e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 30, 2007
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 000-49850
BIG 5 SPORTING GOODS
CORPORATION
(Exact name of registrant as
specified in its charter)
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Delaware
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95-4388794
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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2525 East El Segundo Boulevard
El Segundo, California
(Address of Principal
Executive Offices)
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90245
(Zip Code)
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Registrants telephone number, including area code:
(310) 536-0611
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class:
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Name of Each Exchange on which Registered:
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Common Stock, par value $.01 per share
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The NASDAQ Stock Market LLC
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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 o No þ
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 þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 on
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or in any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting company
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(Do not check if a smaller
reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of the registrant was $370,618,505 as of
July 1, 2007 (the last business day of the
registrants most recently completed second fiscal quarter)
based upon the closing price of the registrants common
stock on the NASDAQ Stock Market LLC reported for July 1,
2007. 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 21,922,691 shares of common stock
outstanding at February 29, 2008.
Documents
Incorporated by Reference
Part III of this
Form 10-K
incorporates by reference certain information from the
registrants 2008 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 registrants fiscal year.
TABLE OF CONTENTS
Forward-Looking
Statements
This document includes certain forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
relate to, among other things, our financial condition, our
results of operations, our growth strategy and the business of
our company generally. In some cases, you can identify such
statements by terminology such as may,
could, project, estimate,
potential, continue, should,
expects, plans, anticipates,
believes, intends or other such
terminology. These forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause
our actual results in future periods to differ materially from
forecasted results. These risks and uncertainties include, among
other things, continued or worsening weakness in the consumer
spending environment, the competitive environment in the
sporting goods industry in general and in our specific market
areas, inflation, product availability and growth opportunities,
seasonal fluctuations, weather conditions, changes in cost of
goods, operating expense fluctuations, disruption in product
flow or increased costs related to distribution center
operations, changes in interest rates and economic conditions in
general. Those and other risks and uncertainties are more fully
described in Item 1A, Risk Factors in this
report and other risks and uncertainties more fully described in
our other filings with the Securities and Exchange Commission
(SEC). We caution that the risk factors set forth in
this report are not exclusive. In addition, we conduct our
business in a highly competitive and rapidly changing
environment. Accordingly, new risk factors may arise. It is not
possible for management to predict all such risk factors, nor to
assess the impact of all such risk factors on our business or
the extent to which any individual risk factor, or combination
of factors, may cause results to differ materially from those
contained in any forward-looking statement. We undertake no
obligation to revise or update any forward-looking statement
that may be made from time to time by us or on our behalf.
1
PART I
General
Big 5 Sporting Goods Corporation (we,
our, us or the Company) is a
leading sporting goods retailer in the western United States,
operating 363 stores in 11 states under the Big 5
Sporting Goods name at December 30, 2007. We provide
a full-line product offering in a traditional sporting goods
store format that averages approximately 11,000 square
feet. Our product mix includes athletic shoes, apparel and
accessories, as well as a broad selection of outdoor and
athletic equipment for team sports, fitness, camping, hunting,
fishing, tennis, golf, snowboarding and in-line skating.
We believe that over our
53-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 Nike, Reebok, adidas, New Balance,
Wilson, Spalding, Under Armour and Columbia. We also offer brand
name merchandise produced exclusively for us, private label
merchandise and specials on quality items we purchase through
opportunistic buys of vendor over-stock and close-out
merchandise. We reinforce our value reputation through weekly
print advertising in major and local newspapers and mailers
designed to generate customer traffic, drive net sales and build
brand awareness.
Robert W. Miller co-founded our company in 1955 with the
establishment of five retail locations in California. We sold
World War II surplus items until 1963, when we began
focusing exclusively on sporting goods and changed our trade
name to Big 5 Sporting Goods. In 1971, we were
acquired by Thrifty Corporation, which was subsequently
purchased by Pacific Enterprises. In 1992, management bought our
company in conjunction with Green Equity Investors, L.P., an
affiliate of Leonard Green & Partners, L.P. In 1997,
Robert W. Miller, Steven G. Miller and Green Equity Investors,
L.P. recapitalized our company so that the majority of our
common stock would be owned by our management and employees.
In 2002, we completed an initial public offering of our common
stock and used the proceeds from that offering, together with
credit facility borrowings, to repurchase outstanding high yield
debt and preferred stock, fund management bonuses and repurchase
common stock from non-executive employees.
Our accumulated management experience and expertise in sporting
goods merchandising, advertising, operations and store
development have enabled us to historically generate profitable
growth. We believe our historical success can be attributed to
one of the most experienced management teams in the sporting
goods industry, a value-based and execution-driven operating
philosophy, a controlled growth strategy and a proven business
model. In fiscal 2007, we generated net sales of
$898.3 million, operating income of $53.0 million, net
income of $28.1 million and diluted earnings per share of
$1.25.
We are a holding company incorporated in Delaware on
October 31, 1997. We conduct our business through Big 5
Corp., a wholly owned subsidiary incorporated in Delaware on
October 27, 1997. We conduct our gift card operations
through Big 5 Services Corp., a wholly owned subsidiary of Big 5
Corp. incorporated in Virginia on December 19, 2003.
Our corporate headquarters are located at 2525 East El Segundo
Boulevard, El Segundo, California 90245. Our Internet address is
www.big5sportinggoods.com. Our Annual Report on
Form 10-K,
our Quarterly Reports on
Form 10-Q,
our Current Reports on
Form 8-K
and amendments, if any, to those reports filed or furnished
pursuant to Section 13(a) of the Securities Exchange Act of
1934, as amended, are available on our website as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the SEC.
Expansion
and Store Development
Throughout our operating history, we have sought to expand our
business with the addition of new stores through a disciplined
strategy of controlled growth. Our expansion within and beyond
California has been systematic and designed to capitalize on our
name recognition, economical store format and economies of scale
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related to distribution and advertising. Over the past five
fiscal years, we have opened 97 stores, an average of
approximately 19 new stores annually, of which 68% were outside
of California. The following table illustrates the results of
our expansion program during the periods indicated:
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Other
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Stores
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Stores
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Number of Stores
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Year
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California
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Markets
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Total
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Relocated(1)
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Closed
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at Period End
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2003
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5
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14
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19
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(1
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293
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2004
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6
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12
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18
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(2
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309
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2005
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7
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11
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18
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(2
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(1
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324
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2006
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7
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12
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19
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343
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2007
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6
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17
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23
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(3
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363
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(1) |
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All stores relocated for 2007 were
in California.
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Our 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
50,000 people. Our 11,000 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 represent attractive investment opportunities
due to the relatively low investment required and the relatively
short time necessary before our stores typically become
profitable. Our store format typically requires investments of
approximately $0.5 million in fixtures, equipment and
leasehold improvements, and approximately $0.4 million in
net working capital with limited pre-opening and real estate
expense related to leased locations that are built to our
specifications. We seek to maximize new store performance by
staffing new store management with experienced personnel from
our existing stores.
Our in-house store development personnel analyze new store
locations with the assistance of real estate firms that
specialize in retail properties. We have identified numerous
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. We opened 20 new stores, net of closures and
relocations, in fiscal 2007 and we expect to open approximately
20 new stores, net of closures and relocations, in fiscal 2008.
Management
Experience
We believe the experience, commitment and tenure of our
professional staff drive our superior execution and strong
historical operating performance and give us a substantial
competitive advantage. The table below describes the tenure of
our professional staff in some of our key functional areas as of
December 30, 2007:
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Average
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Number of
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Number of
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Employees
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Years With Us
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Senior Management
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7
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26
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Vice Presidents
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10
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19
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Buyers
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18
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19
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Store District / Regional Supervisors
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42
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19
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Store Managers
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363
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9
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Merchandising
We target the competitive and recreational sporting goods
customer with a full-line product offering at a wide variety of
price points. We offer a product mix that includes athletic
shoes, apparel and accessories, as well as a broad selection of
outdoor and athletic equipment for team sports, fitness,
camping, hunting, fishing, tennis, golf, snowboarding and
in-line skating. We believe we offer consistent value to
consumers by offering a distinctive merchandise mix that
includes a combination of well-known brand name merchandise,
merchandise produced exclusively for us under a
manufacturers brand name, private label merchandise and
specials on quality items we purchase through opportunistic buys
of vendor over-stock and close-out merchandise.
3
We believe we enjoy significant advantages in making
opportunistic buys of vendor over-stock and close-out
merchandise because of our strong vendor relationships,
purchasing volume and rapid decision-making process. Vendor
over-stock and close-out merchandise typically represent
approximately 10% of our net sales. Our strong vendor
relationships and purchasing volume also enable us to purchase
merchandise produced exclusively for us under a
manufacturers brand name which allows us to differentiate
our product selection from competition, obtain volume pricing
discounts from vendors and offer unique value to our customers.
Our weekly advertising highlights our opportunistic buys
together with merchandise produced exclusively for us in order
to reinforce our reputation as a retailer that offers attractive
values to our customers.
The following five-year 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 fishing rods and golf
clubs, as a percentage of net sales:
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Fiscal Year
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2007
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2006
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2005
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2004
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2003
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Soft Goods
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Athletic and sport apparel
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16.8
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%
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17.1
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%
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16.1
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%
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16.2
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%
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16.1
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%
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Athletic and sport footwear
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29.8
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29.9
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30.4
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30.5
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30.4
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Total soft goods
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46.6
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47.0
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46.5
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46.7
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46.5
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Hard goods
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53.4
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53.0
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53.5
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53.3
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53.5
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Total
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100.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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We purchase our popular branded merchandise from an extensive
list of major sporting goods equipment, athletic footwear and
apparel manufacturers. Below is a selection of some of the
brands we carry:
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adidas
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Easton
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Icon (Proform)
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Prince
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Shimano
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Asics
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Everlast
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Impex
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Rawlings
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Spalding
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Browning
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Fila
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JanSport
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Razor
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Speedo
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Bushnell
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Footjoy
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K2
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Reebok
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Timex
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Coleman
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Franklin
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Lifetime
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Remington
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Titleist
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Columbia
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Head
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Mizuno
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Rollerblade
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Under Armour
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Converse
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Heelys
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New Balance
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Russell Athletic
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Wilson
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Crosman
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Hillerich & Bradsby
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Nike
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Saucony
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Zebco
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We also offer a variety of private label merchandise to
complement our branded product offerings. Our private label
items include shoes, apparel, golf equipment, binoculars,
camping equipment, fishing supplies and snowsport equipment.
Private label merchandise is sold under our owned labels,
including Court Casuals, Golden Bear, Harsh, Pacifica, Rugged
Exposure, South Bay and Triple Nickel, in addition to labels
licensed from a third party, including Body Glove, Hi-Tec and
Maui & Sons.
Through our 53 years of experience across different
demographic, economic and competitive markets, we have refined
our merchandising strategy to increase net sales by offering a
selection of products that meets customer demands while
effectively managing inventory levels. In terms of category
selection, we believe our merchandise offering compares
favorably to our competitors, including the superstores. Our
edited selection of products enables customers to comparison
shop without being overwhelmed by a large number of different
products in any one category. We further tailor our merchandise
selection on a
store-by-store
basis in order to satisfy each regions specific needs and
seasonal buying habits.
We experience seasonal fluctuations in our net sales and
operating results and typically generate higher operating income
in the fourth quarter, which includes the holiday selling season
as well as the winter sports selling season. As a result, we
incur significant additional expense in the fourth quarter due
to normally higher purchase volumes and increased staffing.
Seasonality influences our buying patterns which directly
impacts our merchandise and accounts payable levels and cash
flows. We purchase merchandise for seasonal activities in
advance of a season. If we miscalculate the demand for our
products generally or for our product mix during the fourth
quarter, our net sales can decline, resulting in excess
inventory, which can harm our financial performance. Because a
larger portion
4
of our operating income is typically derived from our fourth
quarter net sales, a shortfall in expected fourth quarter net
sales can negatively impact our annual operating results. Our
net sales for the fourth quarter of fiscal 2007 were lower than
expected which contributed to lower operating income and higher
inventory levels compared to the same period last year.
Our buyers, who average 19 years of experience with us,
work closely with senior management to determine and enhance
product selection, promotion and pricing of our merchandise mix.
Management utilizes an integrated merchandising, distribution,
point-of-sale and financial information system to continuously
refine our merchandise mix, pricing strategy, advertising
effectiveness and inventory levels to best serve the needs of
our customers.
Advertising
Through years of targeted advertising, we have solidified our
reputation for offering quality products at attractive prices.
We have advertised almost exclusively through weekly print
advertisements since 1955. We typically utilize four-page color
advertisements to highlight promotions across our merchandise
categories. We believe our print advertising, which includes an
average weekly distribution of over 20 million newspaper
inserts or mailers, consistently reaches more households in our
established markets than that of our full-line sporting goods
competitors. The consistency and reach of our print advertising
programs drive sales and create high customer awareness of the
name Big 5 Sporting Goods. Our customers also may sign up on our
website to receive our weekly ads online through email.
We use our professional in-house advertising staff rather than
an outside advertising agency to generate our advertisements,
including design, layout, production and media management. Our
in-house advertising department provides management with the
flexibility to react quickly to merchandise trends and to
maximize the effectiveness of our weekly inserts and mailers. We
are able to effectively target different population zones for
our advertising expenditures. We place inserts in approximately
200 newspapers throughout our markets, supplemented in many
areas by mailer distributions to create market saturation.
Vendor
Relationships
We have developed strong vendor relationships over the past
53 years. We currently purchase merchandise from over 700
vendors. In fiscal 2007, only one vendor represented greater
than 5% of total purchases, at 5.3%. We believe current
relationships with our vendors are good. We benefit from the
long-term working relationships with vendors that our senior
management and our buyers have carefully nurtured throughout our
history.
Management
Information Systems
We have fully integrated management information systems that
track, on a daily basis, individual sales transactions at each
store, inventory receiving and distribution, merchandise
movement and financial information. The management information
system also includes a local area network that connects all
corporate users to electronic mail, scheduling and the host
system. The host system and our stores point-of-sale
registers are linked by a network that provides satellite
communications for purchasing card (i.e., credit and debit card)
authorization and processing, as well as daily polling of sales
and merchandise movement at the store level. We believe our
management information systems are efficiently supporting our
current operations and provide a foundation for future growth.
Distribution
During the first quarter of fiscal 2006, we completed the
transition to a new distribution center located in Riverside,
California, that now services all of our stores. The new
facility has approximately 953,000 square feet of storage
and office space. The new distribution center warehouse
management system is fully integrated with our management
information systems and provides improved warehousing and
distribution capabilities. The new facility is substantially
larger and more automated than our previous distribution center
and we are achieving operational benefits from the new facility,
including increased labor efficiencies, quality improvements,
accuracy and timeliness. We distribute merchandise from our
distribution center to our stores at least once per week, using
5
our fleet of leased tractors, as well as contract carriers. Our
lease for the new distribution center, which was entered into on
April 14, 2004, has an initial term of 10 years and
includes three additional five-year renewal options.
Industry
and Competition
The retail market for sporting goods is highly competitive. In
general, our competitors tend to fall into the following five
basic categories:
Traditional Sporting Goods Stores. This
category consists of traditional sporting goods chains,
including us. These stores range in size from 5,000 to
20,000 square feet and are frequently located in regional
malls and multi-store shopping centers. The traditional chains
typically carry a varied assortment of merchandise and attempt
to position themselves as convenient neighborhood stores.
Sporting goods retailers operating stores within this category
include Hibbett Sports and Modells.
Mass Merchandisers. This category includes
discount retailers such as Wal-Mart, Target and Kmart and
department stores such as JC Penney, Sears and Kohls.
These stores range in size from approximately 50,000 to
200,000 square feet and are primarily located in regional
malls or 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.
Specialty Sporting Goods Stores. Specialty
sporting goods retailers are stores that typically carry a wide
assortment of one specific product category, such as athletic
shoes, golf, or outdoor equipment. Examples of these retailers
include Foot Locker, Golfsmith, Bass Pro Shops, Gander Mountain
and REI. This category also includes pro shops that often are
single-store operations.
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 Sport Chalet, Dicks Sporting Goods and The Sports
Authority.
Catalog and Internet-based Retailers. This
category consists of numerous retailers that sell a broad array
of new and used sporting goods products via catalogs or the
Internet.
We believe we compete successfully with each of the competitors
discussed above by focusing on what we believe are the primary
factors of competition in the sporting goods retail industry.
These factors include experienced and knowledgeable personnel;
customer service; breadth, depth, price and quality of
merchandise offered; advertising; purchasing and pricing
policies; effective sales techniques; direct involvement of
senior officers in monitoring store operations; management
information systems and store location and format.
Employees
We manage our stores through regional, district and store-based
personnel. Field supervision is led by six regional supervisors
who report directly to the Vice President of Store Operations
and who oversee 36 district supervisors. The district
supervisors are each responsible for an average of 10 stores.
Each of our stores has a store manager who is responsible for
all aspects of store operations and who reports directly to a
district supervisor. In addition, each store has at least two
assistant managers and a complement of appropriate full and
part-time associates to match the stores volume.
As of December 30, 2007, we had over 9,500 active full and
part-time employees. The Steel, Paper House, Chemical
Drivers & Helpers, Local Union 578, affiliated with
the International Brotherhood of Teamsters, currently represents
approximately 645 hourly employees in our distribution
center and select stores. In November 2007, we negotiated a
five-year contract with Local 578 for our distribution center
employees, and in December 2007, we negotiated a five-year
contract with Local 578 for our store employees. Both contracts
were retroactive to September 1, 2007 and expire on
August 31, 2012. We have not had a strike or work stoppage
in over 26 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.
6
Employee
Training
We have developed a comprehensive training program that is
tailored for each store position. All employees are given an
orientation and reference materials that stress excellence in
customer service and selling skills. All full-time employees,
including salespeople, cashiers and management trainees, receive
additional training specific to their job responsibilities. Our
tiered curriculum includes seminars, individual instruction and
performance evaluations to promote consistency in employee
development. The manager trainee schedule provides seminars on
operational responsibilities such as merchandising strategy,
loss prevention and inventory control. Moreover, each manager
trainee must complete a progressive series of outlines and
evaluations in order to advance to the next successive level.
Ongoing store management training includes topics such as
advanced merchandising, delegation, personnel management,
scheduling, payroll control and loss prevention.
We also provide unique opportunities for our employees to gain
knowledge about our products. These opportunities include
hands-on training seminars and a biennial sporting
goods product expo. At the sporting goods product expo, our
vendors set up booths where full-time store employees receive
intensive training on the products we carry. This event has
proven successful for both training and motivating our employees.
Description
of Service Marks and Trademarks
We use the Big 5 and Big 5 Sporting Goods names as service marks
in connection with our business operations and have registered
these names as federal service marks. The renewal dates for
these service mark registrations are in 2015 and 2013,
respectively. We have also registered the names Court Casuals,
Golden Bear, Pacifica, Rugged Exposure and South Bay as federal
trademarks under which we sell a variety of merchandise. The
renewal dates for these trademark registrations range from 2008
to 2017. We believe we will be successful in renewing the
trademark registration scheduled for renewal in 2008.
An investment in the Company entails the following risks and
uncertainties. 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:
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other traditional sporting goods stores and chains;
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mass merchandisers, discount stores and department stores, such
as Wal-Mart, Kmart, Target, Kohls, JC Penney, and Sears;
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specialty sporting goods shops and pro shops, such as Foot
Locker, Golfsmith, Bass Pro Shops, Gander Mountain and REI;
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sporting goods superstores, such as Sports Chalet, Dicks
Sporting Goods and The Sports Authority; and
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catalog and Internet-based retailers.
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Some of our competitors have a larger number of stores and
greater financial, distribution, marketing and other resources
than we have. If our competitors reduce their prices, it may be
difficult for us to reach our net sales goals without reducing
our prices. As a result of this competition, we may also need to
spend more on advertising and promotion than we anticipate. If
we are unable to compete successfully, our operating results
will suffer.
7
Adverse
changes in the economy may affect consumer purchases of
discretionary items, which could reduce our net
sales.
In general, our sales represent discretionary spending by our
customers. Discretionary spending is affected by many factors,
including, among others, general business conditions, interest
rates, inflation, consumer debt levels, the availability of
consumer credit, currency exchange rates, taxation, electricity
power rates, gasoline prices, unemployment trends and other
matters that influence consumer confidence and spending. Many of
these factors are outside of our control. Our customers
purchases of discretionary items, including our products, could
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. We believe
that these factors (among others) led to less than anticipated
sales during fiscal 2007, particularly in the fourth quarter. We
are now starting to experience increased inflationary pressure
on our product costs. If unfavorable economic conditions
continue to challenge the consumer environment, or if
inflationary pressures continue to drive up our product costs,
our net sales, product margins and profitability could continue
to decline.
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. Our success depends upon
our ability to anticipate and respond in a timely manner to
trends in sporting goods merchandise and consumers
participation in sports. If we fail to identify and respond to
these changes, our net sales may decline. In addition, because
we often make commitments to purchase products from our vendors
up to six months in advance of the proposed delivery, if we
misjudge the market for our merchandise, we may over-stock
unpopular products and be forced to take inventory markdowns
that could have a negative impact on profitability.
Our
quarterly sales and operating results fluctuate substantially,
which may adversely affect the market price of our common
stock.
Our net and same store sales and results of operations 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, changes in pricing or other actions
taken by our competitors, weather conditions in our markets,
natural disasters, litigation, changes in accounting standards,
changes in managements accounting estimates or assumptions
and economic conditions specific to our western markets and
generally.
If we
are unable to successfully implement our controlled growth
strategy or manage our growing business, our future operating
results could suffer.
One of our strategies includes opening profitable stores in new
and existing markets. As a result, at the end of fiscal 2007 we
operated 32% more stores than we did at the end of fiscal 2002.
Our ability to successfully implement and capitalize on our
growth strategy could be negatively affected by various factors
including:
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we may not be able to find suitable sites available for leasing;
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we may not be able to negotiate acceptable lease terms;
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we may not be able to hire and retain qualified store
personnel; and
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we may not have the financial resources necessary to fund our
expansion plans.
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In addition, our expansion in new and existing markets may
present competitive, distribution and merchandising challenges
that differ from our current challenges. These potential new
challenges include competition among our stores, added strain on
our distribution center, additional information to be processed
by our management information systems, diversion of management
attention from ongoing operations and challenges associated
8
with managing a substantially larger enterprise. We face
additional challenges in entering new markets, including
consumers lack of awareness of us, difficulties in hiring
personnel and problems due to our unfamiliarity with local real
estate markets and demographics. New markets may also have
different competitive conditions, consumer tastes,
responsiveness to print advertising and discretionary spending
patterns than our existing markets. To the extent that we are
not able to meet these new challenges, our net sales could
decrease and our operating costs could increase.
Increased
costs or declines in the effectiveness of print advertising
could cause our operating results to suffer.
Our business relies heavily on print advertising. We utilize
print advertising programs that include newspaper inserts,
direct mailers and courier-delivered inserts in order to
effectively deliver our message to our targeted markets. A
decline in newspaper circulation or readership could limit the
number of people who receive or read our advertisements. If we
are unable to develop other effective strategies to reach
potential customers within our desired markets, awareness of our
stores, products and promotions could decline and our net sales
could suffer. In addition, an increase in the cost of print
advertising, paper or postal or other delivery fees could
increase the cost of our advertising and adversely affect our
operating results.
Because
our stores are concentrated in the western United States, we are
subject to regional risks.
Our stores are located in the western United States. Because of
this, we are subject to regional risks, such as the economy,
including downturns in the housing market, weather conditions,
power outages, earthquakes and other natural disasters specific
to the states in which we operate. For example, particularly in
southern California where we have a high concentration of
stores, seasonal factors such as unfavorable snow conditions
(such as those that occurred in the winter of
2005-2006),
inclement weather (such as the unusually heavy rains that
occurred in the winter of
2004-2005)
or other localized conditions such as flooding, fires (such as
those that occurred in 2007), earthquakes or electricity
blackouts could harm our operations. State and local regulatory
compliance also can impact our financial results. If the region
were to suffer an economic downturn or other adverse regional
event, our net sales and profitability and our ability to
implement our planned expansion program could suffer.
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
could harm our business and operations. In addition, as our
business grows, we will need to attract and retain additional
qualified personnel in a timely manner and develop, train and
manage an increasing number of management-level sales associates
and other employees. Competition for qualified employees could
require us to pay higher wages and benefits to attract a
sufficient number of 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
hardware and software systems are vulnerable to damage, theft or
intrusion that could harm our business.
Our success, in particular our ability to successfully manage
inventory levels and process customer transactions, largely
depends upon the efficient operation of our computer hardware
and software systems. We use management information systems to
track inventory information at the store level, communicate
customer information and aggregate daily sales information,
process financial information and purchasing card transactions
and process shipments of goods. These systems and our operations
are vulnerable to damage or interruption from:
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earthquake, fire, flood and other natural disasters;
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power loss, computer systems failures, Internet and
telecommunications or data network failures, operator
negligence, improper operation by or supervision of employees;
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physical and electronic loss of data, security breaches,
misappropriation, data theft and similar events; and
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computer viruses, worms, Trojan horses, intrusions, or other
external threats.
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Any failure of our computer hardware or software systems that
causes an interruption in our operations or a decrease in
inventory tracking could result in reduced net sales and
profitability. Additionally, if any data intrusion, security
breach, misappropriation or theft were to occur, we could incur
significant costs in responding to such event, including
responding to any resulting claims, litigation or
investigations, which could harm our operating results.
If our
suppliers do not provide sufficient quantities of products, our
net sales and profitability could suffer.
We purchase merchandise from over 700 vendors. Although only one
vendor represented slightly more than 5.0% of our total
purchases during the fiscal year ended December 30, 2007,
our dependence on principal suppliers involves risk. Our 20
largest vendors collectively accounted for 34.7% of our total
purchases during the fiscal year ended December 30, 2007.
If there is a disruption in supply from a principal supplier or
distributor, we may be unable to obtain merchandise that we
desire to sell and that consumers desire to purchase. A vendor
could discontinue selling products to us at any time for reasons
that may or may not be in our control. Our net sales and
profitability could decline if we are unable to promptly replace
a vendor who is unwilling or unable to satisfy our requirements
with a vendor providing equally appealing products. Moreover,
many of our suppliers provide us with incentives, such as return
privileges, volume purchase allowances and cooperative
advertising. A decline or discontinuation of these incentives
could reduce our profits.
Because
many of the products that we sell are manufactured abroad, we
may face delays, increased cost or quality control deficiencies
in the importation of these products, which could reduce our
sales and profitability.
Like many other sporting goods retailers, a significant portion
of the products that we purchase for resale, including those
purchased from domestic suppliers, is manufactured abroad in
countries such as China, Taiwan and South Korea. In addition, we
believe most, if not all, of our private label merchandise is
manufactured abroad. Foreign imports subject us to the risks of
changes in import duties or quotas, new restrictions on imports,
loss of most favored nation status with the United
States for a particular foreign country, work stoppages, delays
in shipment, freight cost increases, product cost increases due
to foreign currency fluctuations or revaluations, and economic
uncertainties (including the United States imposing antidumping
or countervailing duty orders, safeguards, remedies or
compensation and retaliation due to illegal foreign trade
practices). If any of these or other factors were to cause a
disruption of trade from the countries in which the suppliers of
our vendors are located, we may be unable to obtain sufficient
quantities of products to satisfy our requirements or our cost
of obtaining products may increase. In addition, to the extent
that any foreign manufacturers which supply products to us
directly or indirectly utilize quality control standards, labor
practices or other practices that vary from those commonly
accepted in the United States (such as the recently reported
high lead content found in products manufactured abroad), we
could be hurt by any resulting negative publicity or, in some
cases, face potential liability. To date, we have not
experienced any difficulties of this nature. Historically,
instability in the political and economic environments of the
countries in which our vendors or we obtain our products has not
had a material adverse effect on our operations. However, we
cannot predict the effect that future changes in economic or
political conditions in such foreign countries may have on our
operations. In the event of disruptions or delays in supply due
to economic or political conditions in foreign countries, such
disruptions or delays could adversely affect our results of
operations unless and until alternative supply arrangements
could be made. In addition, merchandise purchased from
alternative sources may be of lesser quality or more expensive
than the merchandise we currently purchase abroad.
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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 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. For example,
the Port of Los Angeles, through which a substantial amount of
the products manufactured abroad that we sell are imported,
experienced delays in fiscal 2004 in distribution of products to
their final destination due to difficulties associated with
capacity limitations. In addition, acts of terrorism could
significantly disrupt operations at the Port of Los Angeles or
otherwise impact transportation of the imported merchandise we
sell.
Future disruptions at a shipping port at which our products are
received, whether due to delays at the Port of Los Angeles or
otherwise, may result in delays in the transportation of such
products to our distribution center and may ultimately delay the
stocking of our stores with the affected merchandise. As a
result, our net sales and profitability could decline.
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
costs.
We rely on a single distribution center to service our business.
Any natural disaster or other serious disruption to the
distribution center due to fire, earthquake or any other cause
could damage a significant portion of our inventory and could
materially impair both our ability to adequately stock our
stores and our net sales and profitability. If the security
measures used at our distribution center do not prevent
inventory theft, our gross margin may significantly decrease.
Further, in the event that we are unable to grow our net sales
sufficiently to allow us to leverage the costs of this facility
in the manner we anticipate, our financial results could be
negatively impacted.
Increases
in transportation costs due to rising fuel costs and other
factors may negatively impact our operating
results.
We rely upon various means of transportation, including sea 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 risen significantly in the last few
years. This increase and any future increases may result in an
increase in 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 in the transportation industry
could negatively affect transportation costs and our ability to
supply our stores in a timely manner. In particular, our
business is highly dependent on the trucking industry to deliver
products to our distribution center and our stores. Our
operating results may be adversely affected if we or our vendors
are unable to secure adequate trucking resources at competitive
prices to fulfill our delivery schedules to our distribution
center or stores.
Terrorism
and the uncertainty of war may harm our operating
results.
Terrorist attacks or acts of war may cause damage or disruption
to us and our employees, facilities, information systems,
vendors, and customers, which could significantly impact our net
sales, profitability and financial condition. Terrorist attacks
could also have a significant impact on ports or international
shipping on which we are substantially dependent for the supply
of much of the merchandise we sell. Our corporate headquarters
is located near Los Angeles International Airport and the Port
of Los Angeles, which have been identified as potential
terrorism targets. The potential for future terrorist attacks,
the national and international responses to terrorist attacks
and other acts of war or hostility may cause greater uncertainty
and cause our business to suffer in ways that we currently
cannot 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.
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Risks
Related to Our Capital Structure
We are
leveraged, future cash flows may not be sufficient to meet our
obligations and we might have difficulty obtaining more
financing.
As of December 30, 2007, the aggregate amount of our
outstanding indebtedness, including capital lease obligations,
was $107.3 million. Our leveraged financial position means:
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a substantial portion of our cash flow from operations will be
required to service our indebtedness;
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our ability to obtain financing in the future for working
capital, capital expenditures and general corporate purposes
might be impeded;
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we are more vulnerable to economic downturns and our ability to
withstand competitive pressures is limited; and
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we are more vulnerable to increases in interest rates, which may
affect our interest expense and negatively impact our operating
results.
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If our business declines, our future cash flow might not be
sufficient to meet our obligations and commitments.
If we fail to make any required payment under our financing
agreement, our debt payments may be accelerated under this
instrument. In addition, in the event of bankruptcy or
insolvency or a material breach of any covenant contained in our
financing agreement, 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 flow from
operations. Due in part to lower than anticipated sales during
fiscal 2007, and particularly the fourth quarter of fiscal 2007,
our indebtedness increased from $77.1 million at the end of
fiscal 2006 to $103.4 million at the end of fiscal 2007. If
we are unable to generate sufficient cash flow from operations
to meet our obligations, commitments and covenants of our
financing agreement, we may be required to refinance or
restructure our indebtedness, raise additional debt or equity
capital, sell material assets or operations or 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 financing agreement impose operating and financial
restrictions on us, which may impair our ability to respond to
changing business and economic conditions.
The terms of our financing agreement 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 additional indebtedness,
create or allow liens, pay dividends, repurchase stock, engage
in mergers, acquisitions or reorganizations or make specified
capital expenditures. 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 financing agreement. 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 financing
agreement is secured by a first priority security interest in
our accounts receivable, merchandise inventories, service marks
and trademarks and other general intangible assets, including
trade names. In the event of our insolvency, liquidation,
dissolution or reorganization, the lenders under our financing
agreement would be entitled to payment in full from our assets
before distributions, if any, were made to our stockholders.
Risks
Related to Regulatory, Legislative and Legal Matters
Current
and future government regulation may negatively impact demand
for our products and increase our cost of conducting
business.
The conduct of our business, and the distribution, sale,
advertising, labeling, safety, transportation and use of many of
our products are subject to various laws and regulations
administered by federal, state and local
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governmental agencies in the United States. These laws and
regulations may change, sometimes dramatically, as a result of
political, economic or social events. Changes in laws,
regulations or governmental policy may alter the environment in
which we do business and the demand for our products and,
therefore, may impact our financial results or increase our
liabilities. Some of these laws and regulations include:
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laws and regulations governing the manner in which we advertise
or sell our products;
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laws and regulations that prohibit or limit the sale, in certain
localities, of certain products we offer, such as firearms and
ammunition;
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laws and regulations governing the activities for which we sell
products, such as hunting and fishing;
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labor and employment laws, such as minimum wage or living wage
laws, wage and hour laws and laws requiring mandatory health
insurance for employees; and
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U.S. customs laws and regulations pertaining to proper item
classification, quotas and payment of duties and tariffs.
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Changes in these and other laws and regulations or additional
regulation could cause the demand for and sales of our products
to decrease. Moreover, complying with increased or changed
regulations could cause our operating expense to increase. This
could adversely affect our net sales and profitability.
The
sale of firearms and ammunition is subject to strict regulation,
which could affect our operating results.
Because we sell firearms and ammunition, we are required to
comply with federal, state and local laws and regulations
pertaining to the purchase, storage, transfer and sale of
firearms and ammunition. These laws and regulations require us,
among other things, to ensure that all purchasers of firearms
are subjected to a pre-sale background check, to record the
details of each firearm sale on appropriate government-issued
forms, to record each receipt or transfer of a firearm at our
distribution center or any store location on acquisition and
disposition records, and to maintain these records for a
specified period of time. We also are required to timely respond
to traces of firearms by law enforcement agencies. Over the past
several years, the purchase and sale of firearms and ammunition
has been the subject of increased federal, state and local
regulation, and this may continue in our current markets and
other markets into which we may expand. If we fail to comply
with existing or newly enacted laws and regulations relating to
the purchase and sale of firearms and ammunition, our licenses
to sell firearms at our stores or maintain inventory of firearms
at our distribution center may be suspended or revoked. If this
occurs, our net sales and profitability could suffer. Further,
complying with increased regulation relating to the sale of
firearms and ammunition could cause our operating expense to
increase and this could adversely affect our operating results.
We may
be subject to periodic litigation that may adversely affect our
business and financial performance, including litigation related
to products we sell and employment matters.
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, financial condition and
results of operations. 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 operating results.
In particular, we sell products manufactured by third parties,
some of which may or may not be defective. Many such products
are manufactured overseas, particularly in China, Taiwan and
South Korea, which may increase our risk that such products may
be defective (such as, for example, in the cases of products
recently reported to have high lead content). 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. Our insurance coverage may not be adequate to
cover claims that could be asserted against us. If a successful
claim were brought against us in excess of our insurance
coverage, it could harm our business. Even
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unsuccessful claims could result in the expenditure of funds and
management time and could have a negative impact on our
business. In addition, our products are subject to the Federal
Consumer Product Safety Act, which empowers the Consumer Product
Safety Commission to protect consumers from hazardous sporting
goods and other articles. The Consumer Product Safety Commission
has the authority to exclude from the market and recall certain
consumer products that are found to be hazardous. Similar laws
exist in some states and cities in the United States. If we fail
to comply with government and industry safety standards, we may
be subject to claims, lawsuits, product recalls, fines and
negative publicity that could harm our financial condition and
operating results.
In addition, we sell firearms and ammunition, products
associated with an increased risk of injury and related
lawsuits. Sales of firearms and ammunition have historically
represented less than 5% of our annual net sales. We may incur
losses due to lawsuits relating to our performance of background
checks on firearms purchases as mandated by state and federal
law or the improper use of firearms sold by us, including
lawsuits by municipalities or other organizations attempting to
recover costs from firearms manufacturers and retailers relating
to the misuse of firearms. Commencement of these lawsuits
against us could reduce our net sales and decrease our
profitability.
From time to time we may also be involved in lawsuits related to
employment and other matters, including class action lawsuits
brought against us for alleged violations of the Fair Labor
Standards Act and state wage and hour 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 or other
business practices.
Changes
in accounting standards and subjective assumptions, estimates
and judgments by management related to complex accounting
matters could significantly affect our financial
results.
Generally accepted accounting principles and related accounting
pronouncements, implementation guidelines and interpretations
with regard to a wide range of matters that are relevant to our
business, such as revenue recognition; lease accounting; the
carrying amount of property and equipment and goodwill;
valuation allowances for receivables, sales returns, inventories
and deferred income tax assets; estimates related to the
valuation of stock options; and obligations related to asset
retirements, litigation, workers compensation 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.
Certain
Risks Related to Investing in Our Common Stock
The
declaration of discretionary dividend payments may not
continue.
We intend to continue to pay quarterly dividends subject to
capital availability and periodic determinations that cash
dividends are in the best interest of us and our stockholders.
Our dividend policy may be affected by, among other items, our
views on potential future capital requirements, the terms of our
debt instruments, legal risks, changes in federal income tax law
and challenges to our business model. Our dividend policy may
change from time to time and we may or may not continue to
declare discretionary dividend payments. A change in our
dividend policy could have a negative effect on our stock price.
Our
anti-takeover provisions could prevent or delay a change in
control of our company, even if such change of control would be
beneficial to our stockholders.
Provisions of our amended and restated certificate of
incorporation and amended and restated bylaws as well as
provisions of Delaware law could discourage, delay or prevent a
merger, acquisition or other change in control of our company,
even if such change in control would be beneficial to our
stockholders. These provisions include:
|
|
|
|
|
a Board of Directors that is classified such that only one-third
of directors are elected each year;
|
|
|
|
authorization of the issuance of blank check
preferred stock that could be issued by our Board of Directors
to increase the number of outstanding shares and thwart a
takeover attempt;
|
|
|
|
limitations on the ability of stockholders to call special
meetings of stockholders;
|
14
|
|
|
|
|
prohibition of stockholder action by written consent and
requiring all stockholder actions to be taken at a meeting of
our stockholders; and
|
|
|
|
establishment of advance notice requirements for nominations for
election to the Board of Directors or for proposing matters that
can be acted upon by stockholders at stockholder meetings.
|
In addition, Section 203 of the Delaware General
Corporations Law limits business combination transactions with
15% stockholders that have not been approved by the Board of
Directors. These provisions and other similar provisions make it
more difficult for a third party to acquire us without
negotiation. These provisions may apply even if the transaction
may be considered beneficial by some stockholders.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
Properties
Our corporate headquarters are located at 2525 East El Segundo
Boulevard, El Segundo, California 90245, where we lease
approximately 55,000 square feet of office and adjoining
retail space. The lease was scheduled to expire in February
2009. In July 2007, we signed an amendment to the lease which
extends the initial expiration date to February 28, 2011,
and provides us with one five-year renewal option.
In April 2004, we signed a lease agreement for a new
distribution facility in order to facilitate our store growth
and to replace our Fontana, California distribution center. The
new distribution facility is located in Riverside, California
and has approximately 953,000 square feet of warehouse and
office space. Construction of this new distribution center was
completed in the fourth quarter of fiscal 2005 and we completed
the transition to the new facility in the first quarter of
fiscal 2006. Our lease for the new distribution center has an
initial term of ten years and includes three additional
five-year renewal options.
We lease all but one of our retail store sites. Most of our
long-term leases contain fixed-price renewal options and the
average lease expiration term from inception of our store
leases, taking into account renewal options, is approximately
33 years. Of the total store leases, 25 leases are due to
expire in the next five years without renewal options.
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.
In fiscal 2007, we processed approximately 27.4 million
sales transactions and our average transaction size was
approximately $33.
Our store format has resulted in productivity levels that we
believe are among the highest of any full-line sporting goods
retailer, with same store net sales per square foot of
approximately $233 for fiscal 2007. Our high same store sales
per square foot combined with our efficient store-level
operations and low store maintenance
15
costs have allowed us to historically generate strong
store-level returns. The following table details our store
locations by state as of December 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Number
|
|
|
Percentage of Total
|
|
State
|
|
Entered
|
|
|
of Stores
|
|
|
Number of Stores
|
|
|
California
|
|
|
1955
|
|
|
|
188
|
|
|
|
51.8
|
%
|
Washington
|
|
|
1984
|
|
|
|
43
|
|
|
|
11.8
|
|
Arizona
|
|
|
1993
|
|
|
|
31
|
|
|
|
8.5
|
|
Oregon
|
|
|
1995
|
|
|
|
20
|
|
|
|
5.5
|
|
Colorado
|
|
|
2001
|
|
|
|
18
|
|
|
|
5.0
|
|
Utah
|
|
|
1997
|
|
|
|
15
|
|
|
|
4.1
|
|
Nevada
|
|
|
1978
|
|
|
|
14
|
|
|
|
3.9
|
|
New Mexico
|
|
|
1995
|
|
|
|
12
|
|
|
|
3.3
|
|
Texas
|
|
|
1995
|
|
|
|
11
|
|
|
|
3.0
|
|
Idaho
|
|
|
1994
|
|
|
|
10
|
|
|
|
2.8
|
|
Oklahoma
|
|
|
2007
|
|
|
|
1
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
363
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
On January 17, 2008, the Company was served with a
complaint filed in the California Superior Court in the County
of Los Angeles, entitled Adi Zimerman v. Big 5 Sporting
Goods Corporation, et al., Case No. BC383834, alleging
violations of the California Civil Code. This complaint was
brought as a purported class action on behalf of persons who
made purchases at the Companys stores in California using
credit cards and were requested or required to provide their zip
codes. The plaintiff alleges, among other things, that customers
making purchases with credit cards at the Companys stores
in California were improperly requested to provide their zip
code at the time of such purchases. The plaintiff seeks, on
behalf of the class members, statutory penalties, injunctive
relief to require the Company to discontinue the allegedly
improper conduct and attorneys fees and costs. The Company
believes that the complaint is without merit and intends to
defend the suit vigorously. The Company is not able to evaluate
the likelihood of an unfavorable outcome or to estimate a range
of potential loss in the event of an unfavorable outcome at the
present time. If resolved unfavorably to the Company, this
litigation could have a material adverse effect on the
Companys financial condition, and any required change in
the Companys business practices, as well as the costs of
defending this litigation, could have a negative impact on the
Companys results of operations.
On December 1, 2006, the Company was served with a
complaint filed in the California Superior Court in the County
of Orange, entitled Jack Lima v. Big 5 Sporting Goods
Corporation, et al., Case No. 06CC00243, alleging
violations of the California Labor Code and the California
Business and Professions Code. This complaint was brought as a
purported class action on behalf of the Companys
California store managers. The plaintiff alleged, among other
things, that the Company improperly classified store managers as
exempt employees not entitled to overtime pay for work in excess
of forty hours per week and failed to provide store managers
with paid meal and rest periods. In the fourth quarter ended
December 30, 2007, the Company and the plaintiff reached a
confidential agreement providing for the full and complete
settlement and release of all of the plaintiffs individual
claims and a dismissal of all claims purportedly brought on
behalf of the class members in exchange for the Companys
payment of non-material amounts to the plaintiff and the
plaintiffs counsel. The Company admitted no liability or
wrongdoing with respect to the claims set forth in the lawsuit.
Subsequent to the end of the fourth quarter ended
December 30, 2007, the court approved the parties
settlement agreement and all claims were dismissed.
The Company is involved in various other claims and legal
actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Companys
financial position, results of operations or liquidity.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None.
16
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock, par value $0.01 per share, has traded on The
NASDAQ Stock Market LLC since June 25, 2002. It trades
under the symbol BGFV. The following table sets
forth the high and low closing sale prices for our common stock
as reported by The NASDAQ Stock Market LLC during fiscal years
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Fiscal Period
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
25.97
|
|
|
$
|
23.37
|
|
|
$
|
22.70
|
|
|
$
|
19.01
|
|
Second Quarter
|
|
$
|
27.06
|
|
|
$
|
24.07
|
|
|
$
|
23.00
|
|
|
$
|
18.50
|
|
Third Quarter
|
|
$
|
25.79
|
|
|
$
|
18.70
|
|
|
$
|
22.80
|
|
|
$
|
18.06
|
|
Fourth Quarter
|
|
$
|
19.22
|
|
|
$
|
14.25
|
|
|
$
|
24.89
|
|
|
$
|
21.67
|
|
As of February 29, 2008, the closing price for our common
stock as reported on The NASDAQ Stock Market LLC was $9.28.
As of February 29, 2008, there were 21,922,691 shares
of common stock outstanding held by approximately 100 holders of
record.
Performance
Graph
Set forth below is a graph comparing the cumulative total
stockholder return for the Companys common stock with the
cumulative total return of (i) the NASDAQ Composite Stock
Market Index and (ii) the NASDAQ Retail Trade Index. The
information in this graph is provided at annual intervals for
the fiscal years ended 2003, 2004, 2005, 2006 and 2007. This
graph shows historical stock price performance (including
reinvestment of dividends) and is not necessarily indicative of
future performance:
|
|
* |
$100 invested on 12/29/02 in stock or on 12/31/02 in
index-including reinvestment of dividends. Indexes are
calculated on month-end basis.
|
Dividend
Policy
Quarterly dividend payments of $0.07 per share were paid during
fiscal 2005 and the first quarter of fiscal 2006. Beginning in
the second quarter of fiscal 2006, the Companys Board of
Directors authorized an increase of the dividend to an annual
rate of $0.36 per share of outstanding common stock. Quarterly
dividend payments of $0.09 per share were paid for the remainder
of fiscal 2006 and during fiscal 2007. In the first quarter of
fiscal 2008,
17
the Companys Board of Directors declared a quarterly cash
dividend of $0.09 per share of outstanding common stock, which
will be paid on March 14, 2008 to stockholders of record as
of February 29, 2008.
The financing 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 level of
indebtedness at the time of the proposed dividend or
distribution, whether we are in default under the financing
agreement and the amount of dividends or distributions made in
the past. Our future dividend policy will also depend on the
requirements of any future 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.
Issuer
Repurchases
The following tabular summary reflects the Companys share
repurchase activity during the quarter ended December 30,
2007:
ISSUER
PURCHASES OF EQUITY
SECURITIES(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number (or
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Value) of Shares that
|
|
|
|
Total Number
|
|
|
Average
|
|
|
as Part of Publicly
|
|
|
May Yet Be Purchased
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Announced Plans
|
|
|
Under the Plans or
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
or Programs
|
|
|
Programs
|
|
|
October 1 - October 28
|
|
|
25,000
|
|
|
$
|
18.75
|
|
|
|
25,000
|
|
|
$
|
1,127,000
|
|
October 29 - November 25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,127,000
|
|
November 26 - December 30
|
|
|
101,551
|
|
|
$
|
15.92
|
|
|
|
101,551
|
|
|
$
|
19,511,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
126,551
|
|
|
$
|
16.48
|
|
|
|
126,551
|
|
|
$
|
19,511,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the second quarter of fiscal
2006, our Board of Directors authorized a share repurchase
program for the purchase of up to $15.0 million of our
common stock. Under this program, we repurchased 673,680 and
64,310 shares of our common stock for $13.7 million
and $1.3 million during fiscal 2007 and fiscal 2006,
respectively, at which time the program was completed. During
the fourth quarter of fiscal 2007, our Board of Directors
authorized an additional share repurchase program for the
purchase of up to $20.0 million of our common stock. Under
the authorization, 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 SEC.
However, the timing and amount of such purchases, if any, would
be at the discretion of management and would depend upon market
conditions and other considerations. Under this program, we
repurchased 30,096 shares of our common stock for
$0.5 million in fiscal 2007.
|
|
(2) |
|
The increase in the approximate
dollar value of shares that may yet be purchased under the
programs reflects the transition from the completed
$15.0 million program to the newly-authorized
$20.0 million program in the fourth quarter of fiscal 2007.
|
Subsequent to the year ended December 30, 2007 and through
February 29, 2008, we repurchased 90,000 shares of our
common stock for $1.2 million. Since the inception of our
initial share repurchase program through February 29, 2008,
we have repurchased a total of 858,086 shares for a total
expenditure of $16.7 million.
Securities
Authorized for Issuance Under Equity Compensation Plans as of
December 30, 2007
See Item 12, Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters, of
this Annual Report on
Form 10-K.
18
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The Statement of Operations Data and the
Balance Sheet Data for all years presented below
have been derived from our audited consolidated financial
statements. Selected consolidated financial data under the
captions Store Data and Other Financial
Data have been derived from the unaudited internal records
of our operations. The information contained in these tables
should be read in conjunction with our consolidated financial
statements and accompanying notes and Managements
Discussion and Analysis of Financial Condition and Results of
Operations appearing elsewhere in this Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year(1)
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars and shares in thousands, except per share and
certain store data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
898,292
|
|
|
$
|
876,805
|
|
|
$
|
813,978
|
|
|
$
|
782,215
|
|
|
$
|
710,393
|
|
Cost of
sales(2)(3)
|
|
|
589,150
|
|
|
|
575,577
|
|
|
|
534,155
|
|
|
|
503,069
|
|
|
|
461,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit(2)
|
|
|
309,142
|
|
|
|
301,228
|
|
|
|
279,823
|
|
|
|
279,146
|
|
|
|
249,241
|
|
Selling and administrative
expense(2)(4)
|
|
|
256,180
|
|
|
|
242,769
|
|
|
|
229,980
|
|
|
|
214,941
|
|
|
|
195,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
52,962
|
|
|
|
58,459
|
|
|
|
49,843
|
|
|
|
64,205
|
|
|
|
54,084
|
|
Premium and unamortized financing fees related to redemption of
debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,067
|
|
|
|
3,434
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
(1,462
|
)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
6,614
|
|
|
|
7,516
|
|
|
|
5,839
|
|
|
|
6,841
|
|
|
|
11,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
46,348
|
|
|
|
50,943
|
|
|
|
45,466
|
|
|
|
55,297
|
|
|
|
39,105
|
|
Income taxes
|
|
|
18,257
|
|
|
|
20,108
|
|
|
|
17,927
|
|
|
|
21,778
|
|
|
|
15,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income(5)
|
|
$
|
28,091
|
|
|
$
|
30,835
|
|
|
$
|
27,539
|
|
|
$
|
33,519
|
|
|
$
|
23,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.25
|
|
|
$
|
1.36
|
|
|
$
|
1.21
|
|
|
$
|
1.48
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.25
|
|
|
$
|
1.35
|
|
|
$
|
1.21
|
|
|
$
|
1.47
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
$
|
0.36
|
|
|
$
|
0.34
|
|
|
$
|
0.28
|
|
|
$
|
0.07
|
|
|
$
|
|
|
Weighted-average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,465
|
|
|
|
22,691
|
|
|
|
22,680
|
|
|
|
22,669
|
|
|
|
22,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
22,559
|
|
|
|
22,795
|
|
|
|
22,802
|
|
|
|
22,792
|
|
|
|
22,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store sales (decrease)
increase(6)
|
|
|
(1.0
|
)%
|
|
|
4.0
|
%
|
|
|
2.4
|
%
|
|
|
3.9
|
%
|
|
|
2.2
|
%
|
Same store sales per square foot (in
dollars)(7)
|
|
$
|
233
|
|
|
$
|
242
|
|
|
$
|
238
|
|
|
$
|
238
|
|
|
$
|
227
|
|
End of period stores
|
|
|
363
|
|
|
|
343
|
|
|
|
324
|
|
|
|
309
|
|
|
|
293
|
|
End of period same stores
|
|
|
321
|
|
|
|
305
|
|
|
|
287
|
|
|
|
272
|
|
|
|
258
|
|
Same store sales per
store(8)
|
|
$
|
2,625
|
|
|
$
|
2,708
|
|
|
$
|
2,657
|
|
|
$
|
2,652
|
|
|
$
|
2,543
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
17,687
|
|
|
$
|
17,115
|
|
|
$
|
15,526
|
|
|
$
|
12,296
|
|
|
$
|
10,826
|
|
Capital
expenditures(9)
|
|
$
|
20,769
|
|
|
$
|
18,209
|
|
|
$
|
34,680
|
|
|
$
|
21,445
|
|
|
$
|
11,226
|
|
Inventory
turns(10)
|
|
|
2.3
|
x
|
|
|
2.4
|
x
|
|
|
2.4
|
x
|
|
|
2.5
|
x
|
|
|
2.4
|
x
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,741
|
|
|
$
|
5,145
|
|
|
$
|
6,054
|
|
|
$
|
6,746
|
|
|
$
|
9,030
|
|
Working
capital(11)
|
|
$
|
129,957
|
|
|
$
|
101,549
|
|
|
$
|
93,145
|
|
|
$
|
72,531
|
|
|
$
|
82,013
|
|
Total assets
|
|
$
|
403,923
|
|
|
$
|
367,679
|
|
|
$
|
352,983
|
|
|
$
|
312,677
|
|
|
$
|
281,736
|
|
Long-term debt and capital leases, less current portion
|
|
$
|
105,648
|
|
|
$
|
80,078
|
|
|
$
|
93,288
|
|
|
$
|
78,054
|
|
|
$
|
99,686
|
|
Stockholders equity
|
|
$
|
109,155
|
|
|
$
|
100,460
|
|
|
$
|
75,671
|
|
|
$
|
54,276
|
|
|
$
|
22,116
|
|
(See notes on following page):
19
(Notes to table on previous page)
|
|
|
(1) |
|
Our fiscal year is the 52 or 53-week reporting period ending on
the Sunday closest to the calendar year end. Fiscal years 2007,
2006, 2005 and 2003 consisted of 52 weeks and fiscal year
2004 consisted of 53 weeks. |
|
(2) |
|
Historically, we have presented total depreciation and
amortization expense separately on the face of our consolidated
statement of operations and our corporate headquarters
occupancy costs within cost of sales. In the fourth quarter of
fiscal 2007, we changed our classification of distribution
center and store occupancy depreciation and amortization expense
to cost of sales and store equipment and corporate
headquarters depreciation and amortization expense to
selling and administrative expense. Depreciation and
amortization expense is no longer presented separately in the
consolidated statement of operations. The corporate
headquarters occupancy costs are now included in selling
and administrative expense. We reclassified our prior period
consolidated statements of operations to conform to the current
year presentation which increased cost of sales and decreased
gross profit by $9.7 million, $8.4 million,
$6.4 million and $5.6 million for fiscal 2006, 2005,
2004 and 2003, respectively, and increased selling and
administrative expense by $7.4 million, $7.1 million,
$5.9 million and $5.3 million for fiscal 2006, 2005,
2004 and 2003, respectively, from amounts previously reported.
This reclassification had no effect on our previously reported
operating or net income, consolidated balance sheets,
consolidated statements of stockholders equity and
consolidated statements of cash flows, and is not considered
material to any previously reported consolidated financial
statements for any of the years presented. |
|
(3) |
|
Cost of sales includes the cost of merchandise, net of discounts
or allowances earned, freight, inventory shrinkage, buying,
distribution center costs and store occupancy costs. Store
occupancy costs include rent, amortization of leasehold
improvements, common area maintenance, property taxes and
insurance. |
|
(4) |
|
Selling and administrative expense includes store-related
expense, other than store occupancy costs, as well as
advertising, depreciation and amortization and expense
associated with operating our corporate headquarters. |
|
(5) |
|
Lower net income for fiscal 2005 reflects costs for commencement
of operations at our new larger distribution center and costs
associated with the restatement of our prior period consolidated
financial statements. |
|
(6) |
|
Same store sales for a period reflect net sales from stores
operated throughout that period as well as the corresponding
prior period; e.g., two comparable annual reporting periods for
annual comparisons. |
|
(7) |
|
Same store sales per square foot is calculated by dividing net
sales for same stores, as defined above, by the total square
footage for those stores. |
|
(8) |
|
Same store sales per store is calculated by dividing net sales
for same stores, as defined above, by total same store count. |
|
(9) |
|
Higher capital expenditures in fiscal 2005 reflect amounts paid
for a new distribution center. |
|
(10) |
|
Inventory turns equal fiscal year cost of sales divided by the
fiscal year four-quarter weighted-average cost of merchandise
inventory. |
|
(11) |
|
Working capital is defined as current assets less current
liabilities. Working capital in 2007 was impacted by higher
inventory levels at the end of the year associated with lower
than anticipated sales for the fourth quarter of fiscal 2007. |
20
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Throughout this section, our fiscal years ended
December 30, 2007, December 31, 2006 and
January 1, 2006 are referred to as fiscal 2007, fiscal 2006
and fiscal 2005, respectively. The following discussion and
analysis of our financial condition and results of operations
for fiscal 2007, fiscal 2006 and fiscal 2005 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.
Overview
We are a leading sporting goods retailer in the western United
States, operating 363 stores in 11 states under the name
Big 5 Sporting Goods at December 30, 2007. We
provide a full-line product offering in a traditional sporting
goods store format that averages approximately
11,000 square feet. Our product mix includes athletic
shoes, apparel and accessories, as well as a broad selection of
outdoor and athletic equipment for team sports, fitness,
camping, hunting, fishing, tennis, golf, snowboarding and
in-line skating.
We believe that over our
53-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 Nike, Reebok, adidas, New Balance,
Wilson, Spalding, Under Armour and Columbia. We also offer brand
name merchandise produced exclusively for us, private label
merchandise and specials on quality items we purchase through
opportunistic buys of vendor over-stock and close-out
merchandise. We reinforce our value reputation through weekly
print advertising in major and local newspapers and mailers
designed to generate customer traffic, drive net sales and build
brand awareness.
Throughout our history, we have emphasized controlled growth.
The following table summarizes our store count for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Big 5 Sporting Goods stores:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
343
|
|
|
|
324
|
|
|
|
309
|
|
New
stores(1)
|
|
|
23
|
|
|
|
19
|
|
|
|
18
|
|
Stores relocated
|
|
|
(3
|
)
|
|
|
|
|
|
|
(2
|
)
|
Stores closed
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
|
363
|
|
|
|
343
|
|
|
|
324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New stores opened per year, net
|
|
|
20
|
|
|
|
19
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Stores that are relocated are classified as new stores. Sales
from the prior location are treated as sales from a closed store
and thus are excluded from same store sales calculations. |
Executive
Summary
|
|
|
|
|
Net income for fiscal 2007 declined 8.9% to $28.1 million,
or $1.25 per diluted share, compared to $30.8 million, or
$1.35 per diluted share, for fiscal 2006. The decline was driven
primarily by lower than anticipated sales, including a reduction
in same store sales of 1.0%. Lower than anticipated sales also
resulted in an increase in selling and administrative expense as
a percentage of net sales, the effect of which was partially
offset by lower interest expense.
|
21
|
|
|
|
|
Net sales for fiscal 2007 increased 2.5% to $898.3 million.
The growth in net sales was primarily attributable to an
increase of $37.0 million in new store sales, offset by a
decrease of $9.5 million in same store sales and
$7.4 million in closed store sales.
|
|
|
|
Gross profit for fiscal 2007 represented 34.4% of net sales,
which was equal to the prior year. The favorable impact of a
10 basis point increase in product selling margins and
lower distribution center costs was offset by a reduction in
costs capitalized into inventory and higher store occupancy
expense.
|
|
|
|
Selling and administrative expense as a percentage of net sales
for fiscal 2007 increased by 80 basis points to 28.5%. The
increase was due mainly to lower than anticipated sales levels
combined with higher costs related to opening new stores and for
advertising.
|
|
|
|
Operating income for fiscal 2007 declined 9.4% to
$53.0 million, or 5.9% of net sales, compared to
$58.5 million, or 6.7% of net sales, for fiscal 2006. The
decrease as a percentage of net sales was primarily due to
negative expense leverage as a result of lower than anticipated
sales levels.
|
Results
of Operations
The following table sets forth selected items from our
consolidated statements of operations by dollar and as a
percentage of our net sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
898,292
|
|
|
|
100.0
|
%
|
|
$
|
876,805
|
|
|
|
100.0
|
%
|
|
$
|
813,978
|
|
|
|
100.0
|
%
|
Cost of
sales(1)(2)
|
|
|
589,150
|
|
|
|
65.6
|
|
|
|
575,577
|
|
|
|
65.6
|
|
|
|
534,155
|
|
|
|
65.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit(1)
|
|
|
309,142
|
|
|
|
34.4
|
|
|
|
301,228
|
|
|
|
34.4
|
|
|
|
279,823
|
|
|
|
34.4
|
|
Selling and administrative
expense(1)(3)
|
|
|
256,180
|
|
|
|
28.5
|
|
|
|
242,769
|
|
|
|
27.7
|
|
|
|
229,980
|
|
|
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
52,962
|
|
|
|
5.9
|
|
|
|
58,459
|
|
|
|
6.7
|
|
|
|
49,843
|
|
|
|
6.1
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,462
|
)
|
|
|
(0.2
|
)
|
Interest expense
|
|
|
6,614
|
|
|
|
0.7
|
|
|
|
7,516
|
|
|
|
0.9
|
|
|
|
5,839
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
46,348
|
|
|
|
5.2
|
|
|
|
50,943
|
|
|
|
5.8
|
|
|
|
45,466
|
|
|
|
5.6
|
|
Income taxes
|
|
|
18,257
|
|
|
|
2.1
|
|
|
|
20,108
|
|
|
|
2.3
|
|
|
|
17,927
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
28,091
|
|
|
|
3.1
|
%
|
|
$
|
30,835
|
|
|
|
3.5
|
%
|
|
$
|
27,539
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales change
|
|
|
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
7.7
|
%
|
|
|
|
|
|
|
4.1
|
%
|
Same store sales
change(4)
|
|
|
|
|
|
|
(1.0
|
)%
|
|
|
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
2.4
|
%
|
Net income
change(5)
|
|
|
|
|
|
|
(8.9
|
)%
|
|
|
|
|
|
|
12.0
|
%
|
|
|
|
|
|
|
(17.8
|
)%
|
|
|
|
(1) |
|
Historically, we have presented total depreciation and
amortization expense separately on the face of our consolidated
statement of operations and our corporate headquarters
occupancy costs within cost of sales. In the fourth quarter of
fiscal 2007, we changed our classification of distribution
center and store occupancy depreciation and amortization expense
to cost of sales and store equipment and corporate
headquarters depreciation and amortization expense to
selling and administrative expense. Depreciation and
amortization expense is no longer presented separately in the
consolidated statement of operations. The corporate
headquarters occupancy costs are now included in selling
and administrative expense. We reclassified prior period
consolidated statements of operations data and related
discussion and analysis to conform to the current year
presentation, which increased cost of sales and decreased gross
profit by $9.7 million and $8.4 million for fiscal
2006 and 2005, respectively, and increased selling and
administrative expense by $7.4 million and
$7.1 million for fiscal 2006 and 2005, respectively, from
amounts previously reported. This reclassification had no effect
on the Companys previously reported operating or net
income, consolidated balance sheets, consolidated |
22
|
|
|
|
|
statements of stockholders equity and consolidated
statements of cash flows, and is not considered material to any
previously reported consolidated financial statements for any of
the years presented. |
|
(2) |
|
Cost of sales includes the cost of merchandise, net of discounts
or allowances earned, freight, inventory shrinkage, buying,
distribution center costs and store occupancy costs. Store
occupancy costs include rent, amortization of leasehold
improvements, common area maintenance, property taxes and
insurance. |
|
(3) |
|
Selling and administrative expense includes store-related
expense, other than store occupancy costs, as well as
advertising, depreciation and amortization and expense
associated with operating our corporate headquarters. |
|
(4) |
|
Same store sales for a period reflect net sales from stores
operated throughout that period as well as the corresponding
prior period; e.g., two comparable annual reporting periods for
annual comparisons. |
|
(5) |
|
Lower net income for fiscal 2005 reflects costs for commencement
of operations at our new larger distribution center and costs
associated with the restatement of our prior period consolidated
financial statements. |
Fiscal
2007 Compared to Fiscal 2006
Net Sales. Net sales increased by
$21.5 million, or 2.5%, to $898.3 million for fiscal
2007 from $876.8 million for fiscal 2006. The growth in net
sales was primarily attributable to an increase of
$37.0 million in new store sales, offset by a decrease of
$9.5 million in same store sales and $7.4 million in
closed store sales. The increase in new store sales reflected
the opening of 39 new stores, net of closures and relocations,
since January 1, 2006. Same store sales decreased 1.0% for
fiscal 2007 compared with fiscal 2006. This decrease in same
store sales for fiscal 2007 was primarily attributable to a
challenging consumer environment impacted by high gas prices,
increased home mortgage defaults and other macroeconomic
concerns, which in turn weakened customer traffic into our
retail stores. This challenging consumer environment is
continuing into fiscal 2008. Additionally, our 2007 net
sales results reflected a significant deterioration in the
performance of the roller shoe product category, which declined
approximately $3.6 million from the prior year. Roller shoe
sales are expected to continue to weaken in fiscal 2008. We
opened 20 new stores, net of closures and relocations, in fiscal
2007, increasing our store count at the end of fiscal 2007 to
363 versus 343 at the end of fiscal 2006.
Gross Profit. Gross profit increased by
$7.9 million, or 2.6%, to $309.1 million, or 34.4% of
net sales, in fiscal 2007 from $301.2 million, or 34.4% of
net sales, in fiscal 2006. The increase in gross profit was
primarily attributable to the following:
|
|
|
|
|
Product selling margins for fiscal 2007, which exclude buying,
store occupancy and distribution center costs, increased
approximately 10 basis points versus fiscal 2006, primarily
due to sales of winter merchandise earlier in the winter season
at higher margins and improved margins for various other product
categories. Margins in fiscal 2007 for the roller shoe product
category were lower versus the prior year and are expected to
continue to decline in fiscal 2008.
|
|
|
|
Distribution center costs for fiscal 2007 decreased by
$3.9 million, or 57 basis points, due primarily to
additional costs in the first quarter of fiscal 2006 associated
with completing the transition to our new distribution center
and operational efficiencies realized in fiscal 2007 in our new
distribution center. Distribution center costs capitalized into
inventory for fiscal 2007 decreased by $3.2 million, or
36 basis points, due primarily to higher costs in the prior
year associated with the transition to our new larger
distribution center.
|
|
|
|
Store occupancy costs for fiscal 2007 increased by
$4.1 million, or 29 basis points, due mainly to new
store openings, higher lease renewal costs and increases in
property maintenance fees.
|
|
|
|
Inventory reserve provisions for fiscal 2007 increased
$1.2 million, or 13 basis points, due primarily to
higher provisions for the realizability of the value of returned
goods inventory and inventory shrink.
|
Selling and Administrative Expense. Selling
and administrative expense increased by $13.4 million, or
5.5%, to $256.2 million, or 28.5% of net sales, in fiscal
2007 from $242.8 million, or 27.7% of net sales, in fiscal
2006. The increase in selling and administrative expense was
primarily attributable to the following:
|
|
|
|
|
Store-related expense, excluding occupancy, increased by
$7.6 million, or 44 basis points, due primarily to an
increase in store count and an increase of $1.3 million in
purchasing card transaction fees as a result of
|
23
|
|
|
|
|
higher sales and the trend toward increased purchasing card
usage by consumers, combined with the favorable impact in fiscal
2006 of $0.7 million resulting from the settlement of a
class-action
lawsuit related to purchasing card fees.
|
|
|
|
|
|
Advertising expense for fiscal 2007 increased by
$4.5 million to support overall sales growth and to provide
advertising coverage for our new stores.
|
|
|
|
Administrative expense for fiscal 2007 increased
$1.4 million, reflecting increased labor-related costs to
support our continuing growth and financial reporting
initiatives. The increase in administrative expense includes a
reduction in professional fees of $1.9 million versus the
prior year. Professional fees in fiscal 2006 were higher due
primarily to legal and audit fees incurred to complete the
Companys fiscal 2005 internal control and financial
statement audits.
|
|
|
|
The increase in selling and administrative expense as a
percentage of net sales for fiscal 2007 compared to fiscal 2006
is due in part to softer sales conditions in fiscal 2007.
|
Interest Expense. Interest expense decreased
by $0.9 million, or 12.0%, to $6.6 million in fiscal
2007 from $7.5 million in fiscal 2006. The decrease in
interest expense primarily reflects lower average debt levels in
fiscal 2007 of approximately $10.6 million.
Fiscal
2006 Compared to Fiscal 2005
Net Sales. Net sales increased by
$62.8 million, or 7.7%, to $876.8 million for fiscal
2006 from $814.0 million for fiscal 2005. The growth in net
sales was primarily attributable to an increase of
$31.9 million in same store sales and an increase of
$32.3 million in new store sales, net of sales for closed
stores, which reflected the opening of 35 new stores, net of
relocations, since January 2, 2005. Net sales for the
fourth quarter of fiscal 2005 included $1.2 million related
to our initial recognition of gift card breakage (gift cards
sold and store merchandise credits issued where the likelihood
of redemption by the customer is remote). Gift card breakage for
fiscal 2006 totaled $0.4 million, of which
$0.1 million was recorded in the fourth quarter. Same store
sales increased 4.0% for fiscal 2006 compared with fiscal 2005.
Store count at the end of fiscal 2006 was 343 versus 324 at the
end of fiscal 2005 as we opened 19 new stores in fiscal 2006.
Gross Profit. Gross profit increased by
$21.4 million, or 7.6%, to $301.2 million, or 34.4% of
net sales, in fiscal 2006 from $279.8 million, or 34.4% of
net sales, in fiscal 2005. The increase in gross profit was
primarily attributable to the following:
|
|
|
|
|
Product selling margins for fiscal 2006, which exclude buying,
store occupancy and distribution center costs, increased
20 basis points versus fiscal 2005.
|
|
|
|
Distribution center costs for fiscal 2006 increased by
$7.7 million, or 54 basis points, due primarily to the
commencement of operations at our new larger distribution
center, higher labor-related costs and increased trucking
expense, related in part to higher gasoline prices. Depreciation
expense increased $1.8 million over fiscal 2005.
Distribution center costs capitalized into inventory for fiscal
2006 decreased $0.8 million, or 13 basis points,
compared to fiscal 2005.
|
|
|
|
Store occupancy costs increased by $4.0 million over fiscal
2005, due mainly to new store openings. Store occupancy costs as
a percentage of net sales decreased by 3 basis points due
to higher sales in fiscal 2006.
|
|
|
|
Inventory reserve provisions for fiscal 2006 decreased
$3.0 million, or 45 basis points, from the prior year
due primarily to a lower provision for shrink offset partially
by an increased provision for the realizability of the value of
returned goods.
|
Selling and Administrative Expense. Selling
and administrative expense increased by $12.8 million, or
5.6%, to $242.8 million, or 27.7% of net sales, in fiscal
2006 from $230.0 million, or 28.3% of net sales, in fiscal
2005. The increase in selling and administrative costs was
primarily attributable to the following:
|
|
|
|
|
Store-related expense, excluding occupancy, increased by
$7.1 million due primarily to an increase in store count,
but declined 46 basis points as a percentage of net sales
as store labor savings, due in part to
|
24
merchandise delivery efficiencies provided by our new
distribution center and higher sales for fiscal 2006, allowed
leveraging of this expense.
|
|
|
|
|
Store-related expense in fiscal 2006 was favorably impacted by
our receipt of $0.7 million resulting from the settlement
of a
class-action
lawsuit relating to purchasing card fees.
|
|
|
|
Advertising expense increased by $1.7 million in fiscal
2006 due primarily to increased newspaper advertising costs, but
declined 22 basis points as a percentage of net sales.
|
|
|
|
Administrative expense for fiscal 2006 also reflected increased
labor-related costs of $2.5 million, or 9 basis
points, to support our continuing growth and internal control
initiatives, and stock-based compensation expense of
$2.2 million, or 25 basis points, due to our
implementation of Statement of Financial Accounting Standards
(SFAS) No. 123(R) on January 2, 2006.
|
|
|
|
Legal and audit expense decreased by $1.2 million, or
20 basis points, in fiscal 2006 as a result of higher costs
incurred in fiscal 2005 associated with the restatement of our
prior period consolidated financial statements.
|
Other Income. In fiscal 2005, we recorded
proceeds from the settlement of a claim related to the required
relocation of one of our stores, which was located on land
acquired by a city redevelopment agency through eminent domain
proceedings. Settlement proceeds totaled $1.8 million, of
which $1.4 million was recorded as other income and
$0.4 million was recorded in selling and administrative
expense primarily as a reduction in legal fees incurred in
connection with this eminent domain proceeding.
Interest Expense. Interest expense increased
by $1.7 million, or 28.7%, to $7.5 million in fiscal
2006 from $5.8 million in fiscal 2005. The increase in
interest expense primarily reflects the impact of higher
short-term interest rates partially offset by lower average debt
levels.
Liquidity
and Capital Resources
Our principal liquidity requirements are for working capital,
capital expenditures, stock repurchases and cash dividends. We
fund our liquidity requirements primarily through cash on hand,
cash flow from operations and borrowings from our revolving
credit facility. We believe our cash on hand, future funds from
operations and borrowings from our revolving credit facility
will be sufficient to finance anticipated expansion plans and
strategic initiatives for at least the next twelve months. There
is no assurance, however, that we will be able to generate
sufficient cash flow or that we will be able to maintain our
ability to borrow under our revolving credit facility.
We ended fiscal 2007 with $9.7 million of cash and cash
equivalents compared with $5.1 million in fiscal 2006. The
following table summarizes our cash flows from operating,
investing and financing activities for each of the past three
fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Total cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
24,664
|
|
|
$
|
44,204
|
|
|
$
|
32,196
|
|
Investing activities
|
|
|
(20,769
|
)
|
|
|
(17,986
|
)
|
|
|
(34,648
|
)
|
Financing activities
|
|
|
701
|
|
|
|
(27,127
|
)
|
|
|
1,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
4,596
|
|
|
$
|
(909
|
)
|
|
$
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The seasonality of our business historically provides greater
cash flow from operations during the holiday and winter selling
season, with fourth quarter sales traditionally generating the
strongest profits of our fiscal year. Typically, we use
operating cash flow and borrowings under our revolving credit
facility to fund inventory increases in anticipation of the
holidays and our inventory levels are at their highest in the
months leading up to Christmas. As holiday sales significantly
reduce inventory levels, this reduction, combined with net
income, historically provides us with strong cash flow from
operations at the end of our fiscal year.
25
Our cash flow for fiscal 2007 was below fiscal 2006 which
contributed to higher long-term debt levels year over year. For
fiscal 2007 we purchased larger quantities of inventory earlier
in the year to insure adequate product availability for the
holiday and winter selling season. Accounts payable attributable
to such inventory purchases were paid by fiscal
2007 year-end resulting in substantially lower accounts
payable leverage compared to the prior year. The higher
inventory levels and timing of purchases combined with lower
than anticipated sales in the fourth quarter of fiscal 2007
resulted in reduced operating cash flow for the year. Also
contributing to the higher debt levels for fiscal 2007 were
amounts paid to repurchase our stock and higher capital
expenditures.
Operating Activities. Net cash provided by
operating activities for fiscal 2007, fiscal 2006 and fiscal
2005 was $24.7 million, $44.2 million and
$32.2 million, respectively. The decrease in cash provided
by operating activities for fiscal 2007 compared to fiscal 2006
primarily reflects lower net income in fiscal 2007 and increased
funding for working capital versus the prior year. Working
capital, the excess of current assets over current liabilities,
was $130.0 million at the end of fiscal 2007, up from
$101.5 million at the end of fiscal 2006. The increase in
working capital is primarily due to higher levels of merchandise
inventories at the end of the year associated with lower than
anticipated sales for the fourth quarter of fiscal 2007. This
cash flow effect of purchasing more merchandise inventory and
paying for the inventory earlier in the year, thereby reducing
accounts payable, was partially offset by a reduction in prepaid
expense due primarily to the timing of rent payments.
Investing Activities. Net cash used in
investing activities for fiscal 2007, fiscal 2006 and fiscal
2005 was $20.8 million, $18.0 million and
$34.6 million, respectively. Capital expenditures,
excluding non-cash acquisitions, for fiscal 2007, fiscal 2006
and fiscal 2005 were $20.8 million, $18.2 million and
$34.7 million, respectively. Capital spending primarily
reflects new store openings, store-related remodeling,
distribution center costs and computer hardware and software
purchases. Capital expenditures by category as a percentage of
total capital expenditures for each of the last three fiscal
years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
New stores
|
|
|
55.1
|
%
|
|
|
53.8
|
%
|
|
|
28.9
|
%
|
Store-related remodels
|
|
|
11.4
|
%
|
|
|
11.3
|
%
|
|
|
10.1
|
%
|
Distribution center
|
|
|
12.3
|
%
|
|
|
28.7
|
%
|
|
|
50.9
|
%
|
Computer hardware, software and other
|
|
|
21.2
|
%
|
|
|
6.2
|
%
|
|
|
10.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For fiscal 2007 and 2006, capital expenditures were primarily
for opening new stores including 20 new stores, net of closures
and relocations, in fiscal 2007 and 19 new stores in fiscal
2006. Capital expenditures in fiscal 2007 also included amounts
related to the implementation of computer system improvements to
support our infrastructure. Higher capital expenditures in
fiscal 2005 included amounts related to opening our new
distribution center. Capital expenditures for new stores were
lower in fiscal 2005, reflecting the opening of 15 new stores,
net of closures and relocations.
Financing Activities. Net cash provided by
financing activities for fiscal 2007 was $0.7 million, net
cash used in financing activities for fiscal 2006 was
$27.1 million and net cash provided by financing activities
for fiscal 2005 was $1.8 million. For fiscal 2007, cash
provided by borrowings under our revolving credit facility was
used primarily to repurchase stock and pay dividends. For fiscal
2006, cash was used to pay down borrowings under our revolving
credit facility, prepay our outstanding term loan and pay
dividends. For fiscal 2005, borrowings under our revolving
credit facility increased to fund capital expenditures for our
new distribution center, pay down our term loan and pay
dividends.
As of December 30, 2007, we had revolving credit borrowings
of $103.4 million and letter of credit commitments of
$0.4 million outstanding under our financing agreement.
These balances compare to borrowings of $77.1 million and
letter of credit commitments of $0.2 million outstanding
under our financing agreement as of December 31, 2006. We
prepaid $5.0 million of our term loan in the second quarter
of fiscal 2006 and we prepaid the remaining $8.3 million of
our term loan in the fourth quarter of fiscal 2006.
Our revolving credit facility balances have historically
increased from the end of the first quarter to the end of the
second quarter and from the end of the third quarter to the week
of Thanksgiving. The historical increases in our
26
revolving credit facility balances reflect the
build-up in
inventory in anticipation of our summer and winter selling
seasons. Revolving credit facility balances typically fall from
the week of Thanksgiving to the end of the fourth quarter,
reflecting inventory sales during the holiday and winter selling
season. However, in the fourth quarter of fiscal 2007, debt
levels did not decrease as much as expected due to lower than
anticipated sales levels.
Quarterly dividend payments of $0.07 per share were paid during
fiscal 2005 and the first quarter of fiscal 2006. Beginning in
the second quarter of fiscal 2006, our Board of Directors
authorized an increase of the dividend to an annual rate of
$0.36 per share of outstanding common stock. Quarterly dividend
payments of $0.09 per share were paid in the remainder of fiscal
2006 and during fiscal 2007. In the first quarter of fiscal
2008, our Board of Directors declared a quarterly cash dividend
of $0.09 per share of outstanding common stock, which will be
paid on March 14, 2008 to stockholders of record as of
February 29, 2008.
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
the current market price of our stock, to offset dilution
related to equity-based compensation plans and optimizing our
capital structure.
During the second quarter of fiscal 2006, our Board of Directors
authorized a share repurchase program for the purchase of up to
$15.0 million of our common stock. Under this program, we
repurchased 673,680 and 64,310 shares of our common stock
for $13.7 million and $1.3 million during fiscal 2007
and fiscal 2006, respectively, at which time the program was
completed.
During the fourth quarter of fiscal 2007, our Board of Directors
authorized an additional share repurchase program for the
purchase of up to $20.0 million of our common stock. Under
the authorization, 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 (SEC). However,
the timing and amount of such purchases, if any, would be at the
discretion of management, and would depend upon market
conditions and other considerations. Under this program, we
repurchased 30,096 shares of our common stock for
$0.5 million in fiscal 2007.
Future Capital Requirements. We had cash on
hand of $9.7 million at December 30, 2007. We expect
capital expenditures for fiscal 2008, excluding non-cash
acquisitions, to range from approximately $23.0 million to
$24.0 million, primarily to fund the opening of
approximately 20 new stores, net of closures and relocations,
store-related remodeling, distribution center equipment,
corporate office and distribution center improvements and
computer hardware and software purchases. As of
February 29, 2008, a total of $18.3 million remained
available for share repurchases under our share repurchase
program. We consider several factors in determining when and if
we make share repurchases including, among other things, our
alternative cash requirements and the market price of our stock.
In the first quarter of fiscal 2008, our Board of Directors
declared a quarterly cash dividend of $0.09 per share of
outstanding common stock, which will be paid on March 14,
2008 to stockholders of record as of February 29, 2008.
We believe we will be able to fund our future cash requirements
from cash on hand, operating cash flows and borrowings from our
revolving credit facility. We believe these sources of funds
will be sufficient to continue our operations and planned
capital expenditures, satisfy our payments under debt
obligations, repurchase our stock and pay quarterly dividends
for at least the next twelve months. However, our ability to
satisfy such cash requirements depends upon our future
performance, which in turn is subject to general economic
conditions and regional risks, and to financial, business and
other factors affecting our operations, including factors beyond
our control. See Item 1A, Risk Factors included
in this Annual Report on
Form 10-K.
If we are unable to generate sufficient cash flow from
operations to meet our obligations and commitments, we will be
required to refinance or restructure our indebtedness or raise
additional debt or equity capital. Additionally, we may be
required to sell material assets or operations, discontinue
repurchasing our stock, suspend dividend payments or delay or
forego expansion opportunities. We might not be able to effect
successful alternative strategies on satisfactory terms, if at
all.
Contractual Obligations and Other
Commitments. Our material off-balance sheet
arrangements are operating lease obligations and letters of
credit. We excluded these items from the balance sheet in
accordance with accounting principles generally accepted in the
United States of America (GAAP).
27
Our future obligations and commitments as of December 30,
2007, include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
3-5
|
|
|
After 5
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
|
(In thousands)
|
|
|
Capital lease obligations
|
|
$
|
4,410
|
|
|
$
|
1,845
|
|
|
$
|
1,913
|
|
|
$
|
431
|
|
|
$
|
221
|
|
Lease commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease commitments
|
|
|
312,108
|
|
|
|
53,159
|
|
|
|
91,902
|
|
|
|
67,272
|
|
|
|
99,775
|
|
Other occupancy costs
|
|
|
67,505
|
|
|
|
11,205
|
|
|
|
19,751
|
|
|
|
14,805
|
|
|
|
21,744
|
|
Other liabilities
|
|
|
2,911
|
|
|
|
350
|
|
|
|
700
|
|
|
|
700
|
|
|
|
1,161
|
|
Revolving credit facility
|
|
|
103,369
|
|
|
|
|
|
|
|
|
|
|
|
103,369
|
|
|
|
|
|
Letters of credit
|
|
|
420
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
490,723
|
|
|
$
|
66,979
|
|
|
$
|
114,266
|
|
|
$
|
186,577
|
|
|
$
|
122,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic interest payments on the revolving credit facility are
not included in the table above because interest expense is
based on a variable index, either LIBOR or the JP Morgan Chase
Bank prime lending rate, and the balance of the revolving credit
facility fluctuates daily depending on operating, investing and
financing cash flows. Assuming no changes in our revolving
credit facility debt or interest rates as of fiscal
2007 year-end, our projected interest payments in fiscal
2008 or any fiscal year would be approximately $6.4 million.
Capital lease obligations consist principally of leases for our
distribution center delivery trailers and management information
systems hardware. Payments for these lease obligations are
provided for by cash flows generated from operations or through
borrowings from our revolving credit facility. Operating lease
commitments consist principally of leases for our retail store
facilities, distribution center and corporate office. These
leases frequently include options which permit us to extend the
terms beyond the initial fixed lease term. With respect to most
of those leases, we intend to renegotiate those leases as they
expire. Other occupancy costs include property maintenance fees
and property taxes for our stores, distribution center and
corporate headquarters. Other liabilities consist principally of
an employment agreement obligation for Robert W. Miller,
co-founder of the Company, and an asset retirement obligation
related to the removal of leasehold improvements from our stores
upon termination of our store leases. Letters of credit are
related primarily to importing merchandise and funding insurance
program liabilities.
In the ordinary course of business, we enter into arrangements
with vendors to purchase merchandise in advance of expected
delivery. Because most of these purchase orders do not contain
any termination payments or other penalties if cancelled, they
are not included as outstanding contractual obligations.
Financing Agreement. On December 15,
2004, we entered into a $160.0 million financing agreement
with The CIT Group/Business Credit, Inc. and a syndicate of
other lenders. On May 24, 2006, we amended the financing
agreement to, among other things, increase the line of credit to
$175.0 million, consisting of a
non-amortizing
$161.7 million revolving credit facility and an amortizing
term loan balance of $13.3 million. The amortizing term
loan balance was prepaid in full during 2006, and the revolving
credit facility commitment increased $13.3 million from
$161.7 million to $175.0 million.
The initial termination date of the revolving credit facility is
March 20, 2011 (subject to annual extensions thereafter).
The revolving credit facility may be terminated by the lenders
by giving at least 90 days prior written notice before any
anniversary date, commencing with its anniversary date on
March 20, 2011. We may terminate the revolving credit
facility by giving at least 30 days prior written notice,
provided that if we terminate prior to March 20, 2011, we
must pay an early termination fee. Unless it is terminated, the
revolving credit facility will continue on an annual basis from
anniversary date to anniversary date beginning on March 21,
2011.
The revolving credit facility bears interest at various rates
based on our overall borrowings, with a floor of LIBOR plus
1.00% or the JP Morgan Chase Bank prime lending rate and a
ceiling of LIBOR plus 1.50% or the JP Morgan Chase Bank prime
lending rate.
28
The following table provides information about borrowings under
our financing agreement as of and for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Fiscal year-end balance
|
|
$
|
103,369
|
|
|
$
|
77,086
|
|
Average interest rate
|
|
|
6.65
|
%
|
|
|
6.74
|
%
|
Maximum outstanding during the year
|
|
$
|
142,071
|
|
|
$
|
129,611
|
|
Average outstanding during the year
|
|
$
|
93,420
|
|
|
$
|
103,997
|
|
Our financing agreement is secured by a first priority security
interest in substantially all of our assets. Our financing
agreement contains various financial and other covenants,
including covenants that require us to maintain a fixed-charge
coverage ratio of not less than 1.0 to 1.0 in certain
circumstances, restrict our ability to incur indebtedness or to
create various liens and restrict the amount of capital
expenditures that we may incur. Our financing agreement also
restricts our ability to engage in mergers or acquisitions, sell
assets, repurchase our stock or pay dividends. We may repurchase
our stock or declare a dividend only if no default or event of
default exists and a default is not expected to result from the
payment of the dividend and certain other criteria are met,
which may include the maintenance of certain financial ratios.
We are currently in compliance with all covenants under our
financing agreement. If we fail to make any required payment
under our financing agreement or if we otherwise default under
this instrument, our debt may be accelerated under this
agreement. This acceleration could also result in the
acceleration of other indebtedness that we may have outstanding
at that time.
Critical
Accounting Estimates
Our significant accounting policies are described in Note 2
of the consolidated financial statements included elsewhere in
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, revenues and expenses. Our estimates are
evaluated on an ongoing basis and drawn from historical
experience, current trends and other factors that management
believes to be relevant at the time our consolidated financial
statements are prepared. Actual results may differ from our
estimates. Management believes that the following accounting
estimates reflect the more significant judgments and estimates
we use in preparing our consolidated financial statements.
Valuation
of Merchandise Inventories
Our merchandise inventories are made up of finished goods and
are valued at the lower of cost or market using the
weighted-average cost method that approximates the
first-in,
first-out (FIFO) method. Average cost includes the
direct purchase price of merchandise inventory and allocated
overhead costs associated with our distribution center.
Management regularly reviews inventories to determine if the
carrying value of the inventory exceeds market value and we
record a reserve to reduce the carrying value to its market
price, as necessary. Because of our merchandise mix, we have not
historically experienced significant occurrences of
obsolescence. However, 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 our expectations. We are
not aware of any events or changes in demand or price that would
indicate to us that our inventory valuation may be materially
inaccurate at this time.
Inventory shrinkage is accrued as a percentage of merchandise
sales based on historical inventory shrinkage trends. We perform
physical inventories at each of our stores at least once per
year and cycle count inventories encompassing all inventory
items at least once every quarter at our distribution center.
The reserve for inventory shrinkage represents an estimate for
inventory shrinkage for each store since the last physical
inventory date through the reporting date. Estimates by store
and in the aggregate are impacted by internal and external
factors and can vary from actual results.
As of December 30, 2007 and December 31, 2006, our
inventory valuation reserves represent less than 2% of our
merchandise inventory.
29
Vendor
Allowances
We receive allowances for cooperative advertising and volume
purchase rebates earned through programs with certain vendors.
We establish a receivable for these allowances which are earned
but not yet received. Amounts relating to the purchase of
merchandise are treated as a reduction of inventory and reduce
cost of goods sold as the merchandise is sold. Amounts that
represent a reimbursement of costs incurred, such as
advertising, are recorded as a reduction in selling and
administrative expense. We perform detailed analyses to
determine the appropriate amount of vendor allowances to be
applied as a reduction of merchandise cost and selling and
administrative expense.
Valuation
of Long-Lived Assets and Goodwill
We review our long-lived assets and goodwill for impairment
annually or 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 for which there are identifiable cash flows, usually at
the store level. The carrying amount of a long-lived asset is
not considered recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use of the
asset. If the asset is determined not to be recoverable, then it
is considered to be impaired and the impairment to be recognized
is the amount by which the carrying amount of the asset exceeds
the fair value of the asset, as defined in
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. During fiscal years 2007,
2006 and 2005, our evaluation resulted in long-lived asset
impairment charges which were not material.
Goodwill is not amortized but evaluated for impairment annually
or whenever events or changes in circumstances indicate that the
value may not be recoverable. Goodwill is tested for impairment
by comparing the fair value of the reporting unit to its
carrying amount. The fair value of the reporting unit for the
purpose of impairment testing is based upon our market
capitalization, taking into consideration the current market
price of our stock, and the carrying amount of the reporting
unit is based upon our net assets. During fiscal years 2007,
2006 and 2005, our evaluation concluded that goodwill was not
impaired.
Stock-Based
Compensation Plan
Beginning in fiscal 2006, we account for stock-based
compensation in accordance with fair value recognition
provisions of SFAS No. 123(R), Share-Based
Payment. We use the Black-Scholes option pricing model to
estimate the fair value at the date of grant of stock options
granted under our equity and stock incentive performance plan
which requires the input of assumptions. These fair value
assumptions include estimating the future volatility of our
stock price, expected dividend yield, risk-free interest rate,
the market price of our stock and the expected term in which
employees will retain their vested stock options before
exercising them. Additionally, we estimate forfeiture rates
based upon historical employee turnover patterns to determine
our estimates of compensation expense. Changes in these
assumptions can affect the fair value estimate of the options
and consequently the related compensation expense recognized in
the consolidated statements of operations.
Self-Insurance
Reserves
We maintain self-insurance programs for our workers
compensation liability risks. We are self-insured up to
specified per-occurrence limits and maintain insurance coverage
for losses in excess of specified amounts. Estimated costs under
these 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, including the severity or frequency of
claims, differ from our estimates, our financial results may be
significantly impacted.
Seasonality
and Impact of Inflation
We experience seasonal fluctuations in our net sales and
operating results and typically generate higher operating income
in the fourth quarter, which includes the holiday selling season
as well as the winter sports selling season. As a result, we
incur significant additional expense in the fourth quarter due
to normally higher purchase
30
volumes and increased staffing. Seasonality influences our
buying patterns which directly impacts our merchandise and
accounts payable levels and cash flows. We purchase merchandise
for seasonal activities in advance of a season. If we
miscalculate the demand for our products generally or for our
product mix during the fourth quarter, our net sales can
decline, resulting in excess inventory, which can harm our
financial performance. Because a larger portion of our operating
income is typically derived from our fourth quarter net sales, a
shortfall in expected fourth quarter net sales can negatively
impact our annual operating results. Our net sales for the
fourth quarter of fiscal 2007 were lower than expected which
contributed to lower operating income compared to the same
period last year and higher inventory levels.
We do not believe that inflation had a material impact on our
operating results for the three preceding fiscal years. There
can be no assurance, however, that our operating results will
not be adversely affected by inflation in the future. In fiscal
2008 we are experiencing increasing inflation in the purchase
cost of certain products. If we are unable to adjust our selling
prices then our product selling margins will decline, which
could adversely impact our operating results.
Recently
Issued Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurements. This standard provides guidance for using fair
value to measure assets and liabilities. The standard also
responds to investors requests for expanded information
about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair
value, and the effect of fair value measurements on earnings.
The standard applies whenever other standards require (or
permit) assets or liabilities to be measured at fair value, but
does not expand the use of fair value in any new circumstances.
There are numerous previously issued statements dealing with
fair values that are amended by SFAS No. 157.
SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007.
In December 2007, the FASB also issued Staff Position
(FSP)
FAS 157-2,
Effective Date of FASB Statement No. 157, which
delays the effective date of SFAS No. 157 to fiscal
years and interim periods within those fiscal years beginning
after November 15, 2008, for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized
or disclosed at fair value in the financial statements on a
recurring basis (at least annually). We are evaluating the
impact, if any, that the adoption of SFAS No. 157 will
have on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115. SFAS No. 159 provides companies with
an option to report many financial instruments and certain other
items at fair value that are not currently required to be
measured at fair value. The objective of SFAS No. 159
is to reduce both complexity in accounting for financial
instruments and the volatility in earnings caused by measuring
related assets and liabilities differently. The FASB believes
that SFAS No. 159 helps to mitigate accounting-induced
volatility by enabling companies to report related assets and
liabilities at fair value, which would likely reduce the need
for companies to comply with detailed rules for hedge
accounting. SFAS No. 159 also establishes presentation
and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities, and would require
entities to display the fair value of those assets and
liabilities for which the company has chosen to use fair value
on the face of the balance sheet. The new statement does not
eliminate disclosure requirements included in other accounting
standards, including requirements for disclosures about fair
value measurements included in SFAS No. 157, Fair
Value Measurements. SFAS No. 159 is effective as
of the beginning of an entitys first fiscal year beginning
after November 15, 2007. We are in the process of
evaluating the impact, if any, that the adoption of
SFAS No. 159 will have on our consolidated financial
statements.
In December 2007, the SEC issued Staff Accounting
Bulletin No. 110 (SAB 110), which
expresses the views of the SEC staff regarding the use of a
simplified method, as discussed in the previously
issued SAB 107, in developing an estimate of expected term
of plain vanilla share options in accordance with
SFAS No. 123(R), Share-Based Payment. In
particular, the SEC staff indicated in SAB 107 that it will
accept a companys election to use the simplified method,
regardless of whether the company has sufficient information to
make more refined estimates of expected term. At the time
SAB 107 was issued, the SEC staff believed that more
detailed external information about employee exercise behavior
(e.g., employee exercise patterns by industry
and/or other
categories of companies) would, over time, become readily
available to companies. Therefore, the SEC staff stated in
SAB 107
31
that it would not expect a company to use the simplified method
for share option grants after December 31, 2007. The SEC
staff understands that such detailed information about employee
exercise behavior may not be widely available by
December 31, 2007. Accordingly, the SEC staff will continue
to accept, under certain circumstances, the use of the
simplified method beyond December 31, 2007. Upon our
adoption of SFAS No. 123(R), we elected to use, and
are currently using, the simplified method to estimate our
expected term. We are evaluating whether or not to continue to
use the simplified method, which will depend upon whether or not
sufficient exercise history exists upon which to base an
estimate, in addition to how easily peer group information may
be obtained. The issuance of SAB 110 did not impact our
consolidated financial statements for fiscal 2007.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations, which replaces
SFAS No. 141, Business Combinations.
SFAS No. 141(R) establishes principles and
requirements for how an acquiring entity in a business
combination would recognize and measure in its financial
statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree;
recognizes and measures any goodwill acquired in the business
combination or a gain from a bargain purchase; and determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141(R) retains certain
fundamental requirements of SFAS No. 141, but also
clarifies the definition of an acquirer in a business
combination, and expands its scope to apply to all transactions
and events in which one entity obtains control over one or more
other businesses. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. We do not
expect that the issuance of SFAS No. 141(R) will have
an impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51, which
establishes accounting and reporting for noncontrolling
interests, referred to in current GAAP as minority interests, in
a subsidiary and for the deconsolidation of a subsidiary. Under
SFAS No. 160, noncontrolling interests shall be
reported as equity in the consolidated financial statements. On
the statement of operations, SFAS No. 160 requires
disclosure of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest,
thereby eliminating diversity in practice and providing
transparency in disclosure. SFAS No. 160 also
simplifies accounting standards by establishing a single method
of accounting for changes in a parents ownership interest
in a subsidiary that do not result in deconsolidation; and
requires that, when a subsidiary is deconsolidated, a parent
will recognize gain or loss in net income.
SFAS No. 160 further requires expanded disclosures
surrounding the interests of the parents owners and the
interests of the noncontrolling owners of a subsidiary. This
Statement is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008. This Statement shall be applied
prospectively as of the beginning of the fiscal year in which
this Statement is initially applied, except for the presentation
and disclosure requirements. The presentation and disclosure
requirements shall be applied retrospectively for all periods
presented. We do not expect that the issuance of
SFAS No. 160 will have an impact on our consolidated
financial statements.
Forward-Looking
Statements
This document includes certain forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
relate to, among other things, our financial condition, our
results of operations, our growth strategy and the business of
our company generally. In some cases, you can identify such
statements by terminology such as may,
could, project, estimate,
potential, continue, should,
expects, plans, anticipates,
believes, intends or other such
terminology. These forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause
our actual results in future periods to differ materially from
forecasted results. These risks and uncertainties include, among
other things, continued or worsening weakness in the consumer
spending environment, the competitive environment in the
sporting goods industry in general and in our specific market
areas, inflation, product availability and growth opportunities,
seasonal fluctuations, weather conditions, changes in cost of
goods, operating expense fluctuations, disruption in product
flow or increased costs related to distribution center
operations, changes in interest rates and economic conditions in
general. Those and other risks and uncertainties are more fully
described in Item 1A, Risk Factors in this
report and other risks and uncertainties more fully described in
our other filings with the SEC. We caution that the risk factors
set forth in this report are not exclusive. In addition, we
32
conduct our business in a highly competitive and rapidly
changing environment. Accordingly, new risk factors may arise.
It is not possible for management to predict all such risk
factors, nor to assess the impact of all such risk factors on
our business or the extent to which any individual risk factor,
or combination of factors, may cause results to differ
materially from those contained in any forward-looking
statement. We undertake no obligation to revise or update any
forward-looking statement that may be made from time to time by
us or on our behalf.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are subject to risks resulting from interest rate
fluctuations since interest on our borrowings under our
financing agreement are based on variable rates. If the LIBOR
rate were to increase 1.0% in fiscal 2008 as compared to the
rate at December 30, 2007, our interest expense for fiscal
2008 would increase $1.0 million based on the outstanding
balance of our borrowings under our financing agreement at
December 30, 2007. We do not hold any derivative
instruments and do not engage in foreign currency transactions
or hedging activities.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The financial statements and the supplementary financial
information required by this Item and included in this Annual
Report on
Form 10-K
are listed in the Index to consolidated financial statements
beginning on
page F-1.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
33
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures.
We maintain a system of disclosure controls and procedures that
are designed to provide reasonable assurance that information
which is required to be timely disclosed is accumulated and
communicated to our management, including our Chief Executive
Officer (CEO) and Chief Financial Officer
(CFO), in a timely fashion. We conducted an
evaluation, under the supervision and with the participation of
our CEO and CFO, of the effectiveness of the design and
operation of our disclosure controls and procedures (as such
term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of December 30, 2007. Based
on such evaluation, our CEO and CFO have concluded that, as of
December 30, 2007, our disclosure controls and procedures
are effective in recording, processing, summarizing and
reporting, on at 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.
Managements
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
U.S. generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with
the authorization of our management and directors; and provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that
could have a material effect on our consolidated financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projection of any evaluation of effectiveness to future
periods is subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of our
internal control over financial reporting as of
December 30, 2007, based upon the Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on this assessment, management has
concluded that, as of December 30, 2007, 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.
34
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of
Directors and Stockholders
Big 5 Sporting Goods Corporation
El Segundo, California:
We have audited the internal control over financial reporting of
Big 5 Sporting Goods Corporation and subsidiaries (the
Company) as of December 30, 2007, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
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 Managements Annual Report
on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
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
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 30, 2007 based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 30, 2007 of
the Company and our report dated March 10, 2008 expressed
an unqualified opinion on those financial statements and
financial statement schedule.
/s/ Deloitte
& Touche LLP
Los Angeles, California
March 10, 2008
35
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
36
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by this Item has been omitted and will
be incorporated herein by reference, when filed, to our Proxy
Statement, which is expected to be filed not later than
120 days after the end of our fiscal year ended
December 30, 2007.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this Item has been omitted and will
be incorporated herein by reference, when filed, to our Proxy
Statement, which is expected to be filed not later than
120 days after the end of our fiscal year ended
December 30, 2007.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this Item has been omitted and will
be incorporated herein by reference, when filed, to our Proxy
Statement, which is expected to be filed not later than
120 days after the end of our fiscal year ended
December 30, 2007.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by this Item has been omitted and will
be incorporated herein by reference, when filed, to our Proxy
Statement, which is expected to be filed not later than
120 days after the end of our fiscal year ended
December 30, 2007.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information required by this Item has been omitted and will
be incorporated herein by reference, when filed, to our Proxy
Statement, which is expected to be filed not later than
120 days after the end of our fiscal year ended
December 30, 2007.
37
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.
(a) Exhibits
|
|
|
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Big 5
Sporting Goods
Corporation.(1)
|
|
3
|
.2
|
|
Amended and Restated
Bylaws.(1)
|
|
4
|
.1
|
|
Specimen of Common Stock
Certificate.(2)
|
|
10
|
.1
|
|
2002 Stock Incentive
Plan.(3)
|
|
10
|
.2
|
|
1997 Management Equity
Plan.(4)
|
|
10
|
.3
|
|
Form of Amended and Restated Employment Agreement between Robert
W. Miller and Big 5 Sporting Goods
Corporation.(3)
|
|
10
|
.4
|
|
Form of Amended and Restated Employment Agreement between Steven
G. Miller and Big 5 Sporting Goods
Corporation.(3)
|
|
10
|
.5
|
|
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)
|
|
10
|
.6
|
|
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)
|
|
10
|
.7
|
|
Grant of Security Interest in and Collateral Assignment of
Trademarks and Licenses dated as of March 8, 1996 by
Big 5 Corp. in favor of The CIT Group/Business Credit,
Inc.(1)
|
|
10
|
.8
|
|
Guaranty dated March 8, 1996 by Big 5 Corporation (now
known as Big 5 Sporting Goods Corporation) in favor of The CIT
Group/Business Credit,
Inc.(1)
|
|
10
|
.9
|
|
Form of Indemnification
Agreement.(1)
|
|
10
|
.10
|
|
Form of Indemnification Letter
Agreement.(2)
|
|
10
|
.11
|
|
Co-Obligor Agreement, dated as of January 28, 2004, made by
Big 5 Corp. and Big 5 Services Corp. in favor of The
CIT Group/Business Credit, Inc. as agent for the Lenders (as
defined
therein).(5)
|
|
10
|
.12
|
|
Second Amended and Restated Financing Agreement, dated as of
December 15, 2004, among The CIT Group/Business Credit,
Inc., as Agent and as Lender, the Lenders named therein, and
Big 5 Corp. and Big 5 Services
Corp.(6)
|
|
10
|
.13
|
|
Modification and Reaffirmation of Guaranty dated as of
December 15, 2004 by and between Big 5 Sporting Goods
Corporation, a Delaware corporation, and The CIT Group/Business
Credit, Inc., a New York corporation, as agent for the Lenders
described
therein.(6)
|
|
10
|
.14
|
|
Reaffirmation of Co-Obligor Agreement dated as of
December 15, 2004, by and among Big 5 Corp., a
Delaware corporation and Big 5 Services Corp., a Virginia
corporation, and The CIT Group/Business Credit, Inc., a New York
corporation, as agent for the Lenders described
therein.(6)
|
|
10
|
.15
|
|
First Amendment to Second Amended and Restated Financing
Agreement, dated as of May 24, 2006, among The CIT
Group/Business Credit, Inc., as Agent and as Lender, the Lenders
named therein, and Big 5 Corp. and Big 5 Services
Corp.(7)
|
|
10
|
.16
|
|
Lease dated as of April 14, 2004 by and between Pannatoni
Development Company, LLC and Big 5
Corp.(8)
|
|
10
|
.17
|
|
Form of Big 5 Sporting Goods Corporation Stock Option Grant
Notice and Stock Option Agreement for use with Steven G. Miller
with the 2002 Stock Incentive
Plan.(9)
|
|
10
|
.18
|
|
Form of Big 5 Sporting Goods Corporation Stock Option Grant
Notice and Stock Option Agreement for use with 2002 Stock
Incentive
Plan.(9)
|
|
10
|
.19
|
|
Summary of Director
Compensation.(10)
|
|
10
|
.20
|
|
Employment Offer Letter dated August 15, 2005 between Barry
D. Emerson and Big 5
Corp.(11)
|
38
|
|
|
|
|
|
10
|
.21
|
|
Severance Agreement dated as of August 9, 2006 between
Barry D. Emerson and Big
5 Corp.(12)
|
|
10
|
.22
|
|
Big 5 Sporting Goods Corporation 2007 Equity and Performance
Incentive
Plan.(13)
|
|
10
|
.23
|
|
Form of Big 5 Sporting Goods Corporation Stock Option Grant
Notice and Stock Option Agreement for use with 2007 Equity and
Performance Incentive
Plan.(13)
|
|
10
|
.24
|
|
Form of Big 5 Sporting Goods Corporation Restricted Stock Grant
Notice and Restricted Stock Agreement for use with 2007 Equity
and Performance Incentive
Plan.(14)
|
|
10
|
.25
|
|
Second Amendment to Second Amended and Restated Financing
Agreement, dated as of August 24, 2007, among The CIT
Group/Business Credit, Inc., as Agent and as Lender, the Lenders
named therein, and Big 5 Corp. and Big 5 Services
Corp.(14)
|
|
10
|
.26
|
|
Third Amendment to Second Amended and Restated Financing
Agreement, dated as of February 8, 2008, among The CIT
Group/Business Credit, Inc., as Agent and as Lender, the Lenders
named therein, and Big 5 Corp. and Big 5 Services
Corp.(14)
|
|
14
|
.1
|
|
Code of Business Conduct and
Ethics.(5)
|
|
21
|
.1
|
|
Subsidiaries of Big 5 Sporting Goods
Corporation.(9)
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm, KPMG
LLP.(14)
|
|
23
|
.2
|
|
Consent of Independent Registered Public Accounting Firm,
Deloitte & Touche
LLP.(14)
|
|
31
|
.1
|
|
Rule 13a-14(a)
Certification of Chief Executive
Officer.(14)
|
|
31
|
.2
|
|
Rule 13a-14(a)
Certification of Chief Financial
Officer.(14)
|
|
32
|
.1
|
|
Section 1350 Certification of Chief Executive
Officer.(14)
|
|
32
|
.2
|
|
Section 1350 Certification of Chief Financial
Officer.(14)
|
|
|
|
(1) |
|
Incorporated by reference to the Annual Report on
Form 10-K
filed by Big 5 Sporting Goods Corporation on March 31, 2003. |
|
(2) |
|
Incorporated by reference to Amendment No. 4 to the
Registration Statement on
Form S-1
filed by Big 5 Sporting Goods Corporation on June 24, 2002. |
|
(3) |
|
Incorporated by reference to Amendment No. 2 to the
Registration Statement on
Form S-1
filed by Big 5 Sporting Goods Corporation on June 5, 2002. |
|
(4) |
|
Incorporated by reference to the Registration Statement on
Form S-1
(File
No. 333-68094)
filed by Big 5 Sporting Goods Corporation on August 21,
2001. |
|
(5) |
|
Incorporated by reference to the Annual Report on
Form 10-K
filed by Big 5 Sporting Goods Corporation on March 12, 2004. |
|
(6) |
|
Incorporated by reference to the Current Report on
Form 8-K
filed by Big 5 Sporting Goods Corporation on December 21,
2004. |
|
(7) |
|
Incorporated by reference to the Current Report on
Form 8-K
filed by Big 5 Sporting Goods Corporation on May 31, 2006. |
|
(8) |
|
Incorporated by reference to the Quarterly Report on
Form 10-Q
filed by Big 5 Sporting Goods Corporation on August 6, 2004. |
|
(9) |
|
Incorporated by reference to the Annual Report on
Form 10-K
filed by Big 5 Sporting Goods Corporation on September 6,
2005. |
|
(10) |
|
Incorporated by reference to the Annual Report on
Form 10-K
filed by Big 5 Sporting Goods Corporation on March 9, 2007. |
|
(11) |
|
Incorporated by reference to the Annual Report on
Form 10-K
filed by Big 5 Sporting Goods Corporation on March 16, 2006. |
|
(12) |
|
Incorporated by reference to the Quarterly Report on
Form 10-Q
filed by Big 5 Sporting Goods Corporation on August 11,
2006. |
|
(13) |
|
Incorporated by reference to the Current Report on
Form 8-K
filed by Big 5 Sporting Goods Corporation on June 25, 2007. |
|
(14) |
|
Filed herewith. |
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
BIG 5 SPORTING GOODS CORPORATION,
a Delaware corporation
Date: March 10, 2008
Steven G. Miller
Chairman of the Board of Directors,
President, Chief Executive Officer and
Director of the Company
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
|
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Steven
G. Miller
Steven
G. Miller
|
|
Chairman of the Board of Directors, President, Chief Executive
Officer and Director of the Company (Principal Executive Officer)
|
|
March 10, 2008
|
|
|
|
|
|
/s/ Barry
D. Emerson
Barry
D. Emerson
|
|
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
|
|
March 10, 2008
|
|
|
|
|
|
/s/ Sandra
N. Bane
Sandra
N. Bane
|
|
Director of the Company
|
|
March 10, 2008
|
|
|
|
|
|
/s/ G.
Michael Brown
G.
Michael Brown
|
|
Director of the Company
|
|
March 10, 2008
|
|
|
|
|
|
/s/ Jennifer
Holden Dunbar
Jennifer
Holden Dunbar
|
|
Director of the Company
|
|
March 10, 2008
|
|
|
|
|
|
/s/ David
R. Jessick
David
R. Jessick
|
|
Director of the Company
|
|
March 10, 2008
|
|
|
|
|
|
/s/ Michael
D. Miller
Michael
D. Miller
|
|
Director of the Company
|
|
March 10, 2008
|
40
BIG 5
SPORTING GOODS CORPORATION
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Index to Consolidated Financial Statements
|
|
F-1
|
Reports of Independent Registered Public Accounting Firms
|
|
F-2
|
Consolidated Balance Sheets at December 30, 2007 and
December 31, 2006
|
|
F-4
|
Consolidated Statements of Operations for the fiscal years ended
December 30, 2007, December 31, 2006 and
January 1, 2006
|
|
F-5
|
Consolidated Statements of Stockholders Equity for the
fiscal years ended December 30, 2007, December 31,
2006 and January 1, 2006
|
|
F-6
|
Consolidated Statements of Cash Flows for the fiscal years ended
December 30, 2007, December 31, 2006 and
January 1, 2006
|
|
F-7
|
Notes to Consolidated Financial Statements
|
|
F-8
|
|
|
|
|
|
|
|
|
|
Consolidated Financial Statement Schedule:
|
|
Schedule
|
|
|
|
Valuation and Qualifying Accounts as of December 30, 2007,
December 31, 2006 and January 1, 2006
|
|
II
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of
Directors and Stockholders
Big 5 Sporting Goods Corporation
El Segundo, California:
We have audited the accompanying consolidated balance sheet of
Big 5 Sporting Goods Corporation and subsidiaries (the
Company) as of December 30, 2007, and the
related consolidated statements of operations,
stockholders equity, and cash flows for the year ended
December 30, 2007. Our audit also included the financial
statement schedule as of and for the year ended
December 30, 2007 listed in Item 15(a)(2). These
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Big
5 Sporting Goods Corporation and subsidiaries as of
December 30, 2007, and the results of their operations and
their cash flows for the year ended December 30, 2007, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such
consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 30, 2007, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 10, 2008 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 10, 2008
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of
Directors and Stockholders
Big 5 Sporting Goods Corporation:
We have audited the accompanying consolidated balance sheet of
Big 5 Sporting Goods Corporation and subsidiaries as of
December 31, 2006, and the related consolidated statements
of operations, stockholders equity, and cash flows for
each of the years in the two-year period ended December 31,
2006. In connection with our audits of the consolidated
financial statements, we have also audited the related financial
statement schedule for each of the years in the two-year period
ended December 31, 2006. These consolidated financial
statements and the financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and the financial statement schedule based
on our audits.
We conducted our audits in accordance with the auditing
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Big 5 Sporting Goods Corporation and subsidiaries as
of December 31, 2006, and the results of their operations
and their cash flows for each of the years in the two-year
period ended December 31, 2006, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule for each of
the years in the two-year period ended December 31, 2006,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Notes 2 and 13 to the consolidated
financial statements, effective January 2, 2006, the
Company adopted the fair value method of accounting for
stock-based compensation as required by Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment.
/s/ KPMG LLP
Los Angeles,
California
March 9, 2007
F-3
BIG 5
SPORTING GOODS CORPORATION
CONSOLIDATED
BALANCE SHEETS
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,741
|
|
|
$
|
5,145
|
|
Accounts receivable, net of allowances of $405 and $314,
respectively
|
|
|
14,927
|
|
|
|
13,146
|
|
Merchandise inventories, net
|
|
|
252,634
|
|
|
|
228,692
|
|
Prepaid expenses
|
|
|
7,069
|
|
|
|
9,857
|
|
Deferred income taxes
|
|
|
10,070
|
|
|
|
9,345
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
294,441
|
|
|
|
266,185
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
93,244
|
|
|
|
88,159
|
|
Deferred income taxes
|
|
|
10,761
|
|
|
|
7,795
|
|
Other assets, net of accumulated amortization of $241 and $590,
respectively
|
|
|
1,044
|
|
|
|
1,107
|
|
Goodwill
|
|
|
4,433
|
|
|
|
4,433
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
403,923
|
|
|
$
|
367,679
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
95,310
|
|
|
$
|
96,128
|
|
Accrued expenses
|
|
|
67,525
|
|
|
|
66,513
|
|
Current portion of capital lease obligations
|
|
|
1,649
|
|
|
|
1,995
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
164,484
|
|
|
|
164,636
|
|
|
|
|
|
|
|
|
|
|
Deferred rent, less current portion
|
|
|
22,075
|
|
|
|
19,735
|
|
Capital lease obligations, less current portion
|
|
|
2,279
|
|
|
|
2,992
|
|
Long-term debt
|
|
|
103,369
|
|
|
|
77,086
|
|
Other long-term liabilities
|
|
|
2,561
|
|
|
|
2,770
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
294,768
|
|
|
|
267,219
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, authorized
50,000,000 shares; issued 22,894,987 and
22,848,887 shares, respectively; outstanding 22,012,691 and
22,670,367 shares, respectively
|
|
|
228
|
|
|
|
228
|
|
Additional paid-in capital
|
|
|
90,851
|
|
|
|
87,956
|
|
Retained earnings
|
|
|
34,137
|
|
|
|
14,126
|
|
Less: Treasury stock, at cost; 882,296 and 178,520 shares,
respectively
|
|
|
(16,061
|
)
|
|
|
(1,850
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
109,155
|
|
|
|
100,460
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
403,923
|
|
|
$
|
367,679
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
Net sales
|
|
$
|
898,292
|
|
|
$
|
876,805
|
|
|
$
|
813,978
|
|
Cost of sales
|
|
|
589,150
|
|
|
|
575,577
|
|
|
|
534,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
309,142
|
|
|
|
301,228
|
|
|
|
279,823
|
|
Selling and administrative expense
|
|
|
256,180
|
|
|
|
242,769
|
|
|
|
229,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
52,962
|
|
|
|
58,459
|
|
|
|
49,843
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
(1,462
|
)
|
Interest expense
|
|
|
6,614
|
|
|
|
7,516
|
|
|
|
5,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
46,348
|
|
|
|
50,943
|
|
|
|
45,466
|
|
Income taxes
|
|
|
18,257
|
|
|
|
20,108
|
|
|
|
17,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
28,091
|
|
|
$
|
30,835
|
|
|
$
|
27,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.25
|
|
|
$
|
1.36
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.25
|
|
|
$
|
1.35
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
$
|
0.36
|
|
|
$
|
0.34
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,465
|
|
|
|
22,691
|
|
|
|
22,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
22,559
|
|
|
|
22,795
|
|
|
|
22,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
BIG 5
SPORTING GOODS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Treasury
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
(Accumulated
|
|
|
Stock,
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
At Cost
|
|
|
Total
|
|
|
Balance at January 2, 2005
|
|
|
22,677,427
|
|
|
$
|
227
|
|
|
$
|
84,802
|
|
|
$
|
(30,182
|
)
|
|
$
|
(571
|
)
|
|
$
|
54,276
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,539
|
|
|
|
|
|
|
|
27,539
|
|
Dividends paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,349
|
)
|
|
|
|
|
|
|
(6,349
|
)
|
Exercise of stock options
|
|
|
13,700
|
|
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2006
|
|
|
22,691,127
|
|
|
|
227
|
|
|
|
85,007
|
|
|
|
(8,992
|
)
|
|
|
(571
|
)
|
|
|
75,671
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,835
|
|
|
|
|
|
|
|
30,835
|
|
Dividends paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,717
|
)
|
|
|
|
|
|
|
(7,717
|
)
|
Exercise of stock options
|
|
|
43,550
|
|
|
|
1
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
|
482
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
2,290
|
|
|
|
|
|
|
|
|
|
|
|
2,290
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
178
|
|
Purchase of treasury stock
|
|
|
(64,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,279
|
)
|
|
|
(1,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
22,670,367
|
|
|
|
228
|
|
|
|
87,956
|
|
|
|
14,126
|
|
|
|
(1,850
|
)
|
|
|
100,460
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,091
|
|
|
|
|
|
|
|
28,091
|
|
Dividends paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,080
|
)
|
|
|
|
|
|
|
(8,080
|
)
|
Exercise of stock options
|
|
|
46,100
|
|
|
|
|
|
|
|
503
|
|
|
|
|
|
|
|
|
|
|
|
503
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
2,208
|
|
|
|
|
|
|
|
|
|
|
|
2,208
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
184
|
|
Purchase of treasury stock
|
|
|
(703,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,211
|
)
|
|
|
(14,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2007
|
|
|
22,012,691
|
|
|
$
|
228
|
|
|
$
|
90,851
|
|
|
$
|
34,137
|
|
|
$
|
(16,061
|
)
|
|
$
|
109,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
BIG 5
SPORTING GOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
28,091
|
|
|
$
|
30,835
|
|
|
$
|
27,539
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
17,687
|
|
|
|
17,115
|
|
|
|
15,526
|
|
Share-based compensation
|
|
|
2,208
|
|
|
|
2,290
|
|
|
|
|
|
Tax benefit from exercise of stock options
|
|
|
184
|
|
|
|
178
|
|
|
|
56
|
|
Excess tax benefits of stock options exercised
|
|
|
(155
|
)
|
|
|
(93
|
)
|
|
|
|
|
Amortization of deferred finance charges
|
|
|
49
|
|
|
|
151
|
|
|
|
381
|
|
Deferred income taxes
|
|
|
(3,691
|
)
|
|
|
(2,944
|
)
|
|
|
(1,315
|
)
|
Gain on disposal of equipment
|
|
|
|
|
|
|
(200
|
)
|
|
|
(32
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(1,781
|
)
|
|
|
(1,666
|
)
|
|
|
(791
|
)
|
Merchandise inventories, net
|
|
|
(23,707
|
)
|
|
|
(5,449
|
)
|
|
|
(17,030
|
)
|
Prepaid expenses and other assets
|
|
|
2,802
|
|
|
|
(852
|
)
|
|
|
(1,595
|
)
|
Accounts payable
|
|
|
(47
|
)
|
|
|
2,763
|
|
|
|
408
|
|
Accrued expenses and other long-term liabilities
|
|
|
3,024
|
|
|
|
2,076
|
|
|
|
9,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
24,664
|
|
|
|
44,204
|
|
|
|
32,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(20,769
|
)
|
|
|
(18,209
|
)
|
|
|
(34,680
|
)
|
Proceeds from disposal of property and equipment
|
|
|
|
|
|
|
223
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(20,769
|
)
|
|
|
(17,986
|
)
|
|
|
(34,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net principal borrowings (payments) under revolving credit
facilities and book overdraft
|
|
|
24,437
|
|
|
|
(3,581
|
)
|
|
|
16,347
|
|
Principal payments under term loan
|
|
|
|
|
|
|
(13,333
|
)
|
|
|
(6,667
|
)
|
Principal payments under capital lease obligations
|
|
|
(2,103
|
)
|
|
|
(1,792
|
)
|
|
|
(1,776
|
)
|
Proceeds from exercise of stock options
|
|
|
503
|
|
|
|
482
|
|
|
|
205
|
|
Excess tax benefits of stock options exercised
|
|
|
155
|
|
|
|
93
|
|
|
|
|
|
Purchases of treasury stock
|
|
|
(14,211
|
)
|
|
|
(1,279
|
)
|
|
|
|
|
Dividends paid
|
|
|
(8,080
|
)
|
|
|
(7,717
|
)
|
|
|
(6,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
701
|
|
|
|
(27,127
|
)
|
|
|
1,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
4,596
|
|
|
|
(909
|
)
|
|
|
(692
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
5,145
|
|
|
|
6,054
|
|
|
|
6,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
9,741
|
|
|
$
|
5,145
|
|
|
$
|
6,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment acquired under capital leases
|
|
$
|
1,066
|
|
|
$
|
347
|
|
|
$
|
3,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment purchases accrued
|
|
$
|
3,694
|
|
|
$
|
2,924
|
|
|
$
|
3,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
6,725
|
|
|
$
|
8,478
|
|
|
$
|
5,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
22,439
|
|
|
$
|
25,358
|
|
|
$
|
25,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1)
|
Description
of Business
|
The accompanying consolidated financial statements as of
December 30, 2007 and December 31, 2006 and for the
years ended December 30, 2007 (fiscal 2007),
December 31, 2006 (fiscal 2006) and
January 1, 2006 (fiscal 2005), represent the
financial position and results of operations of Big 5 Sporting
Goods Corporation (Company) and its wholly owned
subsidiary, Big 5 Corp. and Big 5 Corp.s wholly owned
subsidiary, Big 5 Services Corp. The Company operates as one
business segment, as a sporting goods retailer under the Big 5
Sporting Goods name carrying a full-line product offering,
operating 363 stores at December 30, 2007 in California,
Washington, Arizona, Oregon, Texas, New Mexico, Nevada, Utah,
Idaho, Colorado and Oklahoma.
|
|
(2)
|
Basis of
Reporting and 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 2007, 2006 and 2005 were comprised of 52 weeks.
Use of
Estimates
Management has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and reported amounts of
revenues and expenses during the reporting period to prepare
these consolidated financial statements in conformity with
accounting principles generally accepted in the United States of
America (GAAP). Significant items subject to such
estimates and assumptions include the carrying amount of
property and equipment, and goodwill; valuation allowances for
receivables, sales returns, inventories and deferred income tax
assets; estimates related to gift card breakage; estimates
related to the valuation of stock options; and obligations
related to asset retirements, litigation, workers
compensation and employee benefits. Actual results could differ
significantly from these estimates under different assumptions
and conditions.
Segment
Reporting
Given the economic characteristics of the Companys store
formats, the similar nature of the products sold, the type of
customer and the method of distribution, the Company operates as
one reportable segment as defined by Statement of Financial
Accounting Standards (SFAS) No. 131,
Disclosure About Segments of an Enterprise and Related
Information.
The approximate net sales attributable to hard goods, athletic
and sport apparel, athletic and sport footwear and other for the
periods presented are set forth as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Merchandise Category
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Hard goods
|
|
$
|
478,384
|
|
|
$
|
463,558
|
|
|
$
|
433,347
|
|
Athletic and sport apparel
|
|
|
150,367
|
|
|
|
149,289
|
|
|
|
130,693
|
|
Athletic and sport footwear
|
|
|
266,278
|
|
|
|
261,837
|
|
|
|
246,354
|
|
Other sales
|
|
|
3,263
|
|
|
|
2,121
|
|
|
|
3,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
898,292
|
|
|
$
|
876,805
|
|
|
$
|
813,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-8
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Reclassifications
Certain prior period amounts have been reclassified to conform
to the current year presentation.
The Company revised its previously reported consolidated balance
sheet for fiscal 2006 to reflect an increase of approximately
$3.6 million in accounts receivable and accrued expenses.
The revision corrects a misclassification made in presenting
sales returns allowances. The correction had no effect on the
Companys previously reported consolidated statements of
operations, consolidated statements of stockholders equity
or consolidated statements of cash flows, and is not considered
material to any previously reported consolidated financial
statements. The revision was reported in the Companys
Form 10-Q
for the quarter ended April 1, 2007.
The Company revised its previously reported consolidated
statements of cash flows for fiscal 2006 and 2005 to reflect an
increase of approximately $1.7 million and
$5.0 million, respectively, in cash provided by operating
activities and cash used in investing activities. The revision
corrects a misclassification made in presenting the cash flow
statement impact of accrued and unpaid liabilities related to
purchases of property and equipment. The correction had no
effect on the Companys previously reported consolidated
balance sheets, consolidated statements of operations,
consolidated statements of stockholders equity or net cash
flows, and is not considered material to any previously reported
consolidated financial statements.
The Company reclassified its previously reported consolidated
statements of operations to conform to the current year
presentation which increased cost of sales and decreased gross
profit by $9.7 million and $8.4 million for fiscal
2006 and 2005, respectively, and increased selling and
administrative expense by $7.4 million and
$7.1 million, for fiscal 2006 and 2005, respectively, from
amounts previously reported. Historically, the Company has
presented total depreciation and amortization expense separately
on the face of its consolidated statement of operations and its
corporate headquarters occupancy costs within cost of
sales. In the fourth quarter of fiscal 2007, the Company changed
its classification of distribution center and store occupancy
depreciation and amortization expense to cost of sales and store
equipment and corporate headquarters depreciation and
amortization expense to selling and administrative expense.
Depreciation and amortization expense is no longer presented
separately in the consolidated statements of operations. The
corporate headquarters occupancy costs are now included in
selling and administrative expense. This reclassification had no
effect on the Companys previously reported operating or
net income, consolidated balance sheets, consolidated statements
of stockholders equity and consolidated statements of cash
flows, and is not considered material to any previously reported
consolidated financial statements for any of the years presented.
Earnings
Per Share
The Company calculates earnings per share in accordance with
SFAS No. 128, Earnings Per Share, which
requires a dual presentation of basic and diluted earnings per
share. Basic earnings per share is calculated by dividing net
income by the weighted-average shares of common stock
outstanding during the period. Diluted earnings per share is
calculated by using the weighted-average shares of common stock
outstanding adjusted to include the potentially dilutive effect
of outstanding stock options.
Revenue
Recognition
The Company earns revenue by selling merchandise primarily
through its retail stores. Revenue is recognized when
merchandise is purchased by and delivered to the customer and is
shown net of estimated returns during the relevant period. The
allowance for sales returns is estimated based upon historical
experience. Cash received from the sale of gift cards is
recorded as a liability, and revenue is recognized upon the
redemption of the gift card or when it is determined that the
likelihood of redemption is remote (gift card
breakage) and no liability to relevant jurisdictions
exists. The Company determines the gift card breakage rate based
upon historical redemption patterns and recognizes gift card
breakage over the estimated gift card redemption period (20
quarters as of the end of fiscal
F-9
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2007). The Company records sales tax collected from its
customers on a net basis, and therefore excludes it from
revenues as defined in Financial Accounting Standards Board
(FASB) Emerging Issues Task Force
(EITF) 06-3,
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in Income Statement
(That Is, Gross versus Net Presentation). Also included in
revenue are sales of returned merchandise to vendors
specializing in the resale of defective or used products, which
have historically accounted for less than 1% of net sales.
Cost of
Sales
Cost of sales includes the cost of merchandise, net of discounts
or allowances earned, freight, inventory shrinkage, buying,
distribution center costs and store occupancy costs. Store
occupancy costs include 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 costs, as well as
advertising, depreciation and expense associated with operating
the Companys corporate headquarters.
Advertising
Costs
Advertising costs are expensed as incurred. Advertising expense
amounted to $53.2 million, $48.8 million and
$47.0 million for fiscal 2007, 2006 and 2005, respectively.
Advertising expense is included in selling and administrative
expense in the accompanying consolidated statements of
operations. The Company receives cooperative advertising
allowances from product vendors in order to subsidize qualifying
advertising and similar promotional expenditures made relating
to vendors products. These advertising allowances are
recognized as a reduction to selling and administrative expense
when the Company incurs the advertising cost eligible for the
credit. Co-op advertising allowances amounted to
$7.5 million, $7.5 million and $7.5 million for
fiscal 2007, 2006 and 2005, respectively.
Stock-Based
Compensation
Prior to January 2, 2006, the Company accounted for its
share-based compensation under the recognition and measurement
principles of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25), the disclosure-only provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation related to options issued to employees, and
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure
an amendment of FASB Statement No. 123. Under APB 25,
because the exercise price of the stock options equaled the
market price of the underlying stock on the date of grant, no
compensation expense was recognized.
Effective January 2, 2006, the Company adopted
SFAS No. 123(R), Share-Based Payment, in
accordance with the modified-prospective-transition method and
therefore has not restated prior period results. Under this
transition method, the Company began recognizing compensation
expense using the fair-value method for stock options granted
which vested during the period. See Note 13 to consolidated
financial statements for a further discussion on stock-based
compensation.
Pre-opening
Costs
Pre-opening costs, which consist primarily of payroll and
recruiting costs, training, marketing, rent, travel and
supplies, are expensed as incurred.
F-10
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Cash and
Cash Equivalents
Cash and cash equivalents consist of cash on hand and all highly
liquid instruments purchased with a maturity of three months or
less at the date of purchase.
Accounts
Receivable
Accounts receivable consist primarily of third party purchasing
card receivables, amounts due from inventory vendors for
returned products or co-op advertising and amounts due from
lessors for tenant improvement allowances. 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
The Companys merchandise inventories are made up of
finished goods and are valued at the lower of cost or market
using the weighted-average cost method that approximates the
first-in,
first-out (FIFO) method. Average cost includes the
direct purchase price of merchandise inventory, net of certain
allowances, and allocated overhead costs associated with the
Companys distribution center. Management regularly reviews
inventories to determine if the carrying value of the inventory
exceeds market value and the Company records a reserve to reduce
the carrying value to its market price, as necessary. Because of
its merchandise mix, the Company has not historically
experienced significant occurrences of obsolescence. However,
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.
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 count inventories at its distribution
center throughout the year. The reserve for inventory shrinkage
represents an estimate for inventory shrinkage for each store
since the last physical inventory date through the reporting
date.
Prepaid
Expenses
Prepaid expenses include the prepayment of various operating
costs such as insurance, rent, property taxes and supplies which
are expensed when the operating cost is realized. Prepaid
expenses also include the purchase of seasonal fish and game
licenses from certain state and federal governmental agencies.
The Company has a right to return these licenses if they are
unsold. The prepaid expenses associated with seasonal fish and
game licenses totaled $3.5 million and $3.2 million
for fiscal 2007 and 2006, respectively.
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
|
|
Indefinite
|
Buildings
|
|
20 years
|
Leasehold improvements
|
|
Shorter of 10 years or term of lease
|
Furniture and equipment
|
|
7 - 10 years
|
Maintenance and repairs are expensed as incurred.
Goodwill
Goodwill represents the excess of purchase price over fair value
of net assets acquired. Under SFAS No. 142,
Goodwill and Other Intangible Assets, goodwill is not
amortized but evaluated for impairment annually or
F-11
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
whenever events or changes in circumstances indicate that the
value may not be recoverable. The Company performed an annual
impairment test as of the end of fiscal years 2007, 2006 and
2005, and determined that goodwill was not impaired.
Valuation
of Long-Lived Assets
Long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable, in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. The carrying amount of a long-lived asset is not
considered recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use of the asset. If the
asset is determined not to be recoverable, then it is considered
to be impaired and the impairment to be recognized is the amount
by which the carrying amount of the asset exceeds the fair value
of the asset, as defined in SFAS No. 144. In fiscal
2007, impairment charges of $0.2 million were recognized.
No impairment charges were recognized in fiscal 2006 and 2005.
Leases
The Company leases all but one of its store locations. The
Company accounts for its leases under the provisions of
SFAS No. 13, Accounting for Leases, and
subsequent amendments, which require that leases be evaluated
and classified as operating or capital leases for financial
reporting purposes.
Certain leases may provide for payments based on future sales
volumes at the leased location, which are not measurable at the
inception of the lease. In accordance with
SFAS No. 29, Determining Contingent Rentals, an
amendment of FASB Statement No. 13, these contingent
rents are expensed as they accrue.
Asset
Retirement Obligations
The Company accounts for its asset retirement obligations
(ARO) in accordance with SFAS No. 143,
Accounting for Asset Retirement Obligations, which
requires the recognition of a liability for the fair value of a
legally required asset retirement obligation when incurred if
the liabilitys fair value can be reasonably estimated. The
Companys ARO liabilities are associated with the disposal
of leasehold improvements which, at the end of a lease, the
Company may be contractually obligated to remove in order to
restore the facility back to a condition specified in the lease
agreement.
The Company records the net present value of the ARO liability
and also records a related capital asset in an equal amount for
those leases that contractually obligate the Company with an
asset retirement obligation. The estimate of the ARO liability
is based on a number of assumptions including store closing
costs, inflation rates and discount rates. Accretion expense
related to the ARO liability is recognized as operating expense.
The capitalized asset is depreciated on a straight-line basis
over the useful life of the leasehold improvement. Upon ARO
removal, any difference between the actual retirement costs
incurred and the recorded estimated ARO liability is recognized
as an operating gain or loss in the consolidated statements of
operations. The ARO liability, which totaled $0.5 million
and $0.4 million for fiscal 2007 and 2006, respectively, is
included in other long-term liabilities in the accompanying
consolidated balance sheets.
Self-Insurance
Liabilities
The Company maintains self-insurance programs for our
workers compensation liability risk. The Company is
self-insured up to specified per-occurrence limits and maintains
insurance coverage for losses in excess of specified amounts.
Estimated costs under these 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, including the
severity or frequency of claims, differ from our estimates, our
financial results may be significantly impacted. Self-insurance
liabilities totaled $7.7 million and $8.0 million in
fiscal 2007 and
F-12
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2006, respectively, and were recorded as a component of accrued
expenses in the accompanying consolidated balance sheets. See
Note 5 to consolidated financial statements.
Deferred
Rent
Deferred rent represents the difference between rent paid and
the amounts expensed for operating leases. Certain leases have
scheduled rent increases, and certain leases include an initial
period of free or reduced rent as an inducement to enter into
the lease agreement (rent holidays). The Company
recognizes rental expense for rent increases and rent holidays
on a straight-line basis over the terms of the underlying
leases, without regard to when rent payments are made. The
calculation of straight-line rent is based on the
reasonably assured lease term as defined in
SFAS No. 98, Accounting for Leases: Sale-Leaseback
Transactions Involving Real Estate, Sales-Type Leases of Real
Estate, Definition of the Lease Term, and Initial Direct Costs
of Direct Financing Leases an amendment of FASB
Statements No. 13, 66, and 91 and a rescission of FASB
Statement No. 26 and Technical
Bulletin No. 79-11.
This amended definition of the lease term may exceed the initial
non-cancelable lease term.
Landlord allowances for tenant improvements are recorded as
deferred rent and amortized on a straight-line basis over the
lease term as a component of rent expense, in accordance with
FASB Technical
Bulletin No. 88-1,
Issues Relating to Accounting for Leases.
Income
Taxes
The Company accounts for income taxes under the asset and
liability method whereby deferred tax assets and liabilities are
recognized 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, if necessary, a valuation
allowance is recorded to reduce net deferred tax assets to the
amount more likely than not to be realized.
The Company adopted the provisions of FASB Interpretation
No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes, on January 1, 2007.
FIN 48 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. This
interpretation also provides guidance on measurement,
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The
adoption of FIN 48 had no impact on the Companys
consolidated financial statements.
The Companys practice is to recognize interest accrued
related to unrecognized tax benefits in interest expense and
penalties in operating expense. At December 30, 2007, the
Company had no accrued interest or penalties.
Concentration
of Risk
The Company maintains its cash and cash equivalents accounts in
financial institutions. Accounts at these institutions are
insured by the Federal Deposit Insurance Corporation
(FDIC) up to $100,000. The Company performs ongoing
evaluations of these institutions to limit its concentration
risk exposure.
The Company operates traditional sporting goods retail stores
located principally in the western United States. It is subject
to regional risks such as the local economies, weather
conditions and natural disasters and government regulations. If
the region were to suffer an economic downturn or if other
adverse regional events were to occur that
F-13
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
affect the retail industry, there could be a significant adverse
effect on managements estimates and an adverse impact on
the Companys financial performance.
The Company purchases sporting goods from over 700 suppliers,
and the Companys 20 largest suppliers accounted for 34.7%
of total purchases as of December 30, 2007. One vendor
represented greater than 5% of total purchases, at 5.3%, in
fiscal 2007.
Recently
Issued Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurements. This standard provides guidance for using fair
value to measure assets and liabilities. The standard also
responds to investors requests for expanded information
about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair
value, and the effect of fair value measurements on earnings.
The standard applies whenever other standards require (or
permit) assets or liabilities to be measured at fair value, but
does not expand the use of fair value in any new circumstances.
There are numerous previously issued statements dealing with
fair values that are amended by SFAS No. 157.
SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007.
In December 2007, the FASB also issued Staff Position
(FSP)
FAS 157-2,
Effective Date of FASB Statement No. 157, which
delays the effective date of SFAS No. 157 to fiscal
years and interim periods within those fiscal years beginning
after November 15, 2008, for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized
or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The Company is evaluating
the impact, if any, that the adoption of SFAS No. 157
will have on the Companys consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115. SFAS No. 159 provides companies with
an option to report many financial instruments and certain other
items at fair value that are not currently required to be
measured at fair value. The objective of SFAS No. 159
is to reduce both complexity in accounting for financial
instruments and the volatility in earnings caused by measuring
related assets and liabilities differently. The FASB believes
that SFAS No. 159 helps to mitigate accounting-induced
volatility by enabling companies to report related assets and
liabilities at fair value, which would likely reduce the need
for companies to comply with detailed rules for hedge
accounting. SFAS No. 159 also establishes presentation
and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities, and would require
entities to display the fair value of those assets and
liabilities for which the company has chosen to use fair value
on the face of the balance sheet. The new statement does not
eliminate disclosure requirements included in other accounting
standards, including requirements for disclosures about fair
value measurements included in SFAS No. 157, Fair
Value Measurements. SFAS No. 159 is effective for
financial statements issued for fiscal years beginning after
November 15, 2007. The Company is evaluating the impact, if
any, that the adoption of SFAS No. 159 will have on
the Companys consolidated financial statements.
In December 2007, the Securities and Exchange Commission
(SEC) issued Staff Accounting
Bulletin No. 110 (SAB 110), which
expresses the views of the SEC staff regarding the use of a
simplified method, as discussed in the previously
issued SAB 107, in developing an estimate of expected term
of plain vanilla share options in accordance with
SFAS No. 123(R), Share-Based Payment. In
particular, the SEC staff indicated in SAB 107 that it will
accept a companys election to use the simplified method,
regardless of whether the company has sufficient information to
make more refined estimates of expected term. At the time
SAB 107 was issued, the SEC staff believed that more
detailed external information about employee exercise behavior
(e.g., employee exercise patterns by industry
and/or other
categories of companies) would, over time, become readily
available to companies. Therefore, the SEC staff stated in
SAB 107 that it would not expect a company to use the
simplified method for share option grants after
December 31, 2007. The SEC staff understands that such
detailed information about employee exercise behavior may not be
widely available by December 31, 2007. Accordingly, the SEC
staff will continue to accept, under certain circumstances, the
use of the simplified method beyond December 31, 2007.
F-14
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Upon the Companys adoption of SFAS No. 123(R),
the Company elected to use, and is currently using, the
simplified method to estimate the Companys expected term.
The Company is evaluating whether or not to continue to use the
simplified method, which will depend upon whether or not
sufficient exercise history exists upon which to base an
estimate, in addition to how easily peer group information may
be obtained. The issuance of SAB 110 did not impact the
Companys consolidated financial statements for fiscal 2007.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations, which replaces
SFAS No. 141, Business Combinations.
SFAS No. 141(R) establishes principles and
requirements for how an acquiring entity in a business
combination would recognize and measure in its financial
statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree;
recognizes and measures any goodwill acquired in the business
combination or a gain from a bargain purchase; and determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141(R) retains certain
fundamental requirements of SFAS No. 141, but also
clarifies the definition of an acquirer in a business
combination, and expands its scope to apply to all transactions
and events in which one entity obtains control over one or more
other businesses. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company
does not expect that the issuance of SFAS No. 141(R)
will have an impact on the Companys consolidated financial
statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51, which
establishes accounting and reporting for noncontrolling
interests, referred to in current GAAP as minority interests, in
a subsidiary and for the deconsolidation of a subsidiary. Under
SFAS No. 160, noncontrolling interests shall be
reported as equity in the consolidated financial statements. On
the income statement, SFAS No. 160 requires disclosure
of the amounts of consolidated net income attributable to the
parent and to the noncontrolling interest, thereby eliminating
diversity in practice and providing transparency in disclosure.
SFAS No. 160 also simplifies accounting standards by
establishing a single method of accounting for changes in a
parents ownership interest in a subsidiary that do not
result in deconsolidation; and requires that, when a subsidiary
is deconsolidated, a parent will recognize gain or loss in net
income. SFAS No. 160 further requires expanded
disclosures surrounding the interests of the parents
owners and the interests of the noncontrolling owners of a
subsidiary. This Statement is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. This Statement shall be applied
prospectively as of the beginning of the fiscal year in which
this Statement is initially applied, except for the presentation
and disclosure requirements. The presentation and disclosure
requirements shall be applied retrospectively for all periods
presented. The Company does not expect that the issuance of
SFAS No. 160 will have an impact on the Companys
consolidated financial statements.
F-15
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
|
|
(3)
|
Property
and Equipment, Net
|
Property and equipment, net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
186
|
|
|
$
|
186
|
|
Building
|
|
|
434
|
|
|
|
434
|
|
Leasehold improvements
|
|
|
85,534
|
|
|
|
73,464
|
|
Furniture and equipment
|
|
|
115,180
|
|
|
|
104,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201,334
|
|
|
|
178,975
|
|
Accumulated depreciation and amortization
|
|
|
(108,768
|
)
|
|
|
(92,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
92,566
|
|
|
|
86,739
|
|
Equipment not placed into service
|
|
|
678
|
|
|
|
1,420
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
93,244
|
|
|
$
|
88,159
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense associated with property and equipment,
including assets leased under capital leases, was
$10.3 million, $9.9 million and $8.2 million for
the fiscal years 2007, 2006 and 2005, respectively. Amortization
expense for leasehold improvements was $7.4 million,
$6.5 million and $5.2 million for the fiscal years
2007, 2006 and 2005, respectively. The gross cost of equipment
under capital leases, included above, was $9.9 million and
$9.0 million as of December 30, 2007 and
December 31, 2006, respectively. The accumulated
amortization related to these capital leases was
$6.1 million and $4.2 million as of December 30,
2007 and December 31, 2006, respectively.
|
|
(4)
|
Fair
Values of Financial Instruments
|
The carrying value of cash, accounts receivable, accounts
payable and accrued expenses approximate the fair values of
these instruments due to their short-term nature. The carrying
amount for borrowings under the financing agreement approximates
fair value because of the variable market interest rate charged
to the Company for these borrowings.
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Payroll and related expense
|
|
$
|
19,968
|
|
|
$
|
18,150
|
|
Self-insurance
|
|
|
7,689
|
|
|
|
8,047
|
|
Advertising
|
|
|
7,963
|
|
|
|
5,504
|
|
Sales tax
|
|
|
9,514
|
|
|
|
10,836
|
|
Gift cards and certificates
|
|
|
6,027
|
|
|
|
6,510
|
|
Occupancy costs
|
|
|
6,785
|
|
|
|
5,912
|
|
Other
|
|
|
9,579
|
|
|
|
11,554
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
67,525
|
|
|
$
|
66,513
|
|
|
|
|
|
|
|
|
|
|
F-16
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company currently leases stores, distribution and
headquarters facilities under non-cancelable operating leases
that expire through the year 2022. These leases generally
contain renewal options for periods ranging from 3 to
10 years and require the Company to pay all executory costs
such as maintenance and insurance.
Certain of the Companys leases provide for the payment of
contingent rent based on a percentage of sales.
Rental expense for operating leases consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Rental expense
|
|
$
|
47,781
|
|
|
$
|
45,100
|
|
|
$
|
42,247
|
|
Contingent rentals
|
|
|
1,385
|
|
|
|
1,559
|
|
|
|
1,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental expense
|
|
$
|
49,166
|
|
|
$
|
46,659
|
|
|
$
|
43,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense includes sublease rental income of
$0.1 million, $0.1 million and $0.2 million for
fiscal 2007, 2006 and 2005, respectively.
Future minimum lease payments under non-cancelable leases, with
lease terms in excess of one year, as of December 30, 2007
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
|
Year ending:
|
|
Leases
|
|
|
Leases
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
2008
|
|
$
|
1,845
|
|
|
$
|
53,159
|
|
|
$
|
55,004
|
|
2009
|
|
|
1,226
|
|
|
|
48,826
|
|
|
|
50,052
|
|
2010
|
|
|
687
|
|
|
|
43,076
|
|
|
|
43,763
|
|
2011
|
|
|
264
|
|
|
|
36,083
|
|
|
|
36,347
|
|
2012
|
|
|
167
|
|
|
|
31,189
|
|
|
|
31,356
|
|
Thereafter
|
|
|
221
|
|
|
|
99,775
|
|
|
|
99,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
4,410
|
|
|
$
|
312,108
|
|
|
$
|
316,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest
|
|
|
(482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
$
|
3,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 30, 2007, the Company had revolving credit
borrowings of $103.4 million compared to $77.1 million
as of December 31, 2006. Additionally, as of
December 30, 2007, the Company had short-term letter of
credit commitments outstanding of $0.4 million compared to
$0.2 million as of December 31, 2006. The
Companys letter of credit commitments were off-balance
sheet arrangements and were excluded from the balance sheet in
accordance with GAAP.
On December 15, 2004, the Company entered into a
$160.0 million financing agreement with The CIT
Group/Business Credit, Inc. and a syndicate of other lenders. On
May 24, 2006, the Company amended the financing agreement
to, among other things, increase the line of credit to
$175.0 million, consisting of a
non-amortizing
$161.7 million revolving credit facility and an amortizing
term loan balance of $13.3 million. The amortizing term
loan balance was prepaid in full during fiscal 2006, and the
revolving credit facility commitment increased
$13.3 million from $161.7 million to
$175.0 million.
F-17
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The initial termination date of the revolving credit facility is
March 20, 2011 (subject to annual extensions thereafter).
The revolving credit facility may be terminated by the lenders
by giving at least 90 days prior written notice before any
anniversary date, commencing with its anniversary date on
March 20, 2011. The Company may terminate the revolving
credit facility by giving at least 30 days prior written
notice, provided that if terminated prior to March 20,
2011, the Company must pay an early termination fee. Unless it
is terminated, the revolving credit facility will continue on an
annual basis from anniversary date to anniversary date beginning
on March 21, 2011.
Under the revolving credit facility, the Companys maximum
eligible borrowing capacity is limited to 73.66% of the
aggregate value of eligible inventory during October, November
and December and 67.24% during the remainder of the year. An
annual fee of 0.325%, payable monthly, is assessed on the unused
portion of the revolving credit facility. As of
December 30, 2007 and December 31, 2006, the
Companys total remaining borrowing capacity under the
revolving credit facility, after subtracting letters of credit,
was $71.2 million and $72.1 million, respectively. The
revolving credit facility bears interest at various rates based
on the Companys overall borrowings, with a floor of LIBOR
plus 1.00% or the JP Morgan Chase Bank prime lending rate and a
ceiling of LIBOR plus 1.50% or the JP Morgan Chase Bank prime
lending rate.
At December 30, 2007 and December 31, 2006, the
one-month LIBOR rate was 4.6% and 5.3%, respectively, and the JP
Morgan Chase Bank prime lending rate was 7.25% and 8.25%,
respectively. On December 30, 2007 and December 31,
2006, the Company had borrowings outstanding bearing interest at
both LIBOR and the JP Morgan Chase Bank prime lending rates as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
LIBOR rate
|
|
$
|
97,000
|
|
|
$
|
75,000
|
|
JP Morgan Chase Bank prime lending rate
|
|
|
6,369
|
|
|
|
2,086
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
103,369
|
|
|
$
|
77,086
|
|
|
|
|
|
|
|
|
|
|
The financing agreement is secured by a first priority security
interest in substantially all of the Companys assets. The
financing agreement contains various financial and other
covenants, including covenants that require the Company to
maintain a fixed-charge coverage ratio of not less than 1.0 to
1.0 in certain circumstances, restrict its ability to incur
indebtedness or to create various liens and restrict the amount
of capital expenditures that it may incur. The Companys
financing agreement also restricts its ability to engage in
mergers or acquisitions, sell assets, repurchase stock or pay
dividends. The Company may repurchase stock or declare a
dividend only if no default or event of default exists and a
default is not expected to result from the payment of the
dividend and certain other criteria are met, which may include
the maintenance of certain financial ratios. The Company is
currently in compliance with all covenants under the financing
agreement. If the Company fails to make any required payment
under its financing agreement or if the Company otherwise
defaults under this instrument, the debt may be accelerated
under this agreement. This acceleration could also result in the
acceleration of other indebtedness that the Company may have
outstanding at that time.
F-18
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Total income tax expense (benefit) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
18,287
|
|
|
$
|
(3,404
|
)
|
|
$
|
14,883
|
|
State
|
|
|
3,661
|
|
|
|
(287
|
)
|
|
|
3,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,948
|
|
|
$
|
(3,691
|
)
|
|
$
|
18,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
19,049
|
|
|
$
|
(2,735
|
)
|
|
$
|
16,314
|
|
State
|
|
|
4,003
|
|
|
|
(209
|
)
|
|
|
3,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,052
|
|
|
$
|
(2,944
|
)
|
|
$
|
20,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
16,026
|
|
|
$
|
(1,272
|
)
|
|
$
|
14,754
|
|
State
|
|
|
3,216
|
|
|
|
(43
|
)
|
|
|
3,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,242
|
|
|
$
|
(1,315
|
)
|
|
$
|
17,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes differs from the amounts computed
by applying the federal statutory tax rate of 35% to earnings
before income taxes, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Tax expense at statutory rate
|
|
$
|
16,222
|
|
|
$
|
17,831
|
|
|
$
|
15,913
|
|
State taxes, net of federal benefit
|
|
|
2,143
|
|
|
|
2,351
|
|
|
|
2,111
|
|
Other
|
|
|
(108
|
)
|
|
|
(74
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,257
|
|
|
$
|
20,108
|
|
|
$
|
17,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities consist of the following
tax-effected temporary differences:
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Self-insurance liabilities
|
|
$
|
3,047
|
|
|
$
|
3,188
|
|
Employee benefits
|
|
|
3,926
|
|
|
|
3,571
|
|
State taxes
|
|
|
1,282
|
|
|
|
1,418
|
|
Accrued expenses
|
|
|
12,083
|
|
|
|
9,617
|
|
Tax credits
|
|
|
441
|
|
|
|
578
|
|
Other
|
|
|
968
|
|
|
|
735
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
21,747
|
|
|
|
19,107
|
|
Deferred tax liabilities basis difference in fixed
assets
|
|
|
(916
|
)
|
|
|
(1,967
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
20,831
|
|
|
$
|
17,140
|
|
|
|
|
|
|
|
|
|
|
F-19
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible.
Management considers the scheduled reversals of deferred tax
liabilities, projected future taxable income and tax planning
strategies in making this assessment. Based upon the level of
historical taxable income and projections of future taxable
income over the periods during which the deferred tax assets are
deductible, management believes it is more likely than not that
the Company will realize the benefits of these deductible
differences. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if
estimates of future taxable income during future periods are
reduced.
The Company files a consolidated federal income tax return and
files tax returns in various state and local jurisdictions. The
Company believes that the statutes of limitations for its
consolidated federal income tax returns are open for years after
2003 and state and local income tax returns are open for years
after 2002. The Company is not currently under examination by
the Internal Revenue Service or any other taxing authority.
At December 30, 2007, the Company had recorded no reserves
for unrecognized tax benefits pursuant to FIN 48.
The Company calculates earnings per share in accordance with
SFAS No. 128, Earnings Per Share, which
requires a dual presentation of basic and diluted earnings per
share. Basic earnings per share is calculated by dividing net
income by the weighted-average shares of common stock
outstanding during the period. Diluted earnings per share is
calculated by using the weighted-average shares of common stock
outstanding adjusted to include the potentially dilutive effect
of outstanding stock options.
The following table sets forth the computation of basic and
diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Net income
|
|
$
|
28,091
|
|
|
$
|
30,835
|
|
|
$
|
27,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,465
|
|
|
|
22,691
|
|
|
|
22,680
|
|
Dilutive effect of common stock equivalents arising from stock
options
|
|
|
94
|
|
|
|
104
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
22,559
|
|
|
|
22,795
|
|
|
|
22,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.25
|
|
|
$
|
1.36
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.25
|
|
|
$
|
1.35
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The computation of diluted earnings per share for fiscal 2007,
2006 and 2005 does not include 883,105 options, 792,450 options
and 52,500 options, respectively, that were outstanding and
antidilutive.
In the second quarter of fiscal 2006 and the fourth quarter of
fiscal 2007, the Companys Board of Directors authorized
share repurchase programs for the purchase of the Companys
common stock of $15.0 million and $20.0 million,
respectively, totaling $35.0 million.
Under these programs, the Company repurchased 703,776 and
64,310 shares of its own common stock for
$14.2 million and $1.3 million during fiscal 2007 and
fiscal 2006, respectively. Subsequent to fiscal 2007 and through
February 29, 2008, the Company has repurchased an
additional 90,000 shares of its common stock for
F-20
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
$1.2 million; and since the inception of these programs,
the Company has repurchased a total 858,086 shares for
$16.7 million. As of February 29, 2008, a total of
$18.3 million remains available for share repurchases under
the share repurchase program.
|
|
(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 contributed
$3.0 million for fiscal 2007, $2.7 million for fiscal
2006 and $2.3 million for fiscal 2005 in employer matching
and profit-sharing contributions.
|
|
(11)
|
Related
Party Transactions
|
G. Michael Brown is a director of the Company and a partner
of the law firm of Musick, Peeler & Garrett LLP. From
time to time, the Company retains Musick, Peeler &
Garrett LLP to handle various litigation matters. The Company
received services from the law firm of Musick,
Peeler & Garrett LLP amounting to $0.8 million,
$0.5 million and $0.7 million in fiscal years 2007,
2006 and 2005, respectively. Amounts due to Musick,
Peeler & Garrett LLP totaled $41,000 and
$0.1 million as of December 30, 2007 and
December 31, 2006, respectively.
The Company has an employment agreement with Robert W. Miller
which provides that he will serve as Chairman Emeritus of the
Board of Directors for a term of three years from any given
date, such that there will always be a minimum of at least three
years remaining under his employment agreement. The employment
agreement provides for Robert W. Miller to receive an annual
base salary of $350,000. If Robert W. Millers employment
is terminated by either Robert W. Miller or the Company for any
reason, the employment agreement provides that the Company will
pay Robert W. Miller his annual base salary and provide
specified benefits for the remainder of his life. The employment
agreement also provides that in the event Robert W. Miller is
survived by his wife, the Company will pay his wife his annual
base salary and provide her specified benefits for the remainder
of her life. Robert W. Miller is the 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, and Michael D. Miller, a director of the Company.
The Company recognized expense of $0.1 million,
$0.2 million and $0.1 million in fiscal 2007, 2006 and
2005, respectively, to provide for a liability for the future
obligations under this agreement. Based upon actuarial valuation
estimates related to this agreement, the Company recorded a
liability of $2.4 million and $2.3 million as of
December 30, 2007 and December 31, 2006, respectively.
The short-term portion of this liability is recorded in accrued
expenses and the long-term portion is recorded in other
long-term liabilities. The actuarial assumptions used included a
discount rate of 5.50% and a mortality table as of
December 30, 2007.
On January 17, 2008, the Company was served with a
complaint filed in the California Superior Court in the County
of Los Angeles, entitled Adi Zimerman v. Big 5 Sporting
Goods Corporation, et al., Case No. BC383834, alleging
violations of the California Civil Code. This complaint was
brought as a purported class action on behalf of persons who
made purchases at the Companys stores in California using
credit cards and were requested or required to provide their zip
codes. The plaintiff alleges, among other things, that customers
making purchases with credit cards at the Companys stores
in California were improperly requested to provide their zip
code at the time of such purchases. The plaintiff seeks, on
behalf of the class members, statutory penalties, injunctive
relief to require the Company to discontinue the allegedly
improper conduct and attorneys fees and costs. The Company
believes that the complaint is without merit and intends to
defend the suit vigorously. The Company is not able to evaluate
the likelihood of an unfavorable outcome or to estimate a range
of potential loss in the event of an unfavorable outcome at the
present time. If resolved unfavorably to the Company, this
litigation could have a material adverse effect on the
Companys financial condition, and any required change in
the Companys business practices, as well as the costs of
defending this litigation, could have a negative impact on the
Companys results of operations.
F-21
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
On December 1, 2006, the Company was served with a
complaint filed in the California Superior Court in the County
of Orange, entitled Jack Lima v. Big 5 Sporting Goods
Corporation, et al., Case No. 06CC00243, alleging
violations of the California Labor Code and the California
Business and Professions Code. This complaint was brought as a
purported class action on behalf of the Companys
California store managers. The plaintiff alleged, among other
things, that the Company improperly classified store managers as
exempt employees not entitled to overtime pay for work in excess
of forty hours per week and failed to provide store managers
with paid meal and rest periods. In the fourth quarter ended
December 30, 2007, the Company and the plaintiff reached a
confidential agreement providing for the full and complete
settlement and release of all of the plaintiffs individual
claims and a dismissal of all claims purportedly brought on
behalf of the class members in exchange for the Companys
payment of non-material amounts to the plaintiff and the
plaintiffs counsel. The Company admitted no liability or
wrongdoing with respect to the claims set forth in the lawsuit.
Subsequent to the end of the fourth quarter ended
December 30, 2007, the court approved the parties
settlement agreement and all claims were dismissed.
The Company is involved in various other claims and legal
actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Companys
financial position, results of operations or liquidity.
|
|
(13)
|
Stock-Based
Compensation Plans
|
2007
Equity and Performance Incentive Plan
In June 2007, the Company adopted the 2007 Equity and
Performance Incentive Plan (2007 Plan) and cancelled
its 1997 Management Equity Plan and 2002 Stock Incentive Plan
(the Prior Plans). The aggregate amount of shares
authorized for issuance under the 2007 Plan is
2,399,250 shares of common stock of the Company, plus any
shares subject to awards granted under the Prior Plans which are
forfeited, expire or are cancelled after April 24, 2007
(the effective date of the 2007 Plan). This amount represents
the amount of shares that remained available for grant under the
Prior Plans as of April 24, 2007. Awards under the 2007
Plan may consist of options (both incentive stock options and
non-qualified stock options), stock appreciation rights,
restricted stock, other stock unit awards, performance awards,
or dividend equivalents. Any shares that are subject to awards
of options or stock appreciation rights shall be counted against
this limit as one share for every one share granted, regardless
of the number of shares actually delivered pursuant to the
awards. Any shares that are subject to awards other than options
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 Plan and the
number of shares subject to outstanding options 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. Awards
granted under the 2007 Plan generally vest and become
exercisable at the rate of 25% per year with a maximum life of
ten years. Upon the grant of restricted stock or the exercise of
granted options, shares are expected to be issued from new
shares which are expected to be registered for the 2007 Plan. At
December 30, 2007, 2,400,600 shares remained available
for future grant and 27,000 share options remained
outstanding under the 2007 Plan.
1997
Management Equity Plan and 2002 Stock Incentive Plan
The 1997 Management Equity Plan (1997 Plan) provides
for the sale of shares or granting of incentive stock options or
non-qualified stock options to officers, directors and selected
key employees of the Company to purchase shares of the
Companys common stock. At December 30, 2007, all
shares granted under the 1997 Plan were fully vested, and the
1997 Plan was terminated in connection with the approval of the
2007 Plan as described above. At December 30, 2007, no
shares remained subject to outstanding options under the 1997
Plan and no shares of restricted stock remained subject to
vesting.
F-22
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
In June 2002, the Company adopted the 2002 Stock Incentive Plan
(2002 Plan). The 2002 Plan provided for the grant of
incentive stock options and non-qualified stock options to the
Companys employees, directors and specified consultants.
Options granted under the 2002 Plan generally vest and become
exercisable at the rate of 25% per year with a maximum life of
ten years. Upon exercise of granted options, shares are expected
to be issued from new shares previously registered for the 2002
Plan. The 2002 Plan was terminated in connection with the
approval of the 2007 Equity and Performance Incentive Plan as
described above. Consequently, at December 30, 2007, no
shares remained available for future grant and
1,100,550 share options remained outstanding under the 2002
Plan, subject to adjustment to reflect any changes in the
outstanding common stock of the Company by reason of any
reorganization, recapitalization, reclassification, stock
combination, stock dividend, stock split, reverse stock split,
spin off or other similar transaction.
Prior to January 2, 2006, the Company accounted for its
share-based compensation under the recognition and measurement
principles of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25), the disclosure-only provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation related to options issued to employees, and
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure
an amendment of FASB Statement No. 123. Under APB 25,
because the exercise price of the stock options equaled the
market price of the underlying stock on the date of grant, no
compensation expense was recognized.
Effective January 2, 2006, the Company adopted
SFAS No. 123(R), Share-Based Payment, in
accordance with the modified-prospective-transition method and
therefore has not restated prior period results. Under this
transition method, the Company began recognizing compensation
expense, net of estimated forfeitures, using the fair-value
method on a straight-line basis over the requisite service
period for stock options granted which vested during the period.
The estimated forfeiture rate considers historical 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 2007 and 2006 was $2.2 million and
$2.3 million, respectively, and reduced operating income
and income before income taxes by the same amount. Compensation
expense recognized in cost of sales was $0.1 million and
$0.1 million in fiscal 2007 and 2006, respectively, and
compensation expense recognized in selling and administrative
expense was $2.1 million and $2.2 million in fiscal
2007 and 2006, respectively. The recognized tax benefit related
to the compensation expense for fiscal 2007 and 2006 was
$0.9 million and $0.9 million, respectively. Net
income for fiscal 2007 and 2006 was reduced by $1.3 million
and $1.4 million, respectively, or $0.06 and $0.06 per
basic and diluted share, respectively.
The pro-forma effect on net income and earnings per share for
fiscal 2005 if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based
compensation would reflect a reduction in net income of
$0.9 million to $26.6 million from $27.5 million,
as reported, and a reduction in earnings per share of $0.04 per
basic and diluted share to $1.17 per share from $1.21 per share,
as reported.
The fair value of each option on the date of grant was estimated
using the Black-Scholes method based on the following
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
(Pro-forma)
|
|
|
Risk-free interest rate
|
|
|
4.6%
|
|
|
|
4.7%
|
|
|
|
3.0%
|
|
Expected term
|
|
|
6.25 years
|
|
|
|
6.25 years
|
|
|
|
4.1 years
|
|
Expected volatility
|
|
|
43.0%
|
|
|
|
52.0%
|
|
|
|
59.5%
|
|
Expected dividend yield
|
|
|
1.42%
|
|
|
|
1.97%
|
|
|
|
0.1%
|
|
F-23
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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; the expected
term represents the weighted-average period of time that options
granted are expected to be outstanding giving consideration to
vesting schedules and using the simplified method pursuant to
SAB No. 107, Share-Based Payment; the expected
volatility is based upon historical volatilities of the
Companys common stock and for fiscal 2006 an index of a
peer group because the Companys historical period to
measure volatility was not long enough to cover the expected
terms of the options; and the expected dividend yield is based
upon the Companys current dividend rate and future
expectations.
The weighted-average grant-date fair value of stock options
granted for fiscal 2007, 2006 and 2005 was $10.87 per share,
$8.98 per share and $11.44 per share, respectively.
A summary of the status of the Companys stock options is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
Options
|
|
Shares
|
|
|
Price
|
|
|
(In Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2006
|
|
|
1,143,400
|
|
|
$
|
19.03
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
70,200
|
|
|
|
25.42
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(46,100
|
)
|
|
|
10.95
|
|
|
|
|
|
|
|
|
|
Forfeited or Expired
|
|
|
(39,950
|
)
|
|
|
19.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30, 2007
|
|
|
1,127,550
|
|
|
$
|
19.73
|
|
|
|
7.1
|
|
|
$
|
746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 30, 2007
|
|
|
602,600
|
|
|
$
|
18.54
|
|
|
|
6.2
|
|
|
$
|
746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and Expected to Vest at December 30, 2007
|
|
|
1,082,555
|
|
|
$
|
19.68
|
|
|
|
7.0
|
|
|
$
|
746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the preceding table represents
the total pretax intrinsic value, based upon the Companys
closing stock price of $14.25 as of December 30, 2007,
which would have been received by the option holders had all
option holders exercised their options as of that date.
The total intrinsic value of stock options exercised for fiscal
2007, 2006 and 2005 was approximately $0.6 million,
$0.5 million and $0.2 million, respectively.
As of December 30, 2007, there was $3.5 million of
total unrecognized compensation cost related to nonvested stock
options granted. That cost is expected to be recognized over a
weighted-average period of 2.1 years.
The total cash received from employees as a result of employee
stock option exercises for fiscal 2007, 2006 and 2005 was
approximately $0.5 million, $0.5 million and
$0.2 million, respectively. The actual tax benefit realized
for the tax deduction from option exercises of the share-based
payment awards in fiscal 2007, 2006 and 2005 totaled
$0.2 million, $0.2 million and $0.1 million,
respectively.
F-24
BIG 5
SPORTING GOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
|
|
(14)
|
Selected
Quarterly Financial Data (unaudited)
|
Fiscal
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
217,007
|
|
|
$
|
217,846
|
|
|
$
|
231,308
|
|
|
$
|
232,131
|
|
Gross profit
|
|
$
|
75,755
|
|
|
$
|
74,761
|
|
|
$
|
79,407
|
|
|
$
|
79,219
|
|
Net income
|
|
$
|
7,587
|
|
|
$
|
5,943
|
|
|
$
|
8,379
|
|
|
$
|
6,182
|
|
Net income per share (basic)
|
|
$
|
0.33
|
|
|
$
|
0.26
|
|
|
$
|
0.37
|
|
|
$
|
0.28
|
|
Net income per share (diluted)
|
|
$
|
0.33
|
|
|
$
|
0.26
|
|
|
$
|
0.37
|
|
|
$
|
0.28
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
207,181
|
|
|
$
|
211,806
|
|
|
$
|
223,276
|
|
|
$
|
234,542
|
|
Gross profit
|
|
$
|
70,803
|
|
|
$
|
74,554
|
|
|
$
|
75,477
|
|
|
$
|
80,394
|
|
Net income
|
|
$
|
5,943
|
|
|
$
|
7,431
|
|
|
$
|
7,825
|
|
|
$
|
9,636
|
|
Net income per share (basic)
|
|
$
|
0.26
|
|
|
$
|
0.33
|
|
|
$
|
0.34
|
|
|
$
|
0.43
|
|
Net income per share (diluted)
|
|
$
|
0.26
|
|
|
$
|
0.33
|
|
|
$
|
0.34
|
|
|
$
|
0.42
|
|
As previously discussed in Note 2 to the consolidated
financial statements, in the fourth quarter of fiscal 2007, the
Company changed its statement of operations presentation of
depreciation and amortization expense and corporate
headquarters occupancy costs. The Company reclassified its
prior quarter consolidated statements of operations to conform
to this presentation which decreased gross profit by
$2.3 million, $2.3 million and $2.6 million
chronologically for the first three quarters of fiscal 2007,
respectively, and $2.6 million, $2.2 million,
$2.2 million and $2.7 million chronologically for the
four quarters of fiscal 2006, respectively, from amounts
previously reported. This reclassification had no impact on net
income for any of the quarters presented.
In the first quarter of fiscal 2008, the Companys Board of
Directors declared a quarterly cash dividend of $0.09 per share
of outstanding common stock, which will be paid on
March 14, 2008 to stockholders of record as of
February 29, 2008.
F-25
BIG 5
SPORTING GOODS CORPORATION
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
|
|
|
End of
|
|
|
|
Period
|
|
|
Expenses
|
|
|
Deductions
|
|
|
Period
|
|
|
December 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful receivables
|
|
$
|
314
|
|
|
$
|
181
|
|
|
$
|
(90
|
)
|
|
$
|
405
|
|
Allowance for sales returns
|
|
|
3,247
|
|
|
|
(44
|
)
|
|
|
(1,707
|
)(1)
|
|
|
1,496
|
|
Inventory valuation allowance
|
|
|
2,385
|
|
|
|
5,169
|
|
|
|
(4,710
|
)
|
|
|
2,844
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful receivables
|
|
$
|
234
|
|
|
$
|
195
|
|
|
$
|
(115
|
)
|
|
$
|
314
|
|
Allowance for sales returns
|
|
|
2,895
|
|
|
|
1,251
|
|
|
|
(899
|
)
|
|
|
3,247
|
|
Inventory valuation allowance
|
|
|
2,650
|
|
|
|
5,443
|
|
|
|
(5,708
|
)
|
|
|
2,385
|
|
January 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful receivables
|
|
$
|
258
|
|
|
$
|
136
|
|
|
$
|
(160
|
)
|
|
$
|
234
|
|
Allowance for sales returns
|
|
|
2,811
|
|
|
|
1,350
|
|
|
|
(1,266
|
)
|
|
|
2,895
|
|
Inventory valuation allowance
|
|
|
1,398
|
|
|
|
3,870
|
|
|
|
(2,618
|
)
|
|
|
2,650
|
|
|
|
|
(1) |
|
In fiscal 2007, the Company changed its presentation of the
allowance for sales returns to classify the estimated value of
merchandise returns as an offset to the estimated sales value of
returns. This change reduced the 2007 allowance balance by
approximately $1.7 million. |
II