such purchases, if any, would be at the discretion of our management and Board of Directors, and would depend
on market conditions and other considerations. We repurchased 361,323 shares of common stock in fiscal 2021
and no shares of common stock in fiscal 2020. Since the inception of our initial share repurchase program in May
2006 through January 2, 2022, we have repurchased a total of 3,890,295 shares for $49.4 million.

Loan Agreement. As of January 3, 2021, we had a credit agreement with Wells Fargo Bank, National
Association (“Wells Fargo”), as administrative agent, and a syndicate of other lenders, as amended (the “Prior
Credit Agreement”), which was terminated and replaced on February 24, 2021 as discussed below.

On February 24, 2021, we terminated the Prior Credit Agreement and entered into a Loan, Guaranty
and Security agreement with Bank of America, N.A. (“BofA”), as agent and lender, which was amended on
November 22, 2021 (as so amended, the “Loan Agreement”). The Loan Agreement has a maturity date of
February 24, 2026 and provides for a revolving credit facility with an aggregate committed availability of up to
$150.0 million. We may also request additional increases in aggregate availability, up to a maximum of
$200.0 million, in which case the existing lender under the Loan Agreement will have the option to increase their
commitment to accommodate the requested increase. If the lender does not exercise that option, we may (with
the consent of BofA in its role as the administrative agent, not to be unreasonably withheld) seek other lenders
willing to provide such commitments. The credit facility includes a $50.0 million sublimit for issuances of letters
of credit.

Similar to the Prior Credit Agreement, we may borrow under the Loan Agreement from time to time,
provided the amounts outstanding will not exceed the lesser of the then aggregate committed availability (as
discussed above) and the Borrowing Base (such lesser amount being referred to as the “Line Cap”). As defined in
the Loan Agreement, the “Borrowing Base” generally is comprised of the sum, at the time of calculation, of (a)
90.00% of eligible credit card receivables; plus (b) the cost of eligible inventory (other than eligible in-transit
inventory), net of inventory reserves, multiplied by 90.00% of the appraised net orderly liquidation value of
eligible inventory (expressed as a percentage of the cost of eligible inventory); plus (c) the cost of eligible
in-transit inventory, net of inventory reserves, multiplied by 90.00% of the appraised net orderly liquidation

39

value of eligible in-transit inventory (expressed as a percentage of the cost of eligible in-transit inventory), minus
(d) certain agreed-upon reserves as well as other reserves established by BofA in its role as the administrative
agent in its reasonable discretion.

Generally, we may designate specific borrowings under the Loan Agreement as either base rate loans
or LIBO rate loans. The applicable interest rate on our borrowings is a function of the daily average, over the
preceding fiscal quarter, of the excess of the Line Cap over amounts borrowed (such amount being referred to as
the “Average Daily Availability”). Those loans designated as LIBO rate loans bear interest at a rate equal to the
then applicable adjusted LIBO rate plus an applicable margin as shown in the table below. Those loans
designated as base rate loans bear interest at a rate equal to the applicable margin for base rate loans (as shown
below) plus the highest of (a) the Federal funds rate, as in effect from time to time, plus one-half of one percent
(0.50%), (b) the LIBO rate, plus one percentage point (1.00%), or (c) the rate of interest in effect for such day as
announced from time to time within BofA as its “prime rate.” The applicable margin for all loans will be a
function of Average Daily Availability for the preceding fiscal quarter as set forth below.

Level

Average Daily Availability

LIBO Rate
Applicable Margin

Base Rate
Applicable Margin

I

II

Greater than or equal to $70,000,000

Less than $70,000,000

1.375%

1.500%

0.375%

0.500%

The commitment fee assessed on the unused portion of the credit facility is 0.20% per annum.

Obligations under the Loan Agreement are secured by a general lien on and security interest in
substantially all of our assets. The Loan Agreement contains covenants that require us to maintain a fixed charge
coverage ratio of not less than 1.0:1.0 in certain circumstances, and limits the ability to, among other things,
incur liens, incur additional indebtedness, transfer or dispose of assets, change the nature of the business,
guarantee obligations, pay dividends or make other distributions or repurchase stock, and make advances, loans
or investments. We may generally declare or pay cash dividends or repurchase stock only if, among other things,
no default or event of default then exists or would arise from such dividend or repurchase of stock and, after
giving effect to such dividend or repurchase, certain availability and/or fixed charge coverage ratio requirements
are satisfied, although we are permitted to make up to $5.0 million of dividend payments or stock repurchases per
year without satisfaction of the availability or fixed charge coverage ratio requirements, but dividends or stock
repurchases made without satisfying the availability and/or fixed charge coverage ratio requirements will require
the establishment of an additional reserve that will reduce borrowing availability under the Loan Agreement for
75 days. The Loan Agreement contains customary events of default, including, without limitation, failure to pay
when due principal amounts with respect to the credit facility, failure to pay any interest or other amounts under
the credit facility, failure to comply with certain agreements or covenants contained in the Loan Agreement,
failure to satisfy certain judgments against us, failure to pay when due (or any other default which permits the
acceleration of) certain other material indebtedness in principal amount in excess of $5.0 million, and certain
insolvency and bankruptcy events. As amended, the Loan Agreement provides for a transition to an alternative
benchmark reference rate following the cessation of the LIBO rate.

The Prior Credit Agreement had a maturity date of September 29, 2022 and, as amended, provided
for a line of credit up to $140.0 million, which amount could be increased at our option up to a maximum of
$165.0 million. We could also request additional increases in aggregate availability, on an uncommitted basis up
to a maximum of $200.0 million. The prior revolving credit facility included a $25.0 million sublimit for
issuances of letters of credit and a $20.0 million sublimit for swingline loans. The Prior Credit Agreement
provided for LIBO rate loans to bear interest at a rate equal to the applicable adjusted LIBO rate plus an
applicable margin, as shown in the table below. The loans designated as base rate loans bore interest at a rate
equal to the applicable margin for base rate loans plus the highest of (a) the Federal funds rate in effect plus
one-half of one percent, (b) the LIBO rate, plus one percentage point, or (c) the prime interest rate. Under the

40

Prior Credit Agreement, the applicable margin for all loans was a function of Average Daily Availability for the
preceding fiscal quarter as set forth below.

Level

Average Daily Availability

LIBO Rate
Applicable Margin

Base Rate
Applicable Margin

I

II

Greater than or equal to $70,000,000

Less than $70,000,000

1.250%

1.375%

0.250%

0.500%

The commitment fee assessed on the unused portion of the prior credit facility was 0.20% per annum.

In the first quarter of fiscal 2021, we paid and capitalized $0.7 million in new creditor and third-party
fees associated with the Loan Agreement, which will be amortized over the term of the Loan Agreement, and
extinguished $0.2 million of deferred financing fees associated with the Prior Credit Agreement.

In order to support our liquidity in response to the rapidly growing COVID-19 outbreak, in March
2020 we exercised the accordion feature under our $140.0 million prior credit facility and drew down additional
amounts under that facility that resulted in long-term revolving credit borrowings of $143.3 million as of
March 31, 2020, our highest borrowing level. As a result of improved profitability and cash generation activities
in response to the COVID-19 pandemic, we paid down to zero our long-term revolving credit borrowings and we
had letter of credit commitments of $1.1 million outstanding as of January 2, 2022, compared with zero
borrowings and letter of credit commitments of $2.6 million as of January 3, 2021. Total remaining borrowing
availability, after subtracting letters of credit, was $148.9 million and $162.4 million as of January 2, 2022 and
January 3, 2021, respectively.

The following table provides information about our revolving credit borrowings as of and for the

periods indicated:

Fiscal Year

2021

2020

(Dollars in thousands)

Fiscal year-end balance . . . . . . . . . . . . . . . . . . . . . . . . . .
Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum outstanding during the year . . . . . . . . . . . . . .
Average outstanding during the year . . . . . . . . . . . . . . . .

$

$
$

—
—
—
—

$

$
$

—
2.7%

143,275
45,838

Future Capital Requirements. We had cash and cash equivalents on hand of $97.4 million as of
January 2, 2022. We expect capital expenditures for fiscal 2022, excluding non-cash acquisitions, to range from
approximately $15.0 million to $20.0 million, primarily for the opening of new stores, store-related remodeling,
distribution center equipment and computer hardware and software purchases. For fiscal 2022, we anticipate
opening approximately six new stores and closing two stores.

Dividends are paid at the discretion of the Board of Directors. In fiscal 2021 and 2020 we paid annual cash
dividends of $2.83 per share and $0.25 per share, respectively, of outstanding common stock. Dividends declared in
fiscal 2021 included special dividends in the amount of $2.00 per share of outstanding common stock. In the first
quarter of fiscal 2022, our Board of Directors declared a quarterly cash dividend of $0.25 per share of outstanding
common stock, which will be paid on March 25, 2022 to stockholders of record as of March 11, 2022.

As of January 2, 2022, a total of $7.7 million remained available for share repurchases under our previous
share repurchase program. In the first quarter of fiscal 2022, our Board of Directors authorized a new share repurchase
program of up to $25.0 million of our common stock, which replaced the previous share repurchase program. We
consider several factors in determining when and if we make share repurchases including, among other things, our
alternative cash requirements, existing business conditions and the market price of our stock.

41

Contractual Obligations. Our material contractual obligations include operating lease commitments
associated with our leased properties and other occupancy expense, finance lease obligations, borrowings under our
credit facility, if any, and other liabilities. Operating lease commitments consist principally of leases for our retail store
facilities, distribution center and corporate offices. These leases frequently include options which permit us to extend
the terms beyond the initial fixed lease term, and we intend to renegotiate most of these leases as they expire.
Operating lease commitments also consist of information technology (“IT”) systems hardware and distribution center
delivery tractors. Additional information regarding our operating 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.

In the ordinary course of business, we enter into arrangements with vendors to purchase merchandise
in advance of expected delivery. Because most of these purchase orders do not contain any termination payments
or other penalties if cancelled, they are not considered as outstanding contractual obligations.

Critical Accounting Estimates

Our critical accounting estimates detailed below are included in our significant accounting policies as
described in Note 2 of the Consolidated Financial Statements included in Item 8, Financial Statements and
Supplementary Data, of this Annual Report on Form 10-K. Those consolidated financial statements were
prepared in accordance with GAAP. Critical accounting estimates are those that we believe are most important to
the portrayal of our financial condition and results of operations. The preparation of our consolidated financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expense. Our estimates are evaluated on an ongoing basis and drawn from historical experience,
current trends and other factors that management believes to be relevant at the time our consolidated financial
statements are prepared. Actual results may differ from our estimates. Management believes that the following
accounting estimates are critical and reflect the more significant judgments and estimates we use in preparing our
consolidated financial statements.

Valuation of Merchandise Inventories, Net

Our merchandise inventories are made up of finished goods and are valued at the lower of cost or net
realizable value using the weighted-average cost method that approximates the first-in, first-out (“FIFO”) method.
Average cost consists of the direct purchase price of merchandise inventory, net of vendor allowances and cash
discounts, in-bound freight-related costs and allocated overhead costs associated with our distribution center.

We record valuation reserves on a quarterly basis for merchandise items with slow-moving or
obsolescence exposure and merchandise that has a carrying value that exceeds net realizable value. These reserves are
estimates of a reduction in value to reflect inventory valuation at the lower of cost or net realizable value. Factors
included in determining slow-moving or obsolescence reserve estimates include recent customer demand, merchandise
aging, seasonal trends and decisions to discontinue certain products. Because of our merchandise mix, 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 net realizable value provisions
totaled $2.7 million and $3.5 million as of January 2, 2022 and January 3, 2021, respectively, representing
approximately 1% of our merchandise inventory for both periods.

A 10% change in our inventory valuation reserves estimate in total as of January 2, 2022, would
result in a change in reserves of $0.3 million and a change in pre-tax earnings by the same amount. Our reserves
are estimates, which could vary significantly, either favorably or unfavorably, from actual results if future
economic conditions, consumer demand and competitive environments differ from our expectations. At this time,
we do not believe that there is a reasonable likelihood that there will be a material change in the future estimates
or assumptions that we use to calculate our inventory reserves.

42

Seasonality and Impact of Inflation

We experience seasonal fluctuations in our net sales and operating results, which can suffer when
weather does not conform to seasonal norms, such as the first quarter of fiscal 2020 when we experienced warm
and dry winter-weather conditions across our markets. Seasonality in our net sales influences our buying patterns
which directly impacts our merchandise and accounts payable levels and cash flows. We purchase merchandise
for seasonal activities in advance of a season and supplement our merchandise assortment as necessary and when
possible during the season. Our efforts to replenish products during a season are not always successful. In the
fourth fiscal quarter, which includes the holiday selling season and the start of the winter selling season, we
normally experience higher inventory purchase volumes and increased expense for staffing and advertising. If we
miscalculate the consumer demand for our products generally or for our product mix in advance of a season,
particularly the fourth quarter, our net sales can decline, which can harm our financial performance. A significant
shortfall from expected net sales, particularly during the fourth quarter, can negatively impact our annual
operating results.

In fiscal 2021 and 2020, we experienced greater inflation in the cost of products that we purchase for
resale as well as higher freight costs than in previous years. While our merchandise inventory costs in fiscal 2021
and 2020 were impacted by these inflationary pressures, up to this point we have generally been able to adjust
our selling prices in response to these higher product purchase costs. However, if we are unable to continue to
adjust our selling prices for product purchase cost increases that might occur in the future, then our merchandise
margins could decline, which would adversely impact our operating results.

Recently Issued Accounting Updates

See Note 2 to the Consolidated Financial Statements included in Item 8, Financial Statements and

Supplementary Data, of this Annual Report on Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Because we are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, we are

not required to provide the information under this item.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and the supplementary financial information required by this Item and
included in this Annual Report on Form 10-K are listed in the “Index to Consolidated Financial Statements”
beginning on page F-1.

43

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that are designed to provide reasonable
assurance that information which is required to be timely disclosed is accumulated and communicated to our
management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), in a timely
fashion. We conducted an evaluation, under the supervision and with the participation of our CEO and CFO, of
the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as
of January 2, 2022. Based on such evaluation, our CEO and CFO have concluded that, as of January 2, 2022, our
disclosure controls and procedures are effective, at a reasonable assurance level, in recording, processing,
summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we
file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our
management,
including our CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial

reporting as defined in Rule 13a-15(f) under the Exchange Act.

Our internal control over financial reporting includes policies and procedures that pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and disposition of assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America, and that
receipts and expenditures are being made only in accordance with the authorization of our management and directors;
and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on our consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

Management conducted an assessment of the effectiveness of our internal control over financial reporting
as of January 2, 2022, based upon the Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that, as
of January 2, 2022, we maintained effective internal control over financial reporting. The attestation report issued by
Deloitte & Touche LLP, our independent registered public accounting firm, on our internal control over financial
reporting is included herein.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.

44

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Big 5 Sporting Goods Corporation
El Segundo, California

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Big 5 Sporting Goods Corporation and
subsidiaries (the “Company”) as of January 2, 2022, based on criteria established in Internal Control —
the Treadway
Integrated Framework (2013)
Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of January 2, 2022, based on criteria established in Internal Control — Integrated
Framework (2013) issued by COSO.

issued by the Committee of Sponsoring Organizations of

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated financial statements as of and for the year ended January 2, 2022, of
the Company and our report dated March 2, 2022, expressed an unqualified opinion on those financial
statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

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

Because of its inherent
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

limitations,

/s/ Deloitte & Touche LLP

Los Angeles, California

March 2, 2022

45

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT

INSPECTIONS

None.

46

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item has been omitted and will be incorporated herein by reference,
when filed, to our Proxy Statement, which is expected to be filed not later than 120 days after the end of our
fiscal year ended January 2, 2022.

ITEM 11.

EXECUTIVE COMPENSATION

The information required by this Item has been omitted and will be incorporated herein by reference,
when filed, to our Proxy Statement, which is expected to be filed not later than 120 days after the end of our
fiscal year ended January 2, 2022.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

The information required by this Item has been omitted and will be incorporated herein by reference,
when filed, to our Proxy Statement, which is expected to be filed not later than 120 days after the end of our
fiscal year ended January 2, 2022.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

The information required by this Item has been omitted and will be incorporated herein by reference,
when filed, to our Proxy Statement, which is expected to be filed not later than 120 days after the end of our
fiscal year ended January 2, 2022.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item has been omitted and will be incorporated herein by reference,
when filed, to our Proxy Statement, which is expected to be filed not later than 120 days after the end of our
fiscal year ended January 2, 2022.

47

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.

The exhibits listed in the Index to Exhibits shown beginning on the next page are filed as part of this
Annual Report on Form 10-K, or are incorporated by reference from documents previously filed by
the Company with the Securities and Exchange Commission as required by Item 601 of Regulation
S-K.

48

BIG 5 SPORTING GOODS CORPORATION
EXHIBIT INDEX

Exhibit
Number

Exhibit Description

3.1

3.2

4.1

4.2

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

Amended and Restated Certificate of Incorporation of Big 5 Sporting Goods Corporation. (1)

Amended and Restated Bylaws. (11)

Specimen of Common Stock Certificate. (2)

Description of Registrant’s Common Stock. (18)

Second Amended and Restated Employment Agreement, dated as of December 31, 2008,
between Steven G. Miller and Big 5 Sporting Goods Corporation. (14)

Amended and Restated Indemnification Implementation Agreement between Big 5 Corp.
(successor to United Merchandising Corp.) and Thrifty PayLess Holdings, Inc. dated as of
April 20, 1994. (1)

Agreement and Release among Pacific Enterprises, Thrifty PayLess Holdings, Inc., Thrifty
PayLess, Inc., Thrifty and Big 5 Corp. (successor to United Merchandising Corp.) dated as of
March 11, 1994. (1)

Form of Indemnification Agreement. (1)

Form of Indemnification Letter Agreement. (2)

Lease dated as of April 14, 2004 by and between Pannatoni Development Company, LLC and
Big 5 Corp. (3)

Employment Offer Letter dated August 15, 2005 between Barry D. Emerson and Big 5 Corp. (5)

Severance Agreement dated as of August 9, 2006 between Barry D. Emerson and Big 5 Corp. (6)

Big 5 Sporting Goods Corporation 2007 Equity and Performance Incentive Plan (Amended and
Restated as of April 19, 2016). (13)

Amendment No. 1 to Big 5 Sporting Goods Corporation 2007 Equity and Performance Incentive
Plan, effective as of January 12, 2018. (14)

Form of Big 5 Sporting Goods Corporation Stock Option Grant Notice and Stock Option
Agreement for use with 2007 Equity and Performance Incentive Plan. (7)

Form of Big 5 Sporting Goods Corporation Restricted Stock Grant Notice and Restricted Stock
Agreement for use with 2007 Equity and Performance Incentive Plan. (8)

Form of Big 5 Sporting Goods Corporation Restricted Stock Unit Agreement and Restricted
Stock Unit Grant Notice approved for use with Amended and Restated 2007 Equity and
Performance Incentive Plan. (10)

Big 5 Sporting Goods Corporation 2019 Equity Incentive Plan. (15)

Form of Stock Option Agreement and Stock Option Grant Notice for use with 2019 Equity and
Incentive Plan. (16)

Form of Restricted Stock Agreement and Restricted Stock Grant Notice for use with 2019 Equity
Incentive Plan. (16)

Form of Restricted Stock Unit Agreement and Restricted Stock Unit Grant Notice for use with
2019 Equity Incentive Plan. (16)

10.18

Form of Change of Control Severance Agreement, dated as of August 5, 2015. (12)

49

Exhibit
Number

10.19

10.20

21.1

23.1

31.1

31.2

32.1

32.2

Exhibit Description

Loan, Guaranty and Security Agreement, dated as of February 24, 2021 among Big 5 Sporting
Goods Corporation, Big 5 Corp. and Big 5 Services Corp., the financial institutions party to the
Agreement from time to time as lenders, and Bank of America, N.A., as agent. (17)

First Amendment to Loan, Guaranty and Security Agreement, dated as of November 22, 2021
among Big 5 Sporting Goods Corporation, Big 5 Corp. and Big 5 Services Corp., and Bank of
America, N.A., as agent and lender. (19)

Subsidiaries of Big 5 Sporting Goods Corporation. (4)

Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP. (19)

Rule 13a-14(a) Certification of Chief Executive Officer. (19)

Rule 13a-14(a) Certification of Chief Financial Officer. (19)

Section 1350 Certification of Chief Executive Officer. (19)

Section 1350 Certification of Chief Financial Officer. (19)

101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data

File because XBRL tags are embedded within the Inline XBRL Document. (19)

101.SCH Inline XBRL Taxonomy Extension Schema Document. (19)

101.CAL Inline XBRL Taxonomy Calculation Linkbase Document. (19)

101.DEF Inline XBRL Taxonomy Definition Linkbase Document. (19)

101.LAB Inline XBRL Taxonomy Label Linkbase Document. (19)

101.PRE Inline XBRL Taxonomy Presentation Linkbase Document. (19)

104

Cover Page Interactive Data File (embedded within the Inline XBRL document). (19)

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on March 31,
2003.
Incorporated by reference to Amendment No. 4 to the Registration Statement on Form S-1 filed by Big 5 Sporting Goods
Corporation on June 24, 2002.
Incorporated by reference to the Quarterly Report on Form 10-Q filed by Big 5 Sporting Goods Corporation on
August 6, 2004.
Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on
September 6, 2005.
Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on March 16,
2006.
Incorporated by reference to the Quarterly Report on Form 10-Q filed by Big 5 Sporting Goods Corporation on
August 11, 2006.
Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on June 25,
2007.
Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on March 10,
2008.
Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on January 6,
2009.
Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on June 20,
2011.
Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on July 10,
2015.
Incorporated by reference to the Quarterly Report on Form 10-Q filed by Big 5 Sporting Goods Corporation on
October 28, 2015.

50

(13)

(14)

(15)

(16)

(17)

(18)

(19)

Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on June 14,
2016.
Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on
February 28, 2018.
Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on June 11,
2019.
Incorporated by reference to the Quarterly Report on Form 10-Q filed by Big 5 Sporting Goods Corporation on July 31,
2019.
Incorporated by reference to the Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on March 1,
2021.
Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on March 3,
2021.
Filed herewith.

51

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

BIG 5 SPORTING GOODS CORPORATION,
a Delaware corporation

Date: March 2, 2022

By:

/s/ Steven G. Miller

Steven G. Miller

Chairman of the Board of Directors,
President, Chief Executive Officer and
Director of the Company

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed

below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signatures

/s/ Steven G. Miller

Steven G. Miller

/s/ Barry D. Emerson

Barry D. Emerson

/s/ Colleen B. Brown

Colleen B. Brown

/s/ Stephen E. Carley

Stephen E. Carley

/s/ Lily W. Chang

Lily W. Chang

/s/ Jennifer H. Dunbar
Jennifer H. Dunbar

/s/ Van B. Honeycutt

Van B. Honeycutt

/s/ David R. Jessick

David R. Jessick

Title

Chairman of the Board of Directors,
President, Chief Executive Officer and
Director of the Company (Principal
Executive Officer)

Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)

Date

March 2, 2022

March 2, 2022

Director of the Company

March 2, 2022

Director of the Company

March 2, 2022

Director of the Company

March 2, 2022

Director of the Company

March 2, 2022

Director of the Company

March 2, 2022

Director of the Company

March 2, 2022

52

BIG 5 SPORTING GOODS CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)

. . . . . . . . . . . . . . . . .

Consolidated Balance Sheets at January 2, 2022 and January 3, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . .

F-1

F-2

F-4

Consolidated Statements of Operations for the fiscal years ended January 2, 2022 and January 3,

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-5

Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 2, 2022 and

January 3, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-6

Consolidated Statements of Cash Flows for the fiscal years ended January 2, 2022 and January 3,

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Financial Statement Schedule:

F-7

F-8

Schedule

Valuation and Qualifying Accounts as of January 2, 2022 and January 3, 2021 . . . . . . . . . . . . . . . . . .

II

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Big 5 Sporting Goods Corporation
El Segundo, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Big 5 Sporting Goods Corporation and
subsidiaries (the “Company”) as of January 2, 2022 and January 3, 2021, the related consolidated statements of
operations, stockholders’ equity, and cash flows, for each of the fiscal years ended January 2, 2022 and
January 3, 2021, and the related notes and the schedule listed in the Index at Item 15(a)(2) (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of January 2, 2022 and January 3, 2021, and the results of its operations
and its cash flows for each of the fiscal years ended January 2, 2022 and January 3, 2021 in conformity with
accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of January 2, 2022, based
on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2022, expressed an
unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventory - Valuation of Merchandise Inventories, Net - Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company’s merchandise inventories are valued using the weighted-average cost method. The Company
estimates and records valuation reserves on a quarterly basis to record inventory at the lower of cost or net

F-2

realizable value (“LCNRV”). This includes, among other things, estimating the valuation reserve for inventory
with slow-moving or obsolescence exposure, which consider factors such as recent customer demand,
merchandise aging, seasonal trends, and decisions to discontinue certain products. Merchandise inventories, net,
and inventory valuation reserves were $280.0 million and $2.7 million, respectively, as of January 2, 2022.

We identified the valuation of merchandise inventories as a critical audit matter because of the significant
assumptions required in identifying the population of inventory with slow-moving or obsolescence exposure and
measuring the valuation reserves required to record such inventory at the LCNRV, resulting in a high degree of
auditor judgment and an increased extent of effort when performing audit procedures to evaluate such
assumptions.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the valuation reserves for inventory with slow-moving or obsolescence exposure
included the following, among others:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

We tested the operating effectiveness of management’s controls over the review of slow-moving and
obsolescence inventory exposure and the required reserves to record such inventory at the LCNRV.

We evaluated the appropriateness of the underlying financial information used in management’s
analysis, including the aging of on-hand inventory balances, recent sales quantity for specific
inventory, and classification of inventory category by department.

We evaluated the assumptions used by management in identifying the population of inventory with
slow-moving or obsolescence exposure that require a reserve and determining the amount of reserve
to record.

We performed data analytical procedures over the inventory balance, such as analyzing inventory
trend levels and turnover rates, to evaluate the completeness of management’s identified population
of inventory with slow-moving or obsolescence exposure that require a reserve.

We compared actual inventory sold below cost in the current fiscal year to the inventory valuation
reserve estimated by the Company in the prior year to evaluate management’s ability to accurately
estimate the valuation reserve for inventory.

We evaluated management’s calculation of the valuation reserve by testing the mathematical
accuracy of the reserve calculation.

/s/ Deloitte & Touche LLP

Los Angeles, California

March 2, 2022

We have served as the Company’s auditor since 2007.

F-3

BIG 5 SPORTING GOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

January 2,
2022

January 3,
2021

Current assets:

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowances of $62 and $58, respectively . . . . . . . . . . . . . . . . . . . . .
Merchandise inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 97,420
13,654
279,981
16,293

$ 64,654
19,879
251,180
11,684

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

407,348

347,397

Operating lease right-of-use assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net of accumulated amortization of $905 and $2,407, respectively . . . . . . . . . . . . . . .

270,110
60,401
12,097
3,997

278,607
57,245
13,831
2,914

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$753,953

$699,994

Current liabilities:

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating lease liabilities, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease liabilities, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$104,359
85,041
76,882
3,518

269,800

204,134
6,456
6,254

$ 80,882
82,877
73,737
2,089

239,585

217,788
2,504
7,479

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

486,644

467,356

Commitments and contingencies
Stockholders’ equity:

Common stock, $0.01 par value, authorized 50,000,000 shares; issued 26,109,003 and
25,580,541 shares, respectively; outstanding 22,097,467 and 21,930,328 shares,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Treasury stock, at cost; 4,011,536 and 3,650,213 shares, respectively . . . . . . . . . . . . . . .

260
124,909
192,261
(50,121)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

267,309

255
121,837
153,073
(42,527)

232,638

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$753,953

$699,994

See accompanying notes to consolidated financial statements.

F-4

BIG 5 SPORTING GOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Year Ended

January 2,
2022

January 3,
2021

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,161,820
725,991

$1,041,212
692,041

Gross profit

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

435,829
299,812
—

136,017
893

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

135,124
32,738
$ 102,386

Earnings per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

4.73

4.55

349,171
275,406
(2,500)

76,265
1,880

74,385
18,445
55,940

2.63

2.58

$

$

$

Weighted-average shares of common stock outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21,670

22,512

21,260

21,663

See accompanying notes to consolidated financial statements.

F-5

BIG 5 SPORTING GOODS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)

Common Stock
Shares

Amount

Balance as of January 3, 2021 . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on common stock ($2.83 per share) . .
Issuance of nonvested share awards . . . . . . . . . . .
Exercise of share option awards . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . .
Forfeiture of nonvested share awards . . . . . . . . . .
Retirement of common stock for payment

of withholding tax . . . . . . . . . . . . . . . . . . . . . .
Purchases of treasury stock . . . . . . . . . . . . . . . . .

21,930,328
—
—
248,550
369,765
—
(19,625)

(70,228)
(361,323)

$255
—
—
2
3
—
—

—
—

Additional
Paid-In
Capital

$121,837
—
—
(2)
2,162
1,958
—

Retained
Earnings

$153,073
102,386
(63,198)
—
—
—
—

Treasury
Stock,
At Cost

Total

$(42,527) $232,638
— 102,386
— (63,198)
—
—
2,165
—
1,958
—
—
—

(1,046)
—

—
—

—
(7,594)

(1,046)
(7,594)

Balance as of January 2, 2022 . . . . . . . . . . . . . . .

22,097,467

$260

$124,909

$192,261

$(50,121) $267,309

Balance as of December 29, 2019 . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on common stock ($0.25 per share) . .
Issuance of nonvested share awards . . . . . . . . . . .
Exercise of share option awards . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . .
Forfeiture of nonvested share awards . . . . . . . . . .
Retirement of common stock for payment

of withholding tax . . . . . . . . . . . . . . . . . . . . . .

Common Stock
Shares

Amount

21,664,076
—
—
321,600
31,600
—
(22,375)

$252
—
—
3
—
—
—

Additional
Paid-In
Capital

$120,054
—
—
(3)
169
1,714
—

Retained
Earnings

$102,593
55,940
(5,460)
—
—
—
—

Treasury
Stock,
At Cost

Total

$(42,527) $180,372
55,940
(5,460)
—
169
1,714
—

—
—
—
—
—
—

(64,573)

—

(97)

—

—

(97)

Balance as of January 3, 2021 . . . . . . . . . . . . . . .

21,930,328

$255

$121,837

$153,073

$(42,527) $232,638

See accompanying notes to consolidated financial statements.

F-6

BIG 5 SPORTING GOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Cash flows from operating activities:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncash lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from insurance recovery - lost profit margin and expenses . . . . . . . . . . . . . . . .
Gain on recovery of insurance proceeds - lost profit margin and expenses . . . . . . . . . . .
Gain on recovery of insurance proceeds - property and equipment
. . . . . . . . . . . . . . . . .
Gain on eminent domain condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from eminent domain condemnation - lost profit margin . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment
Proceeds from insurance recovery - property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from eminent domain condemnation - property and equipment

Cash flows from financing activities:

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments under revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in book overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments under finance lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of share option awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax withholding payments for share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Supplemental disclosures of non-cash investing and financing activities:

Property and equipment acquired under finance leases . . . . . . . . . . . . . . . . . . . . . . . . . .

Property and equipment additions unpaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplemental disclosures of cash flow information:

Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 2,
2022

January 3,
2021

$102,386

$ 55,940

17,698
1,958
577
65,716
1,083
(460)
(249)
—
—
1,734

5,902
(28,801)
(5,523)
23,341
(68,028)
(1,806)
115,528

(10,864)
249
—
(10,615)

18,450
1,714
364
64,316
1,077
(1,077)
(1,750)
(2,500)
2,263
(212)

(6,193)
58,135
(1,861)
9,243
(67,198)
18,032
148,743

(7,347)
1,750
237
(5,360)

—
—
(246)
(746)
(2,887)
2,165
(7,594)
(1,046)
(61,793)
(72,147)
32,766
64,654
$ 97,420

137,296
(203,855)
(12,031)
(106)
(2,858)
169
—
(97)
(5,470)
(86,952)
56,431
8,223
$ 64,654

$

$

$

8,276

2,382

624

$

$

$

—

668

1,856

Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 36,391

$ 19,625

See accompanying notes to consolidated financial statements.

F-7

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

Description of Business

Big 5 Sporting Goods Corporation (the “Company”) is a leading sporting goods retailer in the
western United States, operating 431 stores and an e-commerce platform as of January 2, 2022. The Company
provides a full-line product offering in a traditional sporting goods store format that averages approximately
11,000 square feet. The Company’s product mix includes athletic shoes, apparel and accessories, as well as a
broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, home
recreation, tennis, golf, and winter and summer recreation. The Company is a holding company that operates as
one reportable segment under the “Big 5 Sporting Goods” name through Big 5 Corp., its 100%-owned
subsidiary, and Big 5 Services Corp., which is a 100%-owned subsidiary of Big 5 Corp. Big 5 Services Corp.
provides a centralized operation for the issuance and administration of gift cards and returned merchandise
credits (collectively, “stored-value cards”).

The Company’s consolidated financial statements as of January 2, 2022 and January 3, 2021 and for
the years ended January 2, 2022 (“fiscal 2021”) and January 3, 2021 (“fiscal 2020”) represent the financial
position, results of operations and cash flows of the Company and have been prepared in accordance with
accounting principles generally accepted in the United States of America (“GAAP”).

(2)

Summary of Significant Accounting Policies

Consolidation

The accompanying consolidated financial statements include the accounts of Big 5 Sporting Goods
Corporation, Big 5 Corp. and Big 5 Services Corp. Intercompany balances and transactions have been eliminated
in consolidation.

Reporting Period

The Company follows the concept of a 52-53 week fiscal year, which ends on the Sunday nearest

December 31. Fiscal 2021 included 52 weeks and fiscal 2020 included 53 weeks.

Recently Issued Accounting Updates

In March 2020,

the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848)—
Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides optional
guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference
rate reform on financial reporting. The amendments in this standard apply only to contracts and hedging
relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate
reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made
and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this standard
are elective and are effective upon issuance for all entities, and the impact from this standard was immaterial.

Other recently issued accounting updates are not expected to have a material

impact on the

Company’s consolidated financial statements.

COVID-19 Impact on Concentration of Risk

The novel coronavirus (“COVID-19”) pandemic has significantly impacted health and economic
conditions throughout the United States and globally, as public concern about becoming ill with the virus has led
to the issuance of recommendations and/or mandates from federal, state and local authorities to practice social
distancing or self-quarantine.

F-8

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

The Company primarily operates traditional sporting goods retail stores located in the western United
States, with approximately 52% of its stores, along with its corporate offices and distribution center, located in
California. Because of this, the Company is subject to regional risks, including the impact of the COVID-19
outbreak. Beginning on March 20, 2020, and continuing into the second quarter of fiscal 2020, the Company
temporarily closed more than one-half of its retail store locations in response to state and local shelter orders
related to the COVID-19 outbreak. The Company was subsequently able to gradually reopen its store locations
based on initially qualifying as an “essential” business under applicable regulations and later as a result of the
easing of regulatory restrictions on retail operations in the Company’s market areas. In an effort to promote
social distancing protocols, the Company implemented reduced store hours, limited the number of customers in
its stores at any one time and generally implemented social-distancing guidelines throughout the store operating
space in fiscal 2020. As of the end of fiscal 2020 and during fiscal 2021, all of the Company’s stores were open
for in-store shopping with reduced operating hours and certain COVID-19-related protocols in place. The
Company may further restrict its store operations and operations in its distribution facility if deemed necessary or
if recommended or mandated by authorities, and new temporary closures of stores or new safety protocols may
be required if additional orders are issued in response to changing health conditions.

A substantial amount of the Company’s inventory is manufactured abroad. COVID-19, and surging
consumer demand initially associated with the pandemic, has also impacted the Company’s supply chain for
products sold, particularly those products that are sourced from Asia. To the extent one or more vendors is
negatively impacted by continued supply chain disruptions or by COVID-19, including due to interruptions at or
closure of those vendors’ distribution centers or manufacturing facilities, or the Company or its vendors are
unable to obtain the necessary shipping capacity to transport products to the Company’s distribution center, the
Company may be unable to maintain delivery schedules or adequate inventory in its stores. During the second
half of fiscal 2021, the Company experienced significant shipping delays of products sourced from overseas
vendors to be received at the Ports of Los Angeles and Long Beach, which reflected increased shipping volume
and insufficient labor resources at the ports that have significantly increased cargo backlogs. These factors, in
addition to workforce shortages in the trucking industry, have limited the Company’s ability to obtain desired
quantities of inventory for various merchandise categories. While the Company has generally been able to
sufficiently stock product in its stores to meet most consumer demand during the pandemic, future prolonged and
sustained delays in product reaching the Company’s stores from overseas vendors, particularly during the holiday
season, could result in the inability to obtain adequate levels of merchandise inventories to meet consumers’
needs, which could have an adverse impact on net sales and profitability.

General Concentration of Risk

The Company maintains its cash accounts in financial institutions, and accounts at these institutions
are insured by the Federal Deposit Insurance Corporation up to $250,000. Cash equivalents represent investments
of excess cash on hand of $75.0 million and $50.0 million into U.S. Treasury bills as of January 2, 2022 and
January 3, 2021, respectively.

Because of the Company’s geographic concentration in the western United States, the Company is
subject to regional risks, such as the economy, including downturns in the housing market, state financial
conditions, unemployment and gas prices. Other regional risks include weather conditions, fires, droughts,
earthquakes, power outages, floods and other natural disasters specific to the states in which the Company
operates.

The Company relies on a single distribution center located in Riverside, California, which services all
of its stores and e-commerce platform. Any natural disaster or other serious disruption to the distribution center

F-9

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

due to fire, earthquake or any other cause could damage a significant portion of inventory and could materially
impair the Company’s ability to adequately stock its stores 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 (such as delays associated with COVID-19), labor strikes, work
stoppages or other disruptions that may delay the delivery of imported products. A contract dispute may lead to
protracted delays in the movement of the Company’s products, which could further delay the delivery of products
to the Company’s stores and impact net sales and profitability. In addition, other conditions outside of the
Company’s 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.

The Company purchases merchandise from over 700 suppliers, and the Company’s 20 largest
suppliers accounted for 36.8% of total purchases in fiscal 2021. One vendor represented greater than 5% of total
purchases, at 7.6%, in fiscal 2021. A significant portion of the Company’s inventory is manufactured abroad in
Asia. Foreign imports subject the Company to the risks of changes in, or the imposition of new, import tariffs,
duties or quotas, new restrictions on imports, loss of “most favored nation” status with the United States for a
particular foreign country, antidumping or countervailing duty orders, retaliatory actions in response to illegal
trade practices, work stoppages, delays in shipment, freight expense increases, product cost increases due to
foreign currency fluctuations or revaluations, public health issues that could lead to temporary closures of
facilities or shipping ports, such as the recent outbreak of COVID-19, and other economic uncertainties. If a
disruption of trade were to occur from the countries in which the suppliers of the Company’s vendors are located,
the Company may be unable to obtain sufficient quantities of products to satisfy its requirements, or the cost of
obtaining products may increase.

In early fiscal 2021, the Company was informed of an expansion of Nike’s direct-to-consumer
initiatives that will impact certain multi-branded retailers, including the Company, and which will lead to a
significant reduction in the Company’s future supply chain relative to this vendor. This transition is not expected
to impact the Company’s ability to continue to purchase certain Nike branded products from authorized
licensees. The Company is actively expanding its relationships with other new and existing vendors in an effort
to replace the affected Nike product within its product mix.

The Company could be exposed to credit risk in the event of nonperformance by its lender under its
revolving credit facility. Instability in the financial and capital markets could bring additional potential risks to
the Company, including higher costs of credit, potential lender defaults, and potential commercial bank failures.
The Company has received no indication that any such events will negatively impact its lender under its credit
facility; however, the possibility does exist.

Use of Estimates

Management makes a number of estimates and assumptions relating to the reporting of assets,
liabilities and stockholders’ equity and the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and reported amounts of revenue and expense during the reporting period to
prepare these consolidated financial statements in conformity with GAAP. Certain items subject
to such
estimates and assumptions include the carrying amount of merchandise inventories, property and equipment,
lease assets and lease liabilities; valuation allowances for receivables, sales returns and deferred income tax
assets; estimates related to stored-value cards and the valuation of share-based compensation awards; and
obligations related to litigation, self-insurance liabilities and employee benefits. Due to the inherent uncertainty
involved in making assumptions and estimates, events and changes in circumstances arising after January 2,

F-10

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

2022, including those resulting from the impacts of the COVID-19 pandemic, may result in actual outcomes that
differ from those contemplated by management’s assumptions and estimates.

Segment Reporting

The Company operates solely as a sporting goods retailer, which includes both retail stores and an
e-commerce platform, that offers a broad range of products in the western United States and online, and whose
Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer. The CODM reviews financial
information presented on a consolidated basis, for purposes of allocating resources and evaluating financial
performance. The Company’s stores typically have similar square footage, with the stores and e-commerce
platform offering a similar general product mix. The Company’s core customer demographic remains similar
across all sales channels, as does the Company’s process for the procurement and marketing of its product mix.
Furthermore, the Company distributes its product mix for both the stores and e-commerce platform from a single
distribution center. Given the consolidated level of review by the CODM, the Company operates as one
reportable segment as defined by ASC 280, Segment Reporting.

Earnings Per Share

The Company calculates earnings per share in accordance with ASC 260, Earnings Per Share, which
requires a dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by
income by the weighted-average shares of common stock outstanding, reduced by shares
dividing net
repurchased and held in treasury, during the period. Diluted earnings per share represents basic earnings per
share adjusted to include the potentially dilutive effect of outstanding share option awards, nonvested share
awards and nonvested share unit awards.

Revenue Recognition

The Company operates solely as a sporting goods retailer, which includes both retail stores and an
e-commerce platform, that offers a broad range of products in the western United States and online. Generally,
all revenue is recognized when control of the promised goods is transferred to customers, in an amount that
reflects the consideration in exchange for those goods. Accordingly, the Company implicitly enters into a
contract with customers to deliver merchandise inventory at the point of sale. Collectability is reasonably assured
since the Company only extends immaterial credit purchases to certain municipalities and local school districts.

As noted in the segment information elsewhere in this Note 2 to the Notes to Consolidated Financial
Statements, the Company’s business consists of one reportable segment. In accordance with ASC 606, Revenue
from Contracts with Customers, the Company disaggregates net sales into the following major merchandise
categories to depict the nature and amount of revenue and related cash flows:

Hardgoods . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Athletic and sport footwear . . . . . . . . . . . . . . . .
Athletic and sport apparel . . . . . . . . . . . . . . . . .
Other sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Year Ended

January 2,
2022

January 3,
2021

(In thousands)

$

637,181
279,645
241,526
3,468

623,728
228,311
184,538
4,635

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . .

$

1,161,820

$

1,041,212

F-11

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Substantially all of the Company’s revenue is for single performance obligations for the following

distinct items:

(cid:129)
(cid:129)
(cid:129)

Retail store sales
E-commerce sales
Stored-value cards

For performance obligations related to retail store and e-commerce sales contracts, the Company
typically transfers control, for retail stores, upon consummation of the sale when the product is paid for and taken
by the customer and, for e-commerce sales, when the product is tendered for delivery to the common carrier. For
performance obligations related to stored-value cards, the Company typically transfers control upon redemption
of the stored-value card through consummation of a future sales transaction.

The transaction price for each contract is the stated price on the product, reduced by any stated
discounts at that point in time. The Company does not engage in sales of products that attach a future material
right which could result in a separate performance obligation for the purchase of goods in the future at a material
discount. The implicit point-of-sale contract with the customer, as reflected in the transaction receipt, states the
final terms of the sale, including the description, quantity, and price of each product purchased. Payment for the
Company’s contracts is due in full upon delivery. The customer agrees to a stated price implicit in the contract.

The transaction price relative to sales subject to a right of return reflects the amount of estimated
consideration to which the Company expects to be entitled. This amount of variable consideration included in the
transaction price, and measurement of net sales, is included in net sales only to the extent that it is probable that
there will be no significant reversal in a future period. Actual amounts of consideration ultimately received may
differ from the Company’s estimates. There were no material adjustments to the Company’s previous estimates.
The allowance for sales returns is estimated based upon historical experience and a provision for estimated
returns is recorded as a reduction in sales in the relevant period. The estimated right-of-return merchandise cost
related to the sales returns is recorded as prepaid expense in the Company’s consolidated balance sheet as of
January 2, 2022. If actual results in the future vary from the Company’s estimates, the Company adjusts these
estimates, which would affect net sales and earnings in the period such variances become known.

The Company has elected to apply the practical expedient, relative to e-commerce sales, which
allows an entity to account for shipping and handling as fulfillment activities, and not a separate performance
obligation. Accordingly, the Company recognizes revenue for only one performance obligation, the sale of the
product, at shipping point (when the customer gains control). Revenue associated with e-commerce sales is not
material.

Contract liabilities are recognized primarily for stored-value card sales. Cash received from the sale
of stored-value cards is recorded as a contract liability in accrued expenses in the Company’s consolidated
balance sheets, and the Company recognizes revenue upon the customer’s redemption of the stored-value card.
Stored-value card breakage is recognized as revenue in proportion to the pattern of customer redemptions by
applying a historical breakage rate of five percent. The Company does not sell or provide stored-value cards that
carry expiration dates.

The Company recognized $5.9 million and $5.4 million in stored-value card redemption revenue for
fiscal 2021 and 2020, respectively. The Company also recognized $0.3 million in stored-value card breakage
revenue for each of fiscal 2021 and 2020. The Company had outstanding stored-value card liabilities of

F-12

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

$8.3 million and $7.5 million as of January 2, 2022 and January 3, 2021, respectively, which are included in
accrued expenses in the Company’s consolidated balance sheets. Based upon historical experience, stored-value
cards are predominantly redeemed in the first two years following their issuance date.

The Company recorded, as prepaid expense in the Company’s consolidated balance sheets, estimated
right-of-return merchandise cost of $1.2 million related to estimated sales returns as of January 2, 2022 and
January 3, 2021, and recorded, as accrued expense in the Company’s consolidated balance sheets, an allowance
for sales returns reserve of $2.5 million and $2.4 million as of January 2, 2022 and January 3, 2021, respectively.

Cost of Sales

Cost of sales includes the cost of merchandise, net of discounts or allowances earned, freight
(including e-commerce shipping and handling costs), inventory reserves, buying, distribution center expense,
including depreciation and amortization, and store occupancy expense. Store occupancy expense includes rent,
amortization of leasehold improvements, common area maintenance, property taxes and insurance.

Selling and Administrative Expense

Selling and administrative expense includes store-related expense, other than store occupancy
expense, as well as advertising, depreciation and amortization, expense associated with operating the Company’s
corporate headquarters and impairment charges, if any.

Vendor Allowances

The Company receives allowances for co-operative advertising and volume purchase rebates earned
through programs with certain vendors. The Company records a receivable for these allowances which are earned
but not yet received when it is determined the amounts are probable and reasonably estimable. Amounts relating
to the purchase of merchandise are treated as a reduction of inventory cost and reduce cost of goods sold as the
merchandise is sold. After reducing advertising significantly in fiscal 2021 and 2020 in response to the
COVID-19 pandemic, beginning in the second half of fiscal 2020, amounts that represent a reimbursement of
costs incurred, such as advertising, are recorded as a reduction of inventory cost and reduce cost of goods sold as
the merchandise is sold. These amounts were previously recorded as a reduction to selling and administrative
expense.

Advertising Expense

Advertising is expensed when the advertising first occurs. Advertising expense, net of co-operative
advertising allowances, amounted to $11.0 million and $10.6 million for fiscal 2021 and 2020, respectively. The
Company reduced advertising significantly in fiscal 2021 and 2020 in response to the COVID-19 pandemic.
Advertising expense is included in selling and administrative expense in the Company’s consolidated statements
of operations. The Company receives co-operative advertising allowances from certain product vendors in order
to subsidize qualifying advertising and similar promotional expenditures made relating to vendors’ products.
Co-operative advertising allowances recognized as a reduction to selling and administrative expense amounted to
zero and $1.1 million for fiscal 2021 and 2020, respectively. Beginning in the second half of fiscal 2020, as a
result of the significant reductions of print advertising in fiscal 2021 and 2020, the Company treated these
advertising allowances as a reduction of inventory cost and cost of goods sold which had an immaterial effect on
the Company’s consolidated financial statements.

F-13

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Share-Based Compensation

The Company accounts

share-based compensation in accordance with ASC 718,
Compensation—Stock Compensation. The Company recognizes compensation expense on a straight-line basis
over the requisite service period using the fair-value method for share option awards, nonvested share awards and
nonvested share unit awards granted with service-only conditions. See Note 13 to the Notes to Consolidated
Financial Statements for a further discussion on share-based compensation.

for

its

Pre-opening Costs

Pre-opening costs for new stores, which are not material, consist primarily of payroll and recruiting

expense, training, marketing, rent, travel and supplies, and are expensed as incurred.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and highly liquid investments of excess cash into
U.S. Treasury bills, which have maturities of 90 days or less. See Note 4 to the Notes to Consolidated Financial
Statements for a further discussion on the fair value of U.S. Treasury bills. Book overdrafts are classified as
current liabilities in the Company’s consolidated balance sheets.

Accounts Receivable

Accounts receivable consist primarily of third party purchasing card receivables, amounts due from
inventory vendors for returned products, volume purchase rebates or co-operative advertising, amounts due from
lessors for tenant improvement allowances and insurance recovery receivables. Accounts receivable have not
historically resulted in any material credit losses. An allowance for doubtful accounts is provided when accounts
are determined to be uncollectible.

Valuation of Merchandise Inventories, Net

The Company’s merchandise inventories are made up of finished goods and are valued at the lower
of cost or net realizable value using the weighted-average cost method that approximates the first-in, first-out
(“FIFO”) method. Average cost includes the direct purchase price of merchandise inventory, net of vendor
allowances and cash discounts, in-bound freight-related expense and allocated overhead expense associated with
the Company’s distribution center.

Management regularly reviews inventories and records valuation reserves for damaged and defective
merchandise, merchandise items with slow-moving or obsolescence exposure and merchandise that has a
carrying value that exceeds net realizable value. Because of its merchandise mix, the Company has not
historically experienced significant occurrences of obsolescence.

Inventory shrinkage is accrued as a percentage of merchandise sales based on historical inventory
shrinkage trends. The Company performs physical inventories of its stores at least once per year and cycle counts
inventories at its distribution center throughout the year. The reserve for inventory shrinkage 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.

F-14

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Prepaid Expenses and Other Assets

Prepaid expenses include the prepayment of various operating expenses such as insurance, income
and property taxes, software maintenance and supplies, which are expensed when the operating cost is realized,
as well as estimated right-of-return merchandise cost related to estimated sales returns.

Other assets include the long-term portion of certain prepaid expenses, capitalized deferred financing
fees related to the Company’s credit facility and capitalized implementation costs related to hosting arrangements
that are service contracts. While deferred financing fees and implementation costs are capitalized and amortized
over the respective terms of their arrangements, costs related to the service element of a hosting arrangement that
is a service contract are expensed as incurred.

Property and Equipment, Net

Property and equipment are stated at cost and are being depreciated or amortized utilizing the

straight-line method over the following estimated useful lives:

Land
Buildings
Leasehold improvements
Furniture and equipment
Internal-use software

Indefinite
20 years
Shorter of estimated useful life or term of lease
3 – 10 years
3 – 7 years

Maintenance and repairs are expensed as incurred.

The Company incurs costs to purchase and develop software for internal use. Costs related to the
application development stage are capitalized and amortized over the estimated useful life of the software. Costs
related to the design or maintenance of internal-use software are expensed as incurred. See Note 3 to the Notes to
Consolidated Financial Statements for a further discussion on property and equipment.

Valuation of Long-Lived Assets

In accordance with ASC 360, Property, Plant, and Equipment, the Company reviews long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.

Long-lived assets are reviewed for recoverability at the lowest level in which there are identifiable
cash flows (“asset group”), usually at the store level. The carrying amount of a store asset group includes stores’
property and equipment, primarily leasehold improvements, and operating lease ROU assets. The carrying
amount of a store asset group is not considered recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the store asset group. Factors that could trigger an
impairment review include a current-period operating or cash flow loss combined with a history of operating or
cash flow losses, and a projection that demonstrates continuing losses or insufficient income over the remaining
reasonably certain lease term associated with the use of a store asset group. Other factors may include an adverse
change in the business climate or an adverse action or assessment by a regulator in the market of a store asset
group. When stores are identified as having an indicator of impairment, the Company forecasts undiscounted
cash flows over the store asset group’s remaining reasonably certain lease term and compares the undiscounted

F-15

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

cash flows to the carrying amount of the store asset group. If the store asset group is determined not to be
recoverable, then an impairment charge will be recognized in the amount by which the carrying amount of the
store asset group exceeds its fair value, determined using discounted cash flow valuation techniques, as
contemplated in ASC 820, Fair Value Measurements.

The Company determines the cash flows expected to result from the store asset group by projecting
future revenue, gross margin and operating expense for each store asset group under evaluation for impairment.
The estimates of future cash flows involve management judgment and are based upon assumptions about
expected future operating performance. Assumptions used in these forecasts are consistent with internal
planning, and include assumptions about sales growth rates, gross margins and operating expense in relation to
the current economic environment and the Company’s future expectations, competitive factors in its various
markets, inflation, sales trends and other relevant environmental factors that may impact the store under
evaluation. The actual cash flows could differ from management’s estimates due to changes in business
conditions, operating performance and economic conditions. If economic conditions deteriorate in the markets in
which the Company conducts business, or if other negative market conditions develop, the Company may
experience additional impairment charges in the future for underperforming stores.

The resulting impairment charge, if any, is allocated to the property and equipment, primarily
leasehold improvements, and operating lease ROU assets on a pro rata basis using the relative carrying amounts
of those assets. The allocated impairment charge to a long-lived asset is limited to the extent that the impairment
charge does not reduce the carrying amount of the long-lived asset below its individual fair value. The estimation
of the fair value of an ROU asset involves the evaluation of current market value rental amounts for leases
associated with ROU assets. The estimates of current market value rental amounts are primarily based on recent
observable market rental data of other comparable retail store locations. The fair value of an ROU asset is
measured using a discounted cash flow valuation technique by discounting the estimated current and future
market rental values using a property-specific discount rate.

In fiscal 2021 and 2020, the Company recognized no non-cash impairment charges. Impairment
charges, if any, represent property and equipment, primarily leasehold improvements, and are included in selling
and administrative expense in the Company’s consolidated statements of operations.

Leases

In accordance with ASC 842, Leases, the Company determines if an arrangement is a lease at
inception. The Company has operating and finance leases for the Company’s retail store facilities, distribution
center, corporate offices,
information technology hardware, and distribution center delivery tractors and
equipment. Operating leases are included in operating lease ROU assets and operating lease liabilities, current
and noncurrent, on the Company’s consolidated balance sheets. Finance leases are included in property and
equipment and finance lease liabilities, current and noncurrent, on the Company’s consolidated balance sheets.
Lease liabilities are calculated using the effective interest method, regardless of classification, while the
amortization of ROU assets varies depending upon classification. Finance lease classification results in a front-
loaded expense recognition pattern over the lease term which amortizes the ROU asset by recognizing interest
expense and amortization expense as separate components of lease expense and calculates the amortization
expense component on a straight-line basis. Conversely, operating lease classification results in a straight-line
expense recognition pattern over the lease term and recognizes lease expense as a single expense component,
which results in amortization of the ROU asset that equals the difference between lease expense and interest
expense. Lease expense for finance and operating leases are included in cost of sales or selling and administrative
expense, based on the use of the leased asset, on the Company’s consolidated statement of operations. Variable

F-16

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

payments such as property taxes, insurance and common area maintenance related to triple net leases, as well as
certain equipment sales taxes, licenses, fees and repairs, are expensed as incurred, and leases with an initial term
of 12 months or less are excluded from minimum lease payments and are not recorded on the Company’s
consolidated balance sheets. The Company recognizes variable lease expense for these short-term leases on a
straight-line basis over the remaining lease term.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities
represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities
are recognized at the commencement date based on the present value of lease payments over the reasonably
certain lease term. As the Company’s leases generally do not provide an implicit rate, the Company uses a
collateralized incremental borrowing rate (“IBR”) to determine the present value of lease payments. The
collateralized IBR is based on a synthetic credit rating that is externally prepared on an annual basis. This
analysis considers qualitative and quantitative factors based on guidance provided by a rating agency for the
consumer durables industry. The Company adjusts the selected IBR quarterly with a company-specific unsecured
yield curve that approximates the Company’s market risk profile. The collateralized IBR is also based upon the
estimated impact that the collateral has on the IBR. To account for the collateralized nature of the IBR, the
Company utilized a notching method based on notching guidance provided by a rating agency whereby the
Company’s base credit rating is notched upward as the yield curve on a secured loan is expected to be lower
versus an unsecured loan.

The operating lease ROU asset also includes any prepaid lease payments made and is reduced by
lease incentives such as tenant improvement allowances. The operating lease terms may include options to
extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating
lease expense for lease payments is recognized on a straight-line basis over the lease term.

Certain of the leases for the Company’s retail store facilities provide for payments based on future
sales volumes at the leased location, which are not measurable at the inception of the lease. Under ASC 842,
these contingent rents are expensed as they accrue.

In response to the large volume of anticipated lease concessions to be granted related to the effects of
the COVID-19 pandemic, and the resultant expected cost and complexity of applying the lease modification
requirements in ASC 842, the FASB issued Staff Q&A—Topic 842 and Topic 840: Accounting For Lease
Concessions Related to the Effects of the COVID-19 Pandemic, in April 2020 as interpretive guidance to provide
clarity in response to the crisis. The FASB staff indicated that it would be acceptable for entities to make an
election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how
they would be accounted for as though enforceable rights and obligations for those concessions existed in the
original contract. Consequently, for such lease concessions, an entity will not need to reassess each existing
contract to determine whether enforceable rights and obligations for concessions exist and an entity can elect to
apply or not to apply the lease modification guidance in ASC 842 to those contracts. The election is available for
concessions related to the effects of the COVID-19 pandemic that result in the total payments required by the
modified contract being substantially the same as or less than total payments required by the original contract.

In accordance with this interpretive guidance, the Company elected to account for lease concessions
related to the effects of the COVID-19 pandemic that resulted in the total payments required by the modified
contract being substantially the same as or less than total payments required by the original contract consistent
with how they would be accounted for as though enforceable rights and obligations for those concessions existed
in the original contract. Consequently, for such lease concessions, the Company did not reassess each existing
contract to determine whether enforceable rights and obligations for concessions existed and elected not to apply

F-17

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

the lease modification guidance in ASC 842 to those contracts. The Company accounted for COVID-19 lease
abatements of $3.1 million in fiscal 2020 as reductions to variable lease expense and accounted for lease
deferrals of $0.1 million and $0.6 million as of January 2, 2022 and January 3, 2021, respectively, as if no
changes to the lease contract were made while continuing to recognize expense during the deferral period and
deferring the payment obligation as a liability.

See Note 6 to the Notes to Consolidated Financial Statements for a further discussion on leases.

Self-Insurance Liabilities

The Company is self-insured for its various insurance risks including its estimated workers’
compensation liability risk in certain states. The Company also has a self-funded insurance program for a portion
of its employee medical benefits. Under these programs, the Company maintains insurance coverage for losses in
excess of specified per-occurrence amounts. Estimated expenses incurred under the self-insured workers’
compensation and medical benefits programs, including incurred but not reported claims, are recorded as expense
based upon historical experience, trends of paid and incurred claims, and other actuarial assumptions. If actual
claims trends under these programs, including the severity or frequency of claims, differ from the Company’s
its financial results may be significantly impacted. The Company’s actuarially-estimated self-
estimates,
insurance liabilities, which are reported gross of expected workers’ compensation insurance reimbursements, are
classified on the Company’s consolidated balance sheets as accrued expenses or other long-term liabilities based
upon whether they are expected to be paid during or beyond the normal operating cycle of 12 months from the
date of the Company’s consolidated financial statements. Self-insurance liabilities totaled $10.2 million and
$11.0 million as of January 2, 2022 and January 3, 2021, respectively, of which $4.4 million and $4.8 million
were recorded as a component of accrued expenses as of January 2, 2022 and January 3, 2021, respectively, and
$5.8 million and $6.2 million were recorded as a component of other long-term liabilities as of January 2, 2022
and January 3, 2021, respectively, in the Company’s consolidated balance sheets.

Income Taxes

Under the asset and liability method prescribed within ASC 740, Income Taxes, the Company
recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between
financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be realized or settled. The effect of a change in tax rates on deferred
tax assets and liabilities is recognized in income in the period that includes the enactment date. The realizability
of deferred tax assets is assessed throughout the year and a valuation allowance is recorded if necessary to reduce
net deferred tax assets to the amount more likely than not to be realized. Certain prior period deferred tax
disclosures were reclassified to conform with 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 be sustained upon examination, including resolutions of any related
appeals or litigation processes, based on the technical merits of the position. ASC 740 also provides guidance on
measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and
transition.

The Company’s practice is to recognize interest accrued related to unrecognized tax benefits in
interest expense and penalties in selling and administrative expense in the Company’s consolidated statements of
operations. As of January 2, 2022 and January 3, 2021, the Company had no accrued interest or penalties. See
Note 8 to the Notes to Consolidated Financial Statements for a further discussion on income taxes.

F-18

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Treasury Stock Purchases

The Company repurchases its common stock in the open market pursuant to programs approved by
its Board of Directors. In fiscal 2016, the Board of Directors authorized a share repurchase program for the
purchase of up to $25.0 million of the Company’s common stock, which was in effect through the fourth quarter
of fiscal 2021 and under which a total of $7.7 million remained available for share repurchases as of January 2,
2022. In the first quarter of fiscal 2022, the Board of Directors authorized a new share repurchase program of up
to $25.0 million of our common stock, which replaced the previous share repurchase program. Under these
programs, the Company may purchase shares from time to time in the open market or in privately negotiated
transactions in compliance with the applicable rules and regulations of the Securities and Exchange Commission.
The Company may repurchase its common stock for a variety of reasons, including, among other things, its
alternative cash requirements, existing business conditions and the current market price of its stock. However, the
timing and amount of such purchases, if any, would be at the discretion of management and the Board of
Directors. The Company repurchased 361,323 shares of common stock in fiscal 2021, and repurchased no shares
of common stock in fiscal 2020.

(3)

Property and Equipment, Net

Property and equipment, net, consist of the following:

Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internal-use software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Accumulated depreciation and amortization (1)

. . . . . . . . .

Assets not placed into service . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . .

$

January 2,
2022

January 3,
2021

(In thousands)

176,066
142,638
37,188
2,750
1,775
360,417
(301,852)
58,565
1,836
60,401

$

$

170,701
134,623
37,147
2,750
1,775
346,996
(290,638)
56,358
887
57,245

(1)

Includes accumulated amortization for internal-use software development costs of $32.7 million and
$30.8 million as of January 2, 2022 and January 3, 2021, respectively.

Depreciation expense associated with property and equipment, including assets leased under finance
leases, was $7.6 million and $6.7 million for fiscal 2021 and 2020, respectively. Amortization expense for
leasehold improvements was $8.0 million and $8.9 million for fiscal 2021 and 2020, respectively. Amortization
expense for internal-use software was $2.1 million and $2.9 million for fiscal 2021 and 2020, respectively. The
gross cost of equipment under finance leases, included above, was $16.5 million and $10.1 million as of
January 2, 2022 and January 3, 2021, respectively. The accumulated depreciation related to these finance leases
was $6.1 million and $5.5 million as of January 2, 2022 and January 3, 2021, respectively.

F-19

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(4)

Fair Value Measurements

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses approximate the fair values of these instruments due to their short-term nature. Cash equivalents consist
of highly liquid investments of excess cash into U.S. Treasury bills, which have maturities of 90 days or less. As
of January 2, 2022 and January 3, 2021, the Company recorded $75.0 million and $50.0 million, respectively, in
cash equivalents, and classified these assets as Level 1 inputs, which are quoted prices (unadjusted) in active
markets for identical assets that the Company can access at the measurement date. The Company records these
cash equivalents monthly, based on the prevailing market interest rate as of the measurement date. Book
overdrafts for checks outstanding are classified as current liabilities in the Company’s consolidated balance
sheets. The carrying amount for borrowings, if any, under the Company’s credit facility approximates fair value
because of the variable market interest rate charged to the Company for these borrowings. When the Company
recognizes impairment on certain of its underperforming stores, the carrying values of these stores are reduced to
their estimated fair values.

The Company’s only significant assets or liabilities measured at fair value on a nonrecurring basis
subsequent to their initial recognition were assets subject to long-lived asset impairment related to certain
underperforming stores. The Company estimates the fair values of these long-lived assets based on the
Company’s own judgments about the assumptions that market participants would use in pricing the asset and on
observable real estate market data of underperforming stores’ specific comparable markets, when available. The
Company classifies these fair value measurements as Level 3 inputs, which are unobservable inputs for which
market data are not available and that are developed using the best information available about pricing
assumptions used by market participants in accordance with ASC 820. As of January 2, 2022, there were no
long-lived assets subject to impairment, and as of January 3, 2021, these long-lived assets were immaterial.

(5)

Accrued Expenses

The major components of accrued expenses are as follows:

January 2,
2022

January 3,
2021

(In thousands)

Payroll and related expense . . . . . . . . . . . . . . . . . . . . . . . .
Sales tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

37,345
12,112
10,168
25,416
85,041

$

$

37,826
11,609
10,215
23,227
82,877

Payroll and related expense as of January 2, 2022 and January 3, 2021 reflected a deferral of the
employer portion of Social Security tax provided by the U.S. Coronavirus Aid, Relief and Economic Security
(“CARES”) Act, which allowed employers to defer their portion of the social security payroll tax otherwise due
with respect to wages earned from March 27, 2020 through December 31, 2020.

(6)

Lease Commitments

The Company has operating and finance leases for the Company’s retail store facilities, distribution
center, corporate offices,
information technology hardware, and distribution center delivery tractors and
equipment, and accounts for these leases in accordance with ASC 842. The Company’s operating leases have

F-20

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

remaining reasonably certain lease terms of up to 13 years, which typically include options to extend the leases
for up to 5 years. The Company’s finance leases have remaining reasonably certain lease terms of up to 6 years.

Certain of the leases for the Company’s retail store facilities provide for variable payments for
property taxes, insurance, common area maintenance payments related to triple net leases, rental payments based
on future sales volumes at the leased location, as well as certain equipment sales taxes, licenses, fees and repairs,
which are not measurable at the inception of the lease, or rental payments that are adjusted periodically for
inflation. The Company recognizes variable lease expense for these leases in the period incurred which, for
contingent rent, begins in the period in which it becomes probable that the specified target that triggers the
variable lease payments will be achieved. The Company’s lease agreements do not contain any material residual
value guarantees or material restrictive covenants.

In accordance with ASC 842, the components of lease expense were as follows:

Year Ended

January 2,
2022

January 3,
2021

(In thousands)

Lease expense:
Amortization of right-of-use assets . . . . . . . . . . . . . . . .
Interest on lease liabilities . . . . . . . . . . . . . . . . . . . . . . .

$

Finance lease expense . . . . . . . . . . . . . . . . . . . . . . . .

Operating lease expense . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Variable lease expense (1)
Sublease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

2,940
260

3,200

81,734
18,384
(91)

2,721
297

3,018

83,030
15,238
(1,192)

Total lease expense . . . . . . . . . . . . . . . . . . . . . . . . . .

$

103,227

$

100,094

(1)

Variable lease expense for fiscal 2020 was reduced by $3.1 million for lease
abatements related to the effects of the COVID-19 pandemic that resulted in the
total payments required by the modified contract being substantially the same as or
less than total payments required by the original contract. See Note 2 to the Notes
to Consolidated Financial Statements for a further discussion on lease concessions.

F-21

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

In accordance with ASC 842, other information related to leases was as follows:

Operating cash flows from operating leases . . . . . . . . . . . . . . $
Financing cash flows from finance leases . . . . . . . . . . . . . . .
Operating cash flows from finance leases . . . . . . . . . . . . . . .

Cash paid for amounts included in the measurement of

Year Ended

January 2,
2022

January 3,
2021

(In thousands)

85,238 $
2,887
271

83,028
2,858
313

lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

88,396 $

86,199

Right-of-use assets obtained in exchange for new finance

lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

8,723 $

—

Right-of-use assets obtained in exchange for new operating

lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

56,953 $

Weighted-average remaining lease term—finance leases . . .
Weighted-average remaining lease term—operating

leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average discount rate—finance leases . . . . . . . . . .
Weighted-average discount rate—operating leases . . . . . . . .

3.8 years

80,452
2.4 years

4.8 years

5.0 years

3.1%
5.4%

4.8%
6.1%

In accordance with ASC 842, maturities of finance and operating lease liabilities as of January 2,

2022 were as follows:

Year Ending:

2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Finance
Leases

Operating
Leases

(In thousands)
3,748 $ 86,185
68,475
2,585
59,654
1,787
42,975
1,304
27,670
867
34,051
197

Undiscounted cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,488 $319,010
Reconciliation of lease liabilities:
Weighted-average remaining lease term . . . . . . . . . . . . . . . . . . . .
Weighted-average discount rate

4.8 years

3.8 years

3.1%

5.4%

Present values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

9,974 $281,016

. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease liabilities - current
Lease liabilities - long-term . . . . . . . . . . . . . . . . . . . . . . . . . .

3,518
6,456

76,882
204,134

Lease liabilities - total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

9,974 $281,016

Difference between undiscounted and discounted cash

flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

514 $ 37,994

F-22

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(7)

Long-Term Debt

The Company, Big 5 Corp. and Big 5 Services Corp. were parties to a credit agreement with Wells
Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and a syndicate of other lenders, as
amended (the “Prior Credit Agreement”), which was terminated and replaced on February 24, 2021, as discussed
below.

On February 24, 2021, the Company entered into a Loan, Guaranty and Security Agreement with
Bank of America, N.A. (“BofA”), as agent and lender, which was amended on November 22, 2021 (as so
amended, the “Loan Agreement”). The Loan Agreement has a maturity date of February 24, 2026 and provides
for a revolving credit facility with an aggregate committed availability of up to $150.0 million. The Company
may also request additional increases in aggregate availability, up to a maximum of $200.0 million, in which case
the existing lender under the Loan Agreement will have the option to increase the commitment to accommodate
the requested increase. If such existing lender does not exercise that option, the Company may (with the consent
of BofA in its role as the administrative agent, not to be unreasonably withheld) seek other lenders willing to
provide such commitments. The credit facility includes a $50.0 million sublimit for issuances of letters of credit.

Similar to the Prior Credit Agreement, the Company may borrow under the Loan Agreement from
time to time, provided the amounts outstanding will not exceed the lesser of the then aggregate committed
availability (as discussed above) and the Borrowing Base (such lesser amount being referred to as the “Line
Cap”). As defined in the Loan Agreement, the “Borrowing Base” generally is comprised of the sum, at the time
of calculation, of (a) 90.00% of eligible credit card receivables; plus (b) the cost of eligible inventory (other than
eligible in-transit inventory), net of inventory reserves, multiplied by 90.00% of the appraised net orderly
liquidation value of eligible inventory (expressed as a percentage of the cost of eligible inventory); plus (c) the
cost of eligible in-transit inventory, net of inventory reserves, multiplied by 90.00% of the appraised net orderly
liquidation value of eligible in-transit inventory (expressed as a percentage of the cost of eligible in-transit
inventory), minus (d) certain agreed-upon reserves as well as other reserves established by BofA in its role as the
administrative agent in its reasonable discretion.

Generally, the Company may designate specific borrowings under the Loan Agreement as either base
rate loans or LIBO rate loans. The applicable interest rate on the Company’s borrowings is a function of the daily
average, over the preceding fiscal quarter, of the excess of the Line Cap over amounts borrowed (such amount
being referred to as the “Average Daily Availability”). Those loans designated as LIBO rate loans bear interest at
a rate equal to the then applicable adjusted LIBO rate plus an applicable margin as shown in the table below.
Those loans designated as base rate loans bear interest at a rate equal to the applicable margin for base rate loans
(as shown below) plus the highest of (a) the Federal funds rate, as in effect from time to time, plus one-half of
one percent (0.50%), (b) the LIBO rate, plus one percentage point (1.00%), or (c) the rate of interest in effect for
such day as announced from time to time within BofA as its “prime rate.” The applicable margin for all loans is a
function of Average Daily Availability for the preceding fiscal quarter as set forth below.

Level

Average Daily Availability

LIBO Rate
Applicable Margin

Base Rate
Applicable Margin

I

II

Greater than or equal to $70,000,000

Less than $70,000,000

1.375%

1.500%

0.375%

0.500%

The commitment fee assessed on the unused portion of the credit facility is 0.20% per annum.

Obligations under the Loan Agreement are secured by a general lien on and security interest in
substantially all of the Company’s assets. The Loan Agreement contains covenants that require the Company to

F-23

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

maintain a fixed charge coverage ratio of not less than 1.0:1.0 in certain circumstances, and limits the ability to,
among other things, incur liens, incur additional indebtedness, transfer or dispose of assets, change the nature of
the business, guarantee obligations, pay dividends or make other distributions or repurchase stock, and make
advances, loans or investments. The Company may generally declare or pay cash dividends or repurchase stock
only if, among other things, no default or event of default then exists or would arise from such dividend or
repurchase of stock and, after giving effect to such dividend or repurchase, certain availability and/or fixed
charge coverage ratio requirements are satisfied, although the Company is permitted to make up to $5.0 million
of dividend payments or stock repurchases per year without satisfaction of the availability or fixed charge
coverage ratio requirements, but dividends or stock repurchases made without satisfying the availability and/or
fixed charge coverage ratio requirements will require the establishment of an additional reserve that will reduce
borrowing availability under the Loan Agreement for 75 days. The Loan Agreement contains customary events
of default, including, without limitation, failure to pay when due principal amounts with respect to the credit
facility, failure to pay any interest or other amounts under the credit facility, failure to comply with certain
agreements or covenants contained in the Loan Agreement, failure to satisfy certain judgments against the
Company, failure to pay when due (or any other default which permits the acceleration of) certain other material
indebtedness in principal amount in excess of $5.0 million, and certain insolvency and bankruptcy events. As
amended, the Loan Agreement provides for a transition to an alternative benchmark reference rate following the
cessation of the LIBO rate.

As previously disclosed, the Prior Credit Agreement had a maturity date of September 29, 2022 and,
as amended, provided for a line of credit up to $140.0 million, which amount could be increased at the
Company’s option up to a maximum of $165.0 million. The Company could also request additional increases in
aggregate availability, on an uncommitted basis up to a maximum of $200.0 million. On March 30, 2020, the
Company exercised the accordion feature and increased the amount available under the revolving credit facility
to $165.0 million in response to the COVID-19 pandemic and drew down additional amounts at that time. The
revolving credit facility under the Prior Credit Agreement included a $25.0 million sublimit for issuances of
letters of credit and a $20.0 million sublimit for swingline loans. The Prior Credit Agreement provided for LIBO
rate loans to bear interest at a rate equal to the applicable adjusted LIBO rate plus an applicable margin, as shown
in the table below. The loans designated as base rate loans bore interest at a rate equal to the applicable margin
for base rate loans (as shown below) plus the highest of (a) the Federal funds rate in effect plus one-half of one
percent, (b) the LIBO rate, plus one percentage point, or (c) the prime interest rate. Under the Prior Credit
Agreement, the applicable margin for all loans was a function of Average Daily Availability for the preceding
fiscal quarter as set forth below.

Level

Average Daily Availability

LIBO Rate
Applicable Margin

Base Rate
Applicable Margin

I

II

Greater than or equal to $70,000,000

Less than $70,000,000

1.250%

1.375%

0.250%

0.500%

The commitment fee assessed on the unused portion of the credit facility under the Prior Credit

Agreement was 0.20% per annum.

In the first quarter of fiscal 2021, the Company paid and capitalized $0.7 million in new creditor and
third-party fees associated with the Loan Agreement, which will be amortized over the term of the Loan
Agreement, and extinguished $0.2 million of deferred financing fees associated with the Prior Credit Agreement.

As of January 2, 2022 and January 3, 2021, the Company had no long-term revolving credit

borrowings outstanding.

F-24

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(8)

Income Taxes

Income tax expense (benefit) consists of the following:

Current Deferred

Total

(In thousands)

Fiscal 2021:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,422
7,582

$1,121
613

$24,543
8,195

$31,004

$1,734

$32,738

Fiscal 2020:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$13,786
4,871

$

86
(298)

$13,872
4,573

$18,657

$ (212)

$18,445

The provision for income taxes differs from the amounts computed by applying the federal statutory

tax rate of 21% to earnings before income taxes, as follows:

Tax expense at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . $
State tax expense, net of federal tax effect
. . . . . . . . . . . . . . .
Additional deduction related to share-based compensation . .
Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . .
CARES Act net operating loss carryback . . . . . . . . . . . . . . . .
Write-offs related to nonvested share awards . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other

$

Year Ended

January 2,
2022

January 3,
2021

(In thousands)

28,376 $
7,167
(2,623)
729
(603)
(318)
—
—
10
32,738 $

15,621
3,975
—
86
(246)
(418)
(822)
260
(11)
18,445

Deferred tax assets and liabilities as of January 2, 2022 and January 3, 2021 are tax-effected based on

the federal and state corporate income tax rates.

F-25

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Deferred tax assets and liabilities consist of the following tax-effected temporary differences:

Deferred tax assets:
Employee benefit-related liabilities . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gift card liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California Enterprise Zone Tax Credits . . . . . . . . . . . . . . . . . . . .
Other deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax assets, net of valuation allowance . . . . . . . . . . . . . .

Deferred tax liabilities:
Prepaid expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal liability on state deferred tax assets . . . . . . . . . . . . . . . .
Other deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

January 2,
2022

January 3,
2021

(In thousands)

$ 2,889
2,828
2,421
1,545
1,420
1,215
805
381
1,500

15,004
(280)

14,724

(1,147)
(996)
(484)

(2,627)

$ 2,986
3,509
2,581
1,014
1,324
2,253
815
975
1,396

16,853
(683)

16,170

(989)
(1,125)
(225)

(2,339)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,097

$13,831

As of fiscal 2021 and 2020, the Company maintained a valuation allowance of $0.3 million and
$0.7 million, respectively, related to unused California Enterprise Zone Tax Credits, which the Company will not
be able to carry forward beyond 2024 as a result of California’s termination of this program. In assessing the
realizability of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment. Based upon the level of historical taxable income and projections
of future taxable income over the periods during which the deferred tax assets are deductible, except as noted
above, management believes it is more likely than not that the Company will realize the benefits of these
deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced if
estimates of future taxable income are reduced. Certain prior period amounts were reclassified to conform with
current period presentation requirements.

The Company files a consolidated federal income tax return and files tax returns in various state and
local jurisdictions. The statutes of limitations for its consolidated federal income tax returns are open for fiscal
years 2018 and after, and state and local income tax returns are open for fiscal years 2017 and after.

As of January 2, 2022 and January 3, 2021, the Company had no unrecognized tax benefits that, if
recognized, would affect the Company’s effective income tax rate over the next 12 months. The Company’s
policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in
operating expense. As of January 2, 2022 and January 3, 2021, the Company had no accrued interest or penalties.

F-26

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(9)

Earnings Per Share

The Company calculates earnings per share in accordance with ASC 260, Earnings Per Share, which
requires a dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by
income by the weighted-average shares of common stock outstanding, reduced by shares
dividing net
repurchased and held in treasury, during the period. Diluted earnings per share represents basic earnings per
share adjusted to include the potentially dilutive effect of outstanding share option awards, nonvested share
awards and nonvested share unit awards.

The following table sets forth the computation of basic and diluted earnings per common share:

Year Ended

January 2,
2022

January 3,
2021

(In thousands, except per share data)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

102,386

$

55,940

Weighted-average shares of common stock

outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of common stock equivalents
arising from share option, nonvested share
and nonvested share unit awards . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basic earnings per share . . . . . . . . . . . . . . . . . . . . . .

Diluted earnings per share . . . . . . . . . . . . . . . . . . . .

$

$

Antidilutive share option awards excluded from

diluted calculation . . . . . . . . . . . . . . . . . . . . . . . . .

Antidilutive nonvested share and nonvested share

unit awards excluded from diluted calculation . . .

21,670

21,260

842

22,512

4.73

4.55

$

$

2

—

403

21,663

2.63

2.58

494

46

The computation of diluted earnings per share for the periods presented excludes certain share option
awards since the exercise prices of these share option awards exceeded the average market price of the
Company’s common shares, and the effect of their inclusion would have been antidilutive (i.e., including such
share option awards would result in higher earnings per share).

No nonvested share awards or nonvested share unit awards were antidilutive for fiscal 2021. The
computation of diluted earnings per share for fiscal 2020 excludes certain nonvested share awards and nonvested
share unit awards that were outstanding and antidilutive, since the grant date fair values of these nonvested share
awards and nonvested share unit awards exceeded the average market price of the Company’s common shares.

(10)

Employee Benefit Plans

The Company has a 401(k) plan covering eligible employees. Employee contributions are
supplemented by Company contributions subject to 401(k) plan terms. The Company recognized employer
matching and profit-sharing contributions of $5.3 million and $3.7 million for fiscal 2021 and 2020, respectively.

F-27

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(11)

Related Party Transactions

Prior to his death in fiscal 2008, the Company had an employment agreement with Robert W. Miller
(“Mr. Miller”), co-founder of the Company and the father of Steven G. Miller, Chairman of the Board, President,
Chief Executive Officer and a director of the Company. The employment agreement provided for Mr. Miller to
receive an annual base salary of $350,000. The employment agreement further provided that, following his death,
the Company would pay his surviving wife $350,000 per year and provide her specified benefits for the
remainder of her life. During fiscal 2020, the Company made a payment of $350,000 to Mr. Miller’s wife. The
Company recognized expense of $0.3 million in fiscal 2020, to provide for a liability for the future obligations
under this agreement. Based upon actuarial valuation estimates related to this agreement, the Company had a
recorded liability of $1.0 million as of January 3, 2021. The short-term portion of this liability was recorded in
accrued expenses in the Company’s consolidated balance sheets and the long-term portion was recorded in other
long-term liabilities in the Company’s consolidated balance sheet.

In January 2021, Mrs. Miller passed away and, accordingly, the Company eliminated the liability of
$1.0 million and reduced selling and administrative expense by the same amount in the first quarter of fiscal
2021.

(12)

Commitments and Contingencies

Eminent Domain Matter

On approximately March 13, 2018, the Orange County Transportation Authority (“OCTA”) filed an
eminent domain action against the Company and its Westminster, California, store location to acquire the Company’s
interest in the property for public purposes related to a transportation project. The Company surrendered possession of
this location on approximately January 31, 2019. On March 31, 2020, the Company and representatives of the OCTA
agreed to a preliminary settlement of the proceedings, which was formally approved by the OCTA’s Board on
approximately April 27, 2020. Pursuant to the terms of the settlement, on May 21, 2020, the Company received a cash
condemnation settlement from the OCTA in the amount of $2.5 million for lost profit and property. The Company
recorded a pre-tax gain for the $2.5 million in the second quarter of fiscal 2020 related to the settlement, of which
$0.2 million represented lost property and equipment, which was included as other income in the Company’s
consolidated statement of operations. Attorneys’ fees related to this settlement totaled $0.1 million in fiscal 2020 and
were included in selling and administrative expense in the Company’s consolidated statement of operations.

Recovery of Insurance Proceeds

In the second quarter of fiscal 2020, seven of the Company’s stores were damaged and qualified for
loss recovery claims as a result of civil unrest, and the Company disposed of assets of approximately $0.6 million
related to lost inventory and property and equipment. In the first quarter of fiscal 2021, the Company reached an
agreement with its insurance carrier and, after application of a deductible of $0.3 million, the Company received
a cash insurance recovery of $1.3 million in total, of which $1.0 million related to the reimbursement of lost
inventory and profit margin, $0.2 million related to the reimbursement of property and equipment, and
$0.1 million related to a reimbursement for business interruption. Accordingly, the Company recognized gains of
$0.5 million related to the recovery of lost profit margin and business interruption, and $0.2 million related to the
recovery of property and equipment. The gain related to the recovery of lost profit margin and business
interruption is included in the Company’s consolidated statement of operations as a reduction to cost of goods
sold, and the gain related to the recovery of lost property and equipment is included in the Company’s
consolidated statement of operations as a reduction to selling and administrative expense for fiscal 2021.

F-28

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

In July 2019, one of the Company’s stores was damaged as a result of a fire and, in the fourth quarter of
fiscal 2019, the Company disposed of assets of approximately $0.8 million related to lost inventory and property and
equipment. In the fourth quarter of fiscal 2020, the Company reached an agreement with its insurance carrier and, after
application of a previous advance of $0.5 million and deductible of $0.2 million, the Company received a cash
insurance recovery and recorded a gain of $2.8 million in total, of which $1.7 million related to the reimbursement of
property and equipment, $0.8 million related to the reimbursement of lost profit margin, and $0.3 million related to a
reimbursement for business interruption. The reimbursement of lost property and equipment is included in the
Company’s consolidated statements of operations as a reduction to selling and administrative expense, and the
reimbursement of lost profit margin and business interruption is included in the Company’s consolidated statements of
operations as a reduction to cost of goods sold for fiscal 2020.

The Company is involved in various 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.

(13)

Share-Based Compensation Plans

2019 Equity Incentive Plan

In April 2019, the Company adopted the 2019 Equity Incentive Plan (“2019 Plan”), which replaced the
Company’s Amended and Restated 2007 Equity and Performance Incentive Plan (the “Prior Plan”). Awards under the
2019 Plan may consist of share option awards (both incentive share option awards and non-qualified share option
awards), stock appreciation rights, nonvested share awards, other stock unit awards or dividend equivalents. In the past,
share option awards issued by the Company have typically been non-qualified share option awards, while nonvested
share awards and nonvested share unit awards issued by the Company have typically been based on the attainment of
service-only conditions. Upon the adoption of the 2019 Plan, the Company stopped issuing awards under the Prior
Plan, although the Company will continue to honor any outstanding awards under the Prior Plan.

The 2019 Plan (i) permits the Company to issue a maximum of 3,848,803 shares of the Company’s
common stock plus the number of any additional shares that may thereafter become available as a result of the
forfeiture, expiration or other cancellation of awards under any prior plans; and (ii) expires on April 11, 2029.

Any share option awards or stock appreciation rights shall be counted against this limit as one share for
every one share granted. Any shares that are subject to awards other than share option awards or stock appreciation
rights (including shares delivered on the settlement of dividend equivalents) shall be counted against this limit as 2.5
shares for every one share granted. The aggregate number of shares available under the 2019 Plan and the number of
outstanding share option awards will be increased or decreased to reflect any changes in the outstanding common stock
of the Company by reason of any recapitalization, spin-off, reorganization, reclassification, stock dividend, stock split,
reverse stock split, or similar transaction.

At its discretion, the Company grants share option awards, nonvested share awards and nonvested share
unit awards to certain employees, as defined by ASC 718, Compensation—Stock Compensation, under the Company’s
2019 Plan, and accounts for its share-based compensation in accordance with ASC 718. As of January 2, 2022,
1,716,479 shares remained available for future grant, and 383,035 share option awards, 551,700 nonvested share
awards and zero nonvested share unit awards remained outstanding.

The Company accounts for its share-based compensation in accordance with ASC 718 and recognizes
compensation expense on a straight-line basis over the requisite service period, net of estimated forfeitures, using the

F-29

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

fair-value method for share option awards, nonvested share awards and nonvested share unit awards granted with
service-only conditions. The estimated forfeiture rate considers historical employee turnover rates stratified into
employee pools in comparison with an overall employee turnover rate, as well as expectations about the future. The
Company periodically revises the estimated forfeiture rate in subsequent periods if actual forfeitures differ from those
estimates. Compensation expense recorded under this method for fiscal 2021 and 2020 was $2.0 million and
$1.7 million, respectively, which reduced operating income and income before income taxes by the same amount.
Compensation expense recognized in cost of sales was $0.1 million in fiscal 2021 and 2020 and compensation expense
recognized in selling and administrative expense was $1.9 million and $1.6 million in fiscal 2021 and 2020,
respectively. The recognized tax benefit related to compensation expense for fiscal 2021 and 2020 was $0.5 million
and $0.4 million, respectively. Net income for fiscal 2021 and 2020 reflects the net-of-tax charge of $1.5 million and
$1.3 million, respectively, or $0.07 and $0.06 per basic and diluted share, respectively.

Share Option Awards

Share option awards granted by the Company generally vest and become exercisable in four equal
installments of 25% per year with a maximum life of ten years. The exercise price of share option awards is equal to
the quoted market price of the Company’s common stock on the date of grant. The Company granted 10,000 share
option awards with a weighted-average grant-date fair value of $12.16 per share option award in fiscal 2021, and
granted 257,000 share option awards with a weighted-average grant-date fair value of $1.25 per share option award in
fiscal 2020.

The following table details the Company’s share option awards activity for the current fiscal year:

Weighted-
Average
Remaining
Contractual
Life
(In Years)

Weighted-
Average
Exercise
Price

Aggregate
Intrinsic
Value

Shares

Outstanding at January 3, 2021 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . .

742,800
10,000
(369,765)

$ 4.62
24.72
5.85

Outstanding at January 2, 2022 . . . . . . .

383,035

$ 3.96

Exercisable at January 2, 2022 . . . . . . .

15,105

$ 4.17

Vested and Expected to Vest at

7.60

7.16

$5,823,394

$ 224,197

January 2, 2022 . . . . . . . . . . . . . . . . .

378,595

$ 3.96

7.59

$5,752,679

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based
upon the Company’s closing stock price of $19.01 per share as of January 2, 2022, which would have been
received by the share option award holders had all share option award holders exercised their share option awards
as of that date.

The total intrinsic value of share option awards exercised, the total cash received from employees as
a result of employee share option award exercises and the actual tax benefit realized for the tax deduction from
share option award exercises in fiscal 2021 was approximately $6.6 million, $2.2 million and $1.6 million,
respectively.

F-30

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

The fair value of each share option award on the date of grant was estimated using the Black-Scholes

method based on the following weighted-average assumptions:

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 2,
2022

January 3,
2021

1.3%

0.9%

6.5 years

5.7 years

75.7%
4.0%

63.0%
—

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for
periods corresponding with the expected term of the option award; the expected term represents the weighted-
average period of time that option awards granted are expected to be outstanding giving consideration to vesting
schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of
the Company’s common stock; and the expected dividend yield is based upon the Company’s dividend rate at the
time fair value is measured and future expectations.

As of January 2, 2022, there was $0.4 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 1.6 years.

Nonvested Share Awards and Nonvested Share Unit Awards

Nonvested share awards granted by the Company vest for employees from the date of grant in four
equal annual installments of 25% per year. Nonvested share awards and nonvested share unit awards granted by
the Company to non-employee directors for their service as directors, as defined by ASC 718, vest 100% on the
earlier of (a) the date of the Company’s next annual stockholders meeting following the grant date, or (b) the first
anniversary of the grant date.

Nonvested share awards become outstanding when granted and are delivered to the recipient upon
their vesting. Vested share unit awards, including any dividend reinvestments, are delivered to the recipient on
the tenth business day of January following the year in which the recipient’s service to the Company is
terminated, at which time the units convert to shares and become outstanding. On January 14, 2022, the
Company delivered 124,012 shares on vested share unit awards, which included dividend reinvestments, to a
Board member who retired in November 2021. Outstanding nonvested share awards and nonvested share unit
awards accrue dividends at the same rate as dividends paid to the Company’s shareholders. Accrued dividends on
nonvested share awards are paid upon vesting of the underlying shares and forfeited if a recipient’s service to the
Company is terminated prior to vesting. Accrued dividends on nonvested share unit awards are reinvested into
additional nonvested share unit awards, vest on the same schedule as the underlying share unit awards, and are
settled at the same time as the underlying share unit awards. The total fair value of nonvested share awards which
vested during fiscal 2021 and 2020 was $5.3 million and $0.4 million, respectively. The total fair value of
nonvested share unit awards which vested during fiscal 2021 and 2020 was $2.1 million and $0.2 million,
respectively.

The Company granted 248,550 nonvested share awards with a weighted-average grant-date fair value
of $15.61 per share award in fiscal 2021 and granted 321,600 nonvested share awards with a weighted-average
grant-date fair value of $1.69 per share award in fiscal 2020.

F-31

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

The following table details the Company’s nonvested share awards activity for the current fiscal year:

Balance at January 3, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares

591,325
248,550
(268,550)
(19,625)

Balance at January 2, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

551,700

Weighted-
Average
Grant-
Date Fair
Value

$ 3.79
15.61
4.83
6.59

$ 8.51

To satisfy employee minimum statutory tax withholding requirements for nonvested share awards
that vest, the Company withholds and retires a portion of the vesting common shares, unless an employee elects
to pay cash. In fiscal 2021, the Company withheld 70,228 common shares with a total value of $1.0 million. This
amount is presented as a cash outflow from financing activities in the Company’s consolidated statement of cash
flows.

As of January 2, 2022, dividends accrued but not paid related to nonvested share awards were

$1.6 million.

The Company granted 2,614 nonvested share unit awards with a weighted-average grant-date fair
value of $28.69 per share unit award in fiscal 2021 and granted 40,000 nonvested share unit awards with a
weighted-average grant-date fair value of $2.28 per share unit award in fiscal 2020. The weighted-average grant-
date fair value of nonvested share awards and nonvested share unit awards is the quoted market price of the
Company’s common stock on the date of grant.

The following table details the Company’s nonvested share unit awards activity for the current fiscal

year:

Balance at January 3, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend reinvestments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend reinvestments vested . . . . . . . . . . . . . . . . . . . . . . . . .

Units

41,160
2,614
30,182
(42,614)
(31,342)

Balance at January 2, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— $

Weighted-
Average
Grant-
Date Fair
Value

$

1.91
28.69
24.79
3.90
24.13

—

As of January 2, 2022, there were 285,591 cumulative vested share unit awards remaining, of which
79,271 of these awards represented cumulative dividend reinvestments. These cumulative vested share unit
awards are deliverable to the holders on the tenth business day of January following the year in which the
holder’s service to the Company terminates, at which time the units convert to shares of the Company’s common
stock and become outstanding.

F-32

BIG 5 SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

As of January 2, 2022, there was $3.2 million of total unrecognized compensation expense related to
nonvested share awards, which is expected to be recognized over a weighted-average period of 2.2 years. There
was no remaining unrecognized compensation expense related to nonvested share unit awards.

(14)

Subsequent Event

In the first quarter of fiscal 2022, the Company’s Board of Directors declared a quarterly cash
dividend of $0.25 per share of outstanding common stock, which will be paid on March 25, 2022 to stockholders
of record as of March 11, 2022.

Also, in the first quarter of fiscal 2022, the Company’s Board of Directors authorized a new share
repurchase program for the purchase of up to an additional $25.0 million of the Company’s common stock. This
program replaced the Company’s previous share repurchase program, under which $7.7 million remained
available for repurchase.

F-33

BIG 5 SPORTING GOODS CORPORATION
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In thousands)

Balance at
Beginning of
Period

Charged to
Costs and
Expenses

Deductions

Balance at
End of Period

January 2, 2022

Allowance for doubtful receivables . . . . . .
Allowance for sales returns . . . . . . . . . . . . .
Inventory reserves . . . . . . . . . . . . . . . . . . . .

January 3, 2021

Allowance for doubtful receivables . . . . . .
Allowance for sales returns . . . . . . . . . . . . .
Inventory reserves . . . . . . . . . . . . . . . . . . . .

$
$
$

$
$
$

58
2,444
6,138

58
2,702
6,796

$
$
$

$
$
$

83
84
3,335

$
(1) $
$

$
(79)
— $
$

(3,926)

44
(258)
2,954

$
(1) $
$

(44)
$
— $
$

(3,612)

62
2,528
5,547

58
2,444
6,138

(1)

Represents an increase (decrease) in the required reserve based upon the Company’s evaluation of anticipated
merchandise returns.

II

BOARD OF DIRECTORS

Steven G. Miller
Chairman

Van B. Honeycutt
Lead Independent Director
(Retired. Former Chairman and Chief Executive
Officer, Computer Sciences Corporation, provider of
technology-enabled business solutions and services)

Colleen B. Brown
Director
(Former media executive, Fisher Communications
Inc., Belo Corp., Lee Enterprises and Gannett Co.)

Stephen E. Carley
Director
(Retired. Former Chief Executive Officer of Red
Robin Gourmet Burgers and President and Chief
Executive Officer of El Pollo Loco)

Lily W. Chang
Director
(Senior Advisor, Leonard Green & Partners, L. P.,
private equity firm)

Jennifer H. Dunbar
Director
(Retired partner, Leonard Green & Partners, L.P.,
private equity firm)

David R. Jessick
Director
(Retired. Former retail executive, Thrifty Payless,
Inc., Fred Meyer, Inc. and Rite Aid Corporation)

EXECUTIVE OFFICERS

Steven G. Miller
Chairman, President and Chief Executive Officer

Boyd O. Clark
Executive Vice President and Chief Merchandising
Officer

Barry D. Emerson
Executive Vice President, Chief Financial Officer
and Treasurer

Jeffrey L. Fraley
Senior Vice President, Human Resources

EXECUTIVE OFFICERS
(continued)

Shane O. Starr
Senior Vice President, Operations

Luke D. Thompson
Executive Vice President, General Counsel and
Secretary

INDEPENDENT AUDITORS

Deloitte & Touche LLP
555 West 5th Street, Suite 2700
Los Angeles, CA 90013

TRANSFER AGENT AND REGISTRAR

Computershare, Inc.
462 South 4th Street
Louisville, KY 40202
Tel: 800.962.4284

SECURITIES LISTING

The common stock of Big 5 Sporting Goods
Corporation is traded on the Nasdaq Stock Market
under the symbol BGFV.

ANNUAL MEETING

Big 5 Sporting Goods Corporation’s Annual Meeting
of Stockholders will be held in a virtual streaming
format on June 8, 2022, at 10:00 a.m. PDT. There
will be no physical location for stockholders to
attend. Stockholders may only participate by logging
in at www.virtualshareholdermeeting.com/
BGFV2022.

INVESTOR RELATIONS

Jeff Sonnek
ICR, Inc.
685 Third Avenue. 2nd Floor
New York, NY 10017
Tel: 646.277.1263

CORPORATE HEADQUARTERS

2525 E. El Segundo Boulevard
El Segundo, CA 90245
Tel: 310.536.0611
www.big5sportinggoods.com