e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 29, 2009
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934. |
For the transition period from to
Commission file number: 000-49850
BIG 5 SPORTING GOODS CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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95-4388794 |
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(State or Other Jurisdiction of Incorporation or
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(I.R.S. Employer Identification No.) |
Organization) |
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2525 East El Segundo Boulevard |
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El Segundo, California
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90245 |
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(Address of Principal Executive Offices)
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(Zip Code) |
Registrants telephone number, including area code: (310) 536-0611
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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
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.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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o (Do not check
if a smaller
reporting company)
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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 x
There were 21,512,291 shares of common stock, with a par value of $0.01 per share outstanding at
April 27, 2009.
BIG 5 SPORTING GOODS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BIG 5 SPORTING GOODS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
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March 29, |
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December 28, |
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2009 |
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2008 |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
4,607 |
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$ |
9,058 |
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Accounts receivable, net of allowances of $288 and $305, respectively |
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8,930 |
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16,611 |
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Merchandise inventories, net |
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222,302 |
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232,962 |
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Prepaid expenses |
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6,978 |
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8,201 |
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Deferred income taxes |
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7,741 |
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8,333 |
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Total current assets |
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250,558 |
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275,165 |
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Property and equipment, net |
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91,246 |
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94,241 |
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Deferred income taxes |
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13,144 |
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13,363 |
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Other assets, net of accumulated amortization of $306 and $293, respectively |
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1,100 |
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1,155 |
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Goodwill |
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4,433 |
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4,433 |
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Total assets |
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$ |
360,481 |
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$ |
388,357 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
86,054 |
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$ |
88,079 |
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Accrued expenses |
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47,545 |
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55,862 |
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Current portion of capital lease obligations |
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2,303 |
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1,942 |
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Total current liabilities |
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135,902 |
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145,883 |
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Deferred rent, less current portion |
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24,465 |
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24,960 |
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Capital lease obligations, less current portion |
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3,340 |
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2,948 |
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Long-term debt |
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76,547 |
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96,499 |
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Other long-term liabilities |
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6,328 |
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6,267 |
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Total liabilities |
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246,582 |
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276,557 |
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Commitments and contingencies |
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Stockholders equity: |
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Common stock, $0.01 par value, authorized 50,000,000 shares; issued 22,995,586 and
23,004,087 shares, respectively; outstanding 21,512,291 and
21,520,792 shares, respectively |
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230 |
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230 |
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Additional paid-in capital |
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93,119 |
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92,704 |
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Retained earnings |
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41,916 |
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40,232 |
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Less: Treasury stock, at cost; 1,483,295 and 1,483,295 shares, respectively |
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(21,366 |
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(21,366 |
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Total stockholders equity |
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113,899 |
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111,800 |
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Total liabilities and stockholders equity |
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$ |
360,481 |
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$ |
388,357 |
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See accompanying notes to unaudited condensed consolidated financial statements.
- 3 -
BIG 5 SPORTING GOODS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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13 Weeks Ended |
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March 29, |
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March 30, |
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2009 |
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2008 |
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Net sales |
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$ |
210,291 |
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$ |
212,866 |
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Cost of sales |
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143,219 |
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141,283 |
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Gross profit |
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67,072 |
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71,583 |
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Selling and administrative expense |
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61,838 |
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63,230 |
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Operating income |
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5,234 |
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8,353 |
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Interest expense |
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713 |
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1,589 |
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Income before income taxes |
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4,521 |
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6,764 |
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Income taxes |
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1,761 |
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2,644 |
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Net income |
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$ |
2,760 |
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$ |
4,120 |
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Earnings per share: |
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Basic |
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$ |
0.13 |
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$ |
0.19 |
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Diluted |
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$ |
0.13 |
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$ |
0.19 |
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Dividends per share |
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$ |
0.05 |
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$ |
0.09 |
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Weighted-average shares of common stock outstanding: |
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Basic |
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21,414 |
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21,886 |
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Diluted |
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21,424 |
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21,926 |
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See accompanying notes to unaudited condensed consolidated financial statements.
- 4 -
BIG 5 SPORTING GOODS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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13 Weeks Ended |
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March 29, |
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March 30, |
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2009 |
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2008 |
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Cash flows from operating activities: |
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Net income |
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$ |
2,760 |
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$ |
4,120 |
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Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation and amortization |
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4,952 |
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4,857 |
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Share-based compensation |
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481 |
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471 |
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Tax deficiency from exercise of stock options |
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- |
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(11 |
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Amortization of deferred finance charges |
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13 |
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13 |
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Deferred income taxes |
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811 |
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250 |
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Loss on disposal of equipment |
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- |
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50 |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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7,681 |
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4,157 |
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Merchandise inventories, net |
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10,660 |
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19,450 |
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Prepaid expenses and other assets |
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1,265 |
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107 |
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Accounts payable |
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6,405 |
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(2,222 |
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Accrued expenses and other long-term liabilities |
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(8,448 |
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(11,225 |
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Net cash provided by operating activities |
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26,580 |
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20,017 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(1,133 |
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(4,873 |
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Proceeds from disposal of property and equipment |
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- |
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30 |
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Net cash used in investing activities |
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(1,133 |
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(4,843 |
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Cash flows from financing activities: |
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Net principal payments under revolving
credit facility and book overdraft |
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(28,165 |
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(12,142 |
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Principal payments under capital lease obligations |
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(608 |
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(496 |
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Tax withholding payments for share-based compensation |
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(47 |
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- |
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Purchases of treasury stock |
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- |
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(2,803 |
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Dividends paid |
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(1,078 |
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(1,973 |
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Net cash used in financing activities |
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(29,898 |
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(17,414 |
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Net decrease in cash and cash equivalents |
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(4,451 |
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(2,240 |
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Cash and cash equivalents at beginning of period |
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9,058 |
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9,741 |
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Cash and cash equivalents at end of period |
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$ |
4,607 |
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$ |
7,501 |
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Supplemental disclosures of non-cash investing and financing activities: |
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Property and equipment acquired under
capital leases |
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$ |
1,341 |
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$ |
39 |
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Property and equipment purchases accrued |
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$ |
117 |
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$ |
1,423 |
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Stock awards vested and issued to employees |
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$ |
146 |
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$ |
- |
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Supplemental disclosures of cash flow information: |
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Interest paid |
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$ |
793 |
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$ |
1,962 |
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Income taxes paid |
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$ |
25 |
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$ |
1,215 |
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See accompanying notes to unaudited condensed consolidated financial statements.
- 5 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) |
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Description of Business |
Business
Big 5 Sporting Goods Corporation (the Company) is a leading sporting goods retailer in the
western United States, operating 381 stores in 11 states at March 29, 2009. The Company provides a
full-line product offering in a traditional sporting goods store format that averages approximately
11,000 square feet. The Companys 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. The Company is a holding company
that operates as one business segment through Big 5 Corp., its wholly-owned subsidiary, and Big 5
Services Corp., which is a wholly-owned subsidiary of Big 5 Corp. Big 5 Services Corp. provides a
centralized operation for the issuance and administration of gift cards.
The accompanying interim unaudited condensed consolidated financial statements of the Company
and its wholly-owned subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States (GAAP) for interim financial information and are
presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, these interim unaudited condensed consolidated financial statements do not include all
of the information and notes required by GAAP for complete financial statements. These interim
unaudited condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the fiscal year ended December 28, 2008
included in the Companys Annual Report on Form 10-K. In the opinion of management, the interim
unaudited condensed consolidated financial statements included herein contain all adjustments,
including normal recurring adjustments, considered necessary to present fairly the Companys
financial position, the results of operations and cash flows for the periods presented.
The operating results and cash flows of the interim periods presented herein are not
necessarily indicative of the results to be expected for any other interim period or the full year.
(2) |
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Summary of Significant Accounting Policies |
Consolidation
The accompanying interim unaudited condensed 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 year 2009 is comprised of 53 weeks and ends on January 3, 2010. Fiscal year
2008 was comprised of 52 weeks and ended on December 28, 2008. The first three
- 6 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
quarters in fiscal 2009 are each comprised of 13 weeks, and the fourth quarter of fiscal 2009
is comprised of 14 weeks. The four quarters in fiscal 2008 were each comprised of 13 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 interim unaudited condensed consolidated financial statements in
conformity with 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, self-insurance liabilities and employee benefits. Actual results could differ
significantly from these estimates under different assumptions and conditions.
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 on a straight-line basis over the estimated gift card redemption
period (20 quarters as of the end of the first quarter of fiscal 2009). The Company recognized
approximately $117,000 and $123,000 in gift card breakage revenue for the 13 weeks ended March 29,
2009 and March 30, 2008, respectively.
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 the Income Statement (That Is, Gross versus Net Presentation).
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.
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
- 7 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
of vendor allowances and cash discounts, and allocated overhead costs associated with the
Companys distribution center.
Management regularly reviews inventories and records valuation reserves for merchandise damage
and defective returns, merchandise items with slow-moving or obsolescence exposure and merchandise
that has a carrying value that exceeds market value. Because of its merchandise mix, the Company
has not historically experienced significant occurrences of obsolescence.
Inventory shrinkage is accrued as a percentage of merchandise sales based on historical
inventory shrinkage trends. The Company performs physical inventories of its stores at least once
per year and cycle counts inventories at its distribution center throughout the year. The reserve
for inventory shrinkage represents an estimate for inventory shrinkage for each store since the
last physical inventory date through the reporting date.
These reserves are estimates, which could vary significantly, either favorably or unfavorably,
from actual results if future economic conditions, consumer demand and competitive environments
differ from expectations.
Leases and Deferred Rent
The Company leases all but one of its store locations. The Company accounts for its leases
under the provisions of Statement of Financial Accounting Standards (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 Rentalsan amendment of FASB Statement No. 13, these contingent rents are
expensed as they accrue.
Deferred rent represents the difference between rent paid and the amounts expensed for
operating leases. Certain leases have scheduled rent increases, and certain leases include an
initial period of free or reduced rent as an inducement to enter into the lease agreement (rent
holidays). The Company recognizes 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 Leasesan 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.
- 8 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Recently Issued Accounting Pronouncements
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with GAAP in the United States. SFAS No. 162 became effective
November 15, 2008. The adoption of SFAS No. 162 did not have a material impact on the Companys
interim unaudited condensed consolidated financial statements.
(3) |
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Fair Value Measurements |
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 Companys financing agreement approximates fair value because of
the variable market interest rate charged to the Company for these borrowings.
The
Company adopted SFAS No. 157, Fair Value Measurements, for financial assets and financial liabilities in the first
quarter of fiscal 2008, which did not have a material impact on the Companys interim unaudited
condensed consolidated financial statements.
The Company adopted SFAS No. 157, Fair Value Measurements, for nonfinancial assets and nonfinancial liabilities measured
on a nonrecurring basis in the first quarter of fiscal 2009, and such adoption did not have a
material impact on the Companys interim unaudited condensed consolidated financial statements.
Accrued expenses consist of the following:
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|
|
|
March 29, |
|
|
December 28, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Payroll and related expenses |
|
$ |
16,748 |
|
|
$ |
18,156 |
|
Occupancy costs |
|
|
6,651 |
|
|
|
6,956 |
|
Sales tax |
|
|
6,552 |
|
|
|
8,721 |
|
Advertising |
|
|
4,270 |
|
|
|
6,002 |
|
Other |
|
|
13,324 |
|
|
|
16,027 |
|
|
|
|
|
|
|
|
Accrued expenses |
|
$ |
47,545 |
|
|
$ |
55,862 |
|
|
|
|
|
|
|
|
- 9 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company accounts for its income taxes in accordance with SFAS No. 109, Accounting for
Income Taxes, and FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109.
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 a valuation allowance is
recorded if necessary to reduce net deferred tax assets to the amount more likely than not to be
realized.
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 2004 and state and local income
tax returns are open for years after 2003. The Company is not currently under examination by the
Internal Revenue Service or any other taxing authority.
At March 29, 2009 and December 28, 2008, the Company had no unrecognized tax benefits that, if
recognized, would affect the Companys effective income tax rate over the next 12 months. The
Companys policy is to recognize interest accrued related to unrecognized tax benefits in interest
expense and penalties in operating expenses. At March 29, 2009 and December 28, 2008, the Company
had no accrued interest or penalties.
- 10 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(6) |
|
Share-based Compensation |
The Company accounts for its share-based compensation in accordance with SFAS No. 123(R),
Share-Based Payment. The Company recognized approximately $0.5 million and $0.5 million in
share-based compensation expense, including stock options and nonvested stock awards, for the 13
weeks ended March 29, 2009 and March 30, 2008, respectively.
Stock Options
In the 13 weeks ended March 29, 2009, the Company granted 548,700 stock options to certain
employees, as defined by SFAS No. 123(R), under the Companys 2007 Equity and Performance Incentive
Plan (the Plan). Stock options granted by the Company generally vest and become exercisable at
the rate of 25% per year with a maximum life of ten years. The exercise price of the stock options
is equal to the market price of the Companys common stock on the date of grant. The
weighted-average grant-date fair value per option for stock options granted in the 13 weeks ended
March 29, 2009 and March 30, 2008 was $1.82 and $2.87, respectively.
The fair value of each stock option on the date of grant is estimated using the Black-Scholes
method based on the following weighted-average assumptions:
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
March 29, |
|
March 30, |
|
|
2009 |
|
2008 |
|
|
|
|
|
Risk-free interest rate |
|
2.3% |
|
2.8% |
Expected term |
|
6.50 years |
|
6.18 years |
Expected volatility |
|
55.2% |
|
45.9% |
Expected dividend yield |
|
4.13% |
|
4.00% |
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 stock option; the expected term
represents the weighted-average period of time that stock options granted are expected to be
outstanding giving consideration to vesting schedules and historical participant exercise behavior;
the expected volatility is based upon historical volatility of the Companys common stock; and the
expected dividend yield is based upon the Companys current dividend rate and future expectations.
As of March 29, 2009, there was $3.1 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 3.2 years.
- 11 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Nonvested Stock Awards
The Company had no grants of nonvested stock awards in the 13 weeks ended March 29, 2009. The
grant-date fair value per share of the Companys nonvested stock awards granted in the 13 weeks
ended March 30, 2008 was $7.91.
The following table illustrates the Companys nonvested stock awards activity for the 13 weeks
ended March 29, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
|
|
Shares |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2008 |
|
|
109,100 |
|
|
$ |
7.92 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
24,075 |
|
|
|
7.91 |
|
Forfeited |
|
|
800 |
|
|
|
7.91 |
|
|
|
|
|
|
|
|
Balance at March 29, 2009 |
|
|
84,225 |
|
|
$ |
7.93 |
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of nonvested stock awards is the quoted market
value of the Companys common stock on the date of grant, as shown in the table above.
Nonvested stock awards granted by the Company vest from the date of grant in four equal annual
installments of 25% per year.
As of March 29, 2009, there was $0.6 million of total unrecognized compensation cost related
to nonvested stock awards. That cost is expected to be recognized over a weighted-average period of
3.0 years.
To satisfy employee minimum statutory tax withholding requirements for nonvested stock awards
that vest, the Company withholds common shares, unless an employee elects to pay cash. In the first
quarter of fiscal 2009, the Company withheld 7,701 common shares with a total value of $47,000.
This amount is presented as a cash outflow from financing activities in the accompanying interim
unaudited condensed consolidated statements of cash flows.
- 12 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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, which is reduced by shares repurchased and held in treasury, 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 and
nonvested stock awards.
The following table sets forth the computation of basic and diluted net income per common
share:
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
|
March 29, 2009 |
|
|
March 30, 2008 |
|
|
|
(In thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,760 |
|
|
$ |
4,120 |
|
|
|
|
|
|
|
|
Weighted-average shares of
common stock outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
21,414 |
|
|
|
21,886 |
|
Dilutive
effect of
common stock
equivalents
arising from
stock options
and nonvested
stock awards |
|
|
10 |
|
|
|
40 |
|
|
|
|
|
|
|
|
Diluted |
|
|
21,424 |
|
|
|
21,926 |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.13 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.13 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
The computation of diluted earnings per share for the 13 weeks ended March 29, 2009 and March
30, 2008 does not include stock options of 1,574,651 and 1,036,148, respectively, that were
outstanding and antidilutive (i.e., including such stock options would result in higher earnings
per share), since the exercise prices of these stock options exceeded the average market price of
the Companys common shares. Additionally, the computation of diluted earnings per share for the 13
weeks ended March 29, 2009 does not include 382 nonvested stock awards that were outstanding and
antidilutive. No nonvested stock awards were antidilutive for the 13 weeks ended March 30, 2008.
The Company did not repurchase any of its common stock in the first quarter of fiscal 2009 and
repurchased 279,768 shares of its common stock for $2.8 million in the first quarter of fiscal
2008. Since the inception of its initial share repurchase program in May 2006, the Company has
repurchased a total of 1,369,085 shares for $20.8 million. As of March 29, 2009, a total of $14.2
million remained available for share repurchases under the Companys current share repurchase
program.
- 13 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(8) |
|
Commitments and Contingencies |
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. On May 31, 2008, the
Company was served with a complaint filed in the California Superior Court in the County of San
Diego, entitled Michele Gonzalez v. Big 5 Sporting Goods Corporation, et al., Case No.
37-2008-00083307-CU-BT-CTL, alleging violations of the California Civil Code and California
Business and Professions Code and invasion of privacy. Each 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 to provide their zip codes. Each plaintiff alleges or alleged,
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. Each
plaintiff seeks or sought, 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,
of unspecified amounts. The plaintiff in the Gonzalez case also sought, on behalf of the class
members, unspecified amounts of general damages, special damages, exemplary or punitive damages and
disgorgement of profits. On October 7, 2008, the California Superior Court in the County of San
Diego dismissed the Gonzalez case with prejudice. On February 20, 2009, the same court denied
plaintiffs Motion for Reconsideration of such dismissal. The period for appealing such dismissal
has expired and the dismissal of the Gonzalez case is final. On December 9, 2008, the California
Superior Court in the County of Los Angeles dismissed the Zimerman case with prejudice. On February
3, 2009, the plaintiff in the Zimerman case filed a Notice of Appeal of the dismissal. The Company
believes that the Zimerman complaint is without merit and intends to defend the suit vigorously.
The Company is not able to evaluate the likelihood of an unfavorable outcome in the Zimerman case
or to estimate a range of potential loss in the event of an unfavorable outcome at the present
time. If the Zimerman case is 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.
The Company is secondarily liable for the performance of a lease that has been assigned to a
third party. This secondary obligation includes the payment of lease costs over the remaining lease
term, which expires in January 2011, for which the Company was responsible as the original lessee.
The undiscounted secondary obligation of the remaining lease costs approximates $0.3 million at
March 29, 2009. Since there is no reason to believe that the third party will default, no provision
has been made in the consolidated financial statements for amounts that would be payable by the
Company.
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.
- 14 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
In the second quarter of fiscal 2009, the Companys Board of Directors declared a quarterly
cash dividend of $0.05 per share of outstanding common stock, which will be paid on June 15, 2009
to stockholders of record as of June 1, 2009.
- 15 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Big 5 Sporting Goods Corporation
El Segundo, California
We have reviewed the accompanying condensed consolidated balance sheet of Big 5 Sporting Goods
Corporation and subsidiaries (the Corporation) as of March 29, 2009 and the related condensed
consolidated statements of operations and cash flows for the 13 week periods ended March 29, 2009
and March 30, 2008. These interim financial statements are the responsibility of the Corporations
management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the objective of which
is the expression of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our reviews we are not aware of any material modifications that should be made to such
condensed consolidated interim financial statements for them to be in conformity with accounting
principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Big 5 Sporting Goods Corporation
and subsidiaries as of December 28, 2008, and the related consolidated statements of operations,
stockholders equity, and cash flows for the year then ended (not presented herein); and in our
report dated February 27, 2009, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 28, 2008 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
May 1, 2009
- 16 -
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
This discussion and analysis of the Big 5 Sporting Goods Corporation (we, our, us)
financial condition and results of operations should be read in conjunction with our interim
unaudited condensed consolidated financial statements and the notes thereto included herein and our
consolidated financial statements and related notes, and Managements Discussion and Analysis of
Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the
year ended December 28, 2008.
Overview
We are a leading sporting goods retailer in the western United States, operating 381 stores in
11 states under the name Big 5 Sporting Goods at March 29, 2009. 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.
Executive Summary
The combination of deteriorating macroeconomic conditions and continued uncertainty in the
financial sector resulted in a difficult environment for retailers. Our results for the first
quarter of fiscal 2009 and the first quarter of fiscal 2008 reflect this economic downturn. The
U.S. economy is in a recession, and if measures implemented, or to be implemented, by the federal
and state governments fail to stimulate an economic recovery, a prolonged economic downturn could
occur.
|
|
|
Net income for the first quarter of fiscal 2009 declined 33.0% to $2.8 million, or
$0.13 per diluted share, compared to $4.1 million, or $0.19 per diluted share, for the
first quarter of fiscal 2008. The decline was driven primarily by lower sales levels,
including a reduction in same store sales of 4.4%, and lower merchandise margins. |
|
|
|
|
Net sales for the first quarter of fiscal 2009 decreased 1.2% to $210.3 million
compared to $212.9 million for the first quarter of fiscal 2008. The decrease in net sales
was primarily attributable to a decrease of $9.3 million in same store sales and $0.8
million in closed store sales, offset by an increase of $7.5 million in new store sales. |
|
|
|
|
Gross profit as a percentage of net sales for the first quarter of fiscal 2009
decreased by 174 basis points to 31.9%, primarily reflecting lower merchandise margins and
higher store occupancy costs compared to the first quarter of fiscal 2008. The increase in
store occupancy costs was primarily due to new store openings. |
|
|
|
|
Selling and administrative expense for the first quarter of fiscal 2009 declined 2.2%
to $61.8 million, or 29.4% of net sales, compared to $63.2 million, or 29.7% of net |
- 17 -
|
|
|
sales, for the first quarter of fiscal 2008. The decrease was due mainly to lower
advertising expense. |
|
|
|
|
Operating income for the first quarter of fiscal 2009 declined 37.3% to $5.2 million,
or 2.5% of net sales, compared to $8.4 million, or 3.9% of net sales, for the first
quarter of fiscal 2008. Operating income was adversely impacted by the decline in net
sales and gross profit margin. The decrease as a percentage of net sales was primarily due
to a reduced gross profit margin partially offset by lower selling and administrative
expense as a percentage of net sales. |
Results of Operations
The results of the interim periods are not necessarily indicative of results for the entire
fiscal year.
13 Weeks Ended March 29, 2009 Compared to 13 Weeks Ended March 30, 2008
The following table sets forth selected items from our interim unaudited condensed
consolidated statements of operations by dollar and as a percentage of our net sales for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
|
March 29, 2009 |
|
|
March 30, 2008 |
|
|
|
(In thousands, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
210,291 |
|
|
|
100.0 |
% |
|
$ |
212,866 |
|
|
|
100.0 |
% |
Cost of sales (1) |
|
|
143,219 |
|
|
|
68.1 |
|
|
|
141,283 |
|
|
|
66.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
67,072 |
|
|
|
31.9 |
|
|
|
71,583 |
|
|
|
33.6 |
|
Selling and administrative expense (2) |
|
|
61,838 |
|
|
|
29.4 |
|
|
|
63,230 |
|
|
|
29.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
5,234 |
|
|
|
2.5 |
|
|
|
8,353 |
|
|
|
3.9 |
|
Interest expense |
|
|
713 |
|
|
|
0.3 |
|
|
|
1,589 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
4,521 |
|
|
|
2.2 |
|
|
|
6,764 |
|
|
|
3.1 |
|
Income taxes |
|
|
1,761 |
|
|
|
0.9 |
|
|
|
2,644 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,760 |
|
|
|
1.3 |
% |
|
$ |
4,120 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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. |
|
(2) |
|
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. |
- 18 -
Net Sales. Net sales decreased by $2.6 million, or 1.2%, to $210.3 million in the 13 weeks
ended March 29, 2009 from $212.9 million in the same period last year. The decrease in net sales
was primarily attributable to the following:
|
|
|
Net sales for the 13 weeks ended March 29, 2009 continued to be impacted by the
challenging consumer environment experienced during fiscal 2008, which resulted in
lower customer traffic into our retail stores. |
|
|
|
|
Same store sales and closed store sales decreased by $9.3 million and $0.8 million,
respectively, partially offset by an increase of $7.5 million in new store sales which
reflected the opening of 18 new stores, net of relocations, since December 30, 2007.
Same store sales decreased 4.4% in the 13 weeks ended March 29, 2009 versus the 13
weeks ended March 30, 2008. |
|
|
|
|
Net sales in the first quarter of fiscal 2009 reflected a benefit over the prior
year from the shift in the timing of the Easter holiday, during which our stores are
closed, out of the first fiscal quarter and into the second fiscal quarter. |
Store count at March 29, 2009 was 381 versus 364 at March 30, 2008. We opened no new stores
in the 13 weeks ended March 29, 2009, and opened one new store in the 13 weeks ended March 30,
2008. We expect new store openings in fiscal 2009 to be substantially lower than fiscal 2008 due to
the continued challenging consumer environment.
Gross Profit. Gross profit decreased by $4.5 million, or 6.3%, to $67.1 million, or 31.9% of
net sales, in the 13 weeks ended March 29, 2009 from $71.6 million, or 33.6% of net sales, in the
13 weeks ended March 30, 2008. The decrease in gross profit was primarily attributable to the
following:
|
|
|
Net sales decreased by $2.6 million in the 13 weeks ended March 29, 2009 compared
to the same period last year. |
|
|
|
|
Merchandise margins, which exclude buying, occupancy and distribution costs,
decreased 88 basis points versus the same period in the prior year, primarily due to
shifts in product sales mix, slightly more aggressive promotional pricing to drive
sales and reduce merchandise inventory and product cost inflation. In fiscal 2009, we
continue to experience inflation in the purchase cost of our products which could
impact future margins. |
|
|
|
|
Store occupancy costs increased by $1.4 million, or 75 basis points, year-over-year
due mainly to new store openings. |
- 19 -
Selling and Administrative Expense. Selling and administrative expense decreased by $1.4
million to $61.8 million, or 29.4% of net sales, in the 13 weeks ended March 29, 2009 from $63.2
million, or 29.7% of net sales, in the same period last year. The decrease in selling and
administrative expense compared to the same period last year was primarily attributable to a
decline in advertising expense of $1.2 million and a decline in administrative expense in various
categories of $0.9 million. These decreases were partially offset by an increase in store-related
expense, excluding occupancy, of $0.6 million, or 53 basis points as a percentage of net sales, due
primarily to higher labor and operating costs to support the increase in store count.
Interest Expense. Interest expense decreased by $0.9 million, or 55.1%, to $0.7 million in
the 13 weeks ended March 29, 2009 from $1.6 million in the same period last year. This decrease
was due to a reduction of average debt levels of approximately $11.2 million to $94.5 million in
the first quarter of fiscal 2009 from $105.7 million in the same period last year, combined with a
reduction of average interest rates of approximately 340 basis points to 2.4% in the first quarter
of fiscal 2009 from 5.8% in the same period last year.
Income Taxes. The provision for income taxes was $1.8 million for the 13 weeks ended March
29, 2009 and $2.6 million for the 13 weeks ended March 30, 2008, reflecting our lower pre-tax
income. Our effective tax rate was 39.0% for the first quarter of fiscal 2009 compared with 39.1%
for the first quarter of fiscal 2008.
- 20 -
Liquidity and Capital Resources
Our principal liquidity requirements are for working capital, capital expenditures and cash
dividends. We fund our liquidity requirements primarily through cash 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 fund
our cash requirements 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 the first quarter of fiscal 2009 with $4.6 million of cash and cash equivalents
compared with $7.5 million at the end of the same period in fiscal 2008. Our cash flows from
operating, investing and financing activities for the 13 weeks ended March 29, 2009 and March 30,
2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
|
March 29, |
|
|
March 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
26,580 |
|
|
$ |
20,017 |
|
Investing activities |
|
|
(1,133 |
) |
|
|
(4,843 |
) |
Financing activities |
|
|
(29,898 |
) |
|
|
(17,414 |
) |
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
$ |
(4,451 |
) |
|
$ |
(2,240 |
) |
|
|
|
|
|
|
|
Operating Activities. Net cash provided by operating activities for the 13 weeks ended March
29, 2009 and March 30, 2008 was $26.6 million and $20.0 million, respectively. The increase in cash
provided by operating activities for the 13 weeks ended March 29, 2009 compared to the same period
last year primarily reflects an increased collection of accounts receivable, primarily credit card
receivables, and a reduction in accrued expenses mainly related to employee compensation and
benefit plans and advertising. A lower cash flow benefit from reducing merchandise inventory this
year was offset by an increased cash flow benefit from higher accounts payable.
Investing Activities. Net cash used in investing activities for the 13 weeks ended March 29,
2009 and March 30, 2008 was $1.1 million and $4.8 million, respectively. Capital expenditures,
excluding non-cash property and equipment acquisitions, represented substantially all of the net
cash used in investing activities for both periods. This decrease was primarily attributable to a
reduction in expansion activity and a corresponding reduction in new store opening expenditures.
Due to the current challenging operating and economic environment, we currently expect to
substantially reduce our capital expenditures, particularly expansion investments, in fiscal 2009
in comparison to previous years.
Financing Activities. Net cash used in financing activities for the 13 weeks ended March 29,
2009 and March 30, 2008 was $29.9 million and $17.4 million, respectively. For the 13 weeks ended
March 29, 2009, cash was used primarily to pay down borrowings under our revolving credit facility
and pay dividends. For the 13 weeks ended March 30, 2008, cash
- 21 -
was used primarily to pay down borrowings under our revolving credit facility, repurchase
stock and pay dividends.
As of March 29, 2009, we had revolving credit borrowings of $76.5 million and letter of credit
commitments of $3.8 million outstanding under our financing agreement. These balances compare to
revolving credit borrowings of $96.5 million and letter of credit commitments of $3.0 million
outstanding as of December 28, 2008 and revolving credit borrowings of $97.3 million and letter of
credit commitments of $1.1 million outstanding as of March 30, 2008.
Quarterly dividend payments of $0.09 per share were paid in fiscal 2008. In
the first quarter of fiscal 2009, our Board of Directors determined to reduce our quarterly cash
dividend to $0.05 per share of outstanding common stock, and the dividend was paid on March 20,
2009 to stockholders of record as of March 6, 2009. The dividend was reduced in an effort to
conserve our capital to maintain a healthy financial condition during the current economic
downturn.
Periodically, we repurchase our common stock in the open market pursuant to programs approved
by our Board of Directors. Depending on business conditions, we may repurchase our common stock for
a variety of reasons, including the current market price of our stock, to offset dilution related
to equity-based compensation plans and to optimize our capital structure.
In light of the current economic climate, we did not repurchase any shares of our common stock
during the first quarter of fiscal 2009 and repurchased 279,768 shares of our common stock for $2.8
million in the first quarter of fiscal 2008. Since the inception of our initial share repurchase
program in May 2006 through March 29, 2009, we have repurchased a total of 1,369,085 shares for
$20.8 million, leaving a total of $14.2 million available for share repurchases under our current
share repurchase program. However, due to the current economic environment, we do not expect to
resume share repurchases in fiscal 2009.
Financing Agreement. Our financing agreement with The CIT Group/Business Credit, Inc. and a
syndicate of other lenders, as amended, provides for a line of credit up 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.
Under the revolving credit facility, our 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 March 29, 2009 and December 28, 2008,
our total remaining borrowing capacity under the revolving
- 22 -
credit facility, after subtracting letters of credit, was $64.9 million and $69.1 million,
respectively.
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. Additionally, if our earnings
before interest, taxes, depreciation and amortization (EBITDA) for the prior four quarters, in
the aggregate, falls below $50 million, the interest rate under the revolving credit facility is
increased to LIBOR plus 1.75% or the JP Morgan Chase Bank prime lending rate plus 0.25%.
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, among other things, no
default or event of default exists on the stock repurchase date or dividend declaration date, as
applicable, and a default is not expected to result from the repurchase of stock or payment of the
dividend. The requirements are described in more detail in the financing agreement and the
amendments thereto, which have been filed as exhibits to our previous filings with the Securities and Exchange Commission (SEC). We were
in compliance with all financial covenants under our financing agreement as of March 29, 2009, and
we expect to be in compliance during the remainder of fiscal 2009. If we fail to make any required
payment under our financing agreement or if we otherwise default under this instrument, the lenders
may (i) require us to agree to less favorable interest rates and other terms under the agreement in
exchange for a waiver of any such default or (ii) accelerate our debt under this agreement. This
acceleration could also result in the acceleration of other indebtedness that we may have
outstanding at that time.
Future Capital Requirements. We had cash on hand of $4.6 million at March 29, 2009. We
expect capital expenditures for the last three quarters of fiscal 2009, excluding non-cash property
and equipment acquisitions, to range from approximately $6.0 million to $8.0 million, primarily to
fund the opening of new stores, store-related remodeling, distribution center equipment and
computer hardware and software purchases. In light of the current economic environment, we expect
to slow our store expansion efforts substantially in fiscal 2009 in comparison to previous years.
Additionally, for the same reasons, in the first quarter of fiscal 2009 our Board of Directors
determined to reduce our quarterly cash dividend to $0.05 per share of outstanding common stock, for an annual
rate of $0.20 per share, and this was continued for the second quarter of fiscal 2009. Also,
although a total of $14.2 million remained available for share repurchases under our share
repurchase program at March 29, 2009, we do not expect to resume share repurchases in fiscal 2009.
These measures are intended to preserve our capital to maintain a healthy financial condition
during the current economic downturn. In the second quarter of fiscal 2009, our Board of Directors
declared a quarterly cash dividend of $0.05 per share of outstanding common stock, which will be
paid on June 15, 2009 to stockholders of record as of June 1, 2009.
- 23 -
We believe we will be able to fund our cash requirements, for at least the next twelve months,
from cash on hand, operating cash flows and borrowings from our revolving credit facility. 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 Part II, Item 1A, Risk
Factors, included in this report and Part I, Item 1A,
Risk Factors, included in our Annual Report on
Form 10-K for the fiscal year ended December 28, 2008.
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, which would likely result in increased interest expense. Additionally, we
may be required to sell material assets or operations, suspend or further reduce dividend payments
or delay or forego expansion opportunities. We might not be able to implement successful
alternative strategies on satisfactory terms, if at all.
Off-Balance Sheet Arrangements and Contractual Obligations. Our material off-balance sheet
contractual commitments are operating lease obligations and letters of credit. We excluded these
items from the balance sheet in accordance with generally accepted accounting principles in the
United States of America (GAAP).
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.
Issued and outstanding letters of credit were $3.8 million at March 29, 2009, and were related
primarily to importing of merchandise and funding insurance program liabilities.
We also have capital lease obligations which consist principally of leases for our
distribution center delivery trailers and management information systems hardware. Included in our
other liabilities is a contractual obligation to the surviving spouse of Robert W. Miller, our
co-founder, and asset retirement obligations related to the removal of leasehold improvements from
our stores upon termination of our store leases.
Included in the Liquidity and Capital Resources section of Part II, Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, of our Annual Report on
Form 10-K for the fiscal year ended December 28, 2008, is a discussion of our future obligations and
commitments as of December 28, 2008. In the first 13 weeks of fiscal 2009, our revolving credit
borrowings declined by 20.7% from the end of fiscal 2008, as a result of our positive operating
cash flow. We entered into new operating lease agreements in relation to our business operations,
but do not believe that these operating leases would materially change our contractual obligations
or commitments presented as of December 28, 2008.
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
- 24 -
orders do not contain any termination payments or other penalties if cancelled, they are not
included as outstanding contractual obligations.
Critical Accounting Estimates
As discussed in Part II, Item 7, Managements Discussion and Analysis of Financial Condition
and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 28,
2008, we consider our estimates on inventory valuation, impairment of long-lived assets and
self-insurance reserves to be the most critical in understanding the judgments that are involved in
preparing our consolidated financial statements. There have been no significant changes to these
estimates in the 13 weeks ended March 29, 2009.
Seasonality and Impact of Inflation
We experience seasonal fluctuations in our net sales and operating results and typically
generate higher sales 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.
In fiscal 2009, we continue to experience inflation in the purchase cost of our products. If
we are unable to adjust our selling prices, our merchandise margins will decline, which could
adversely impact our operating results. We do not believe that inflation had a material impact on
our operating results for fiscal 2008.
Recently Issued Accounting Pronouncements
See Note 2 to interim unaudited condensed consolidated financial statements included in Part
I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
- 25 -
Forward-Looking Statements
This document includes certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other
things, our financial condition, our results of operations, our growth strategy and the business of
our company generally. In some cases, you can identify such statements by terminology such as
may, could, project, estimate, potential, continue, should, expects, plans,
anticipates, believes, intends or other such terminology. These forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause our actual results
in future periods to differ materially from forecasted results. These risks and uncertainties
include, among other things, continued or worsening weakness in the consumer spending environment
and the U.S. financial and credit markets, 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, changes in interest rates, credit availability,
higher costs associated with current and new sources of credit resulting from uncertainty in
financial markets and economic conditions in general. Those and other risks and uncertainties are
more fully described in Part II, Item 1A, Risk Factors, in this report and in Part I, Item 1A, Risk
Factors, in our Annual Report on Form 10-K and other filings with the 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.
- 26 -
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to risks resulting from interest rate fluctuations since interest on our
borrowings under our revolving credit facility is based on variable rates. If the LIBOR or JP
Morgan Chase Bank prime rate were to change 1.0% as compared to the rate at March 29, 2009, our
interest expense would change approximately $0.8 million on an annual basis based on the
outstanding balance of our borrowings under our revolving credit facility at March 29, 2009. We do
not hold any derivative instruments and do not engage in foreign currency transactions or hedging
activities.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation, under the supervision and with the participation of our Chief
Executive Officer (CEO) and Chief Financial Officer (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 the
end of the period covered by this report. Based on such evaluation, our CEO and CFO have concluded
that, as of the end of such period, our disclosure controls and procedures are effective in
recording, processing, summarizing and reporting, on a timely basis, information required to be
disclosed by us in the reports that we file or submit under the Exchange Act and are effective in
ensuring that information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management, including our CEO and
CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the fiscal quarter ended March 29, 2009, no changes occurred with respect to our
internal control over financial reporting that materially affected, or are reasonably likely to
materially affect, internal control over financial reporting.
- 27 -
PART II. OTHER INFORMATION
Item 1. 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. On May 31, 2008, the
Company was served with a complaint filed in the California Superior Court in the County of San
Diego, entitled Michele Gonzalez v. Big 5 Sporting Goods Corporation, et al., Case No.
37-2008-00083307-CU-BT-CTL, alleging violations of the California Civil Code and California
Business and Professions Code and invasion of privacy. Each 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 to provide their zip codes. Each plaintiff alleges or alleged,
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. Each
plaintiff seeks or sought, 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,
of unspecified amounts. The plaintiff in the Gonzalez case also sought, on behalf of the class
members, unspecified amounts of general damages, special damages, exemplary or punitive damages and
disgorgement of profits. On October 7, 2008, the California Superior Court in the County of San
Diego dismissed the Gonzalez case with prejudice. On February 20, 2009, the same court denied
plaintiffs Motion for Reconsideration of such dismissal. The period for appealing such dismissal
has expired and the dismissal of the Gonzalez case is final. On December 9, 2008, the California
Superior Court in the County of Los Angeles dismissed the Zimerman case with prejudice. On February
3, 2009, the plaintiff in the Zimerman case filed a Notice of Appeal of the dismissal. The Company
believes that the Zimerman complaint is without merit and intends to defend the suit vigorously.
The Company is not able to evaluate the likelihood of an unfavorable outcome in the Zimerman case
or to estimate a range of potential loss in the event of an unfavorable outcome at the present
time. If the Zimerman case is 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.
The Company is involved in various other claims and legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of these matters is not
expected to have a material adverse effect on the Companys financial position, results of
operations or liquidity.
- 28 -
Item 1A. Risk Factors
There have been no material changes to the risk factors identified in Part I, Item 1A, Risk
Factors, of the Companys Annual Report on Form 10-K for the fiscal year ended December 28, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company made no stock repurchases under previously announced share repurchase plans during
the fiscal quarter ended March 29, 2009. As discussed in Note 6 to the interim unaudited condensed
consolidated financial statements in this report, in the first quarter of fiscal 2009, the Company
withheld shares to satisfy minimum statutory tax withholding obligations in connection with the
vesting of certain nonvested stock awards issued to employees. This withholding of shares is shown
in the tabular summary below:
ISSUER PURCHASES OF EQUITY SECURITIES (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Number (or |
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
Purchased |
|
|
Dollar Value) |
|
|
|
|
|
|
|
|
|
|
|
as Part of |
|
|
of Shares that |
|
|
|
Total |
|
|
|
|
|
|
Publicly |
|
|
May Yet Be |
|
|
|
Number of |
|
|
Average |
|
|
Announced |
|
|
Purchased |
|
|
|
Shares |
|
|
Price Paid |
|
|
Plans or |
|
|
Under the Plans |
|
Fiscal Period |
|
Purchased |
|
|
per Share |
|
|
Programs |
|
|
or Programs (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29 January 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,207,000 |
|
January 26 February 22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,207,000 |
|
February 23 March 29 |
|
|
7,701 |
(2) |
|
$ |
6.08 |
(3) |
|
|
|
|
|
$ |
14,207,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,701 |
|
|
$ |
6.08 |
|
|
|
|
|
|
$ |
14,207,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Companys dividends and stock repurchases are generally funded by distributions
from its subsidiary, Big 5 Corp. Generally, as long as there is no default or event of default
under the Companys financing agreement, Big 5 Corp. may make distributions to the Company of
up to $15.0 million per year (and up to $5.0 million per quarter) for any purpose (including
dividends or stock repurchases) and may make additional distributions for the purpose of
paying Company dividends or repurchasing Company common stock if Big 5 Corp. will have
post-dividend liquidity (as defined in the financing agreement) of at least $30 million. |
|
(2) |
|
This amount reflects the number of shares of Company common stock withheld by the
Company to satisfy minimum statutory tax withholding obligations in connection with the
vesting of certain nonvested stock awards issued to employees. |
|
(3) |
|
The price shown reflects the closing market value of the Companys common stock on the
date the shares were withheld, as discussed in footnote 2 to this table, which coincided with
the date of vesting of certain nonvested stock awards issued to employees. |
|
(4) |
|
This amount reflects the dollar value of shares remaining available to repurchase
under previously announced plans. There were no stock repurchases under previously announced
plans during the first quarter of fiscal 2009. |
- 29 -
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits
|
|
|
|
|
|
|
|
|
Exhibit Number |
|
Description of Document |
|
|
|
|
10.1 |
|
|
Amendment No. 1 to Second Amended and Restated Employment
Agreement, dated as of March 5, 2009, by and between Big 5 Sporting Goods
Corporation, Big 5 Corp. and Steven G. Miller (incorporated by reference to the
Current Report on Form 8-K filed by Big 5 Sporting Goods Corporation on March 6,
2009). |
|
|
|
10.2 |
|
|
Base Salary and Bonus Information for Certain Executive Officers
(incorporated by reference to the Current Report on Form 8-K filed by Big 5
Sporting Goods Corporation on March 6, 2009). |
|
|
|
10.3 |
|
|
Second Amended and Restated Employment Agreement, dated as of
December 31, 2008, by and between Big 5 Sporting Goods Corporation, Big 5 Corp.
and Steven G. Miller (incorporated by reference to the Current Report on Form
8-K filed by Big 5 Sporting Goods Corporation on January 6, 2009). |
|
|
|
15.1 |
|
|
Independent Auditors Awareness Letter Regarding Unaudited
Interim Financial Statements. |
|
|
|
31.1 |
|
|
Rule 13a-14(a)
Certification of Chief Executive Officer. |
|
|
|
31.2 |
|
|
Rule 13a-14(a)
Certification of Chief Financial Officer. |
|
|
|
32.1 |
|
|
Section 1350 Certification
of Chief Executive Officer. |
|
|
|
32.2 |
|
|
Section 1350 Certification
of Chief Financial Officer. |
-30-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
BIG 5 SPORTING GOODS CORPORATION,
a Delaware corporation
|
|
Date: May 1, 2009 |
By: |
/s/ Steven G. Miller
|
|
|
|
Steven G. Miller |
|
|
|
Chairman of the Board of Directors,
President and Chief Executive Officer |
|
|
|
|
|
Date: May 1, 2009 |
By: |
/s/ Barry D. Emerson
|
|
|
|
Barry D. Emerson |
|
|
|
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and
Accounting Officer) |
|
|
- 31 -