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 June 28,
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 Organization)
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(I.R.S. Employer Identification No.) |
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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 21,525,241 shares of common stock, with a par value of $0.01 per share outstanding at
July 31, 2009.
BIG 5 SPORTING GOODS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
BIG 5 SPORTING GOODS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
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June 28, |
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December 28, |
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2009 |
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2008 |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
3,351 |
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$ |
9,058 |
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Accounts receivable, net of allowances of $181 and $305, respectively |
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8,690 |
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16,611 |
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Merchandise inventories, net |
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241,156 |
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232,962 |
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Prepaid expenses |
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10,536 |
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8,201 |
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Deferred income taxes |
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7,989 |
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8,333 |
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Total current assets |
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271,722 |
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275,165 |
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Property and equipment, net |
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87,823 |
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94,241 |
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Deferred income taxes |
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13,033 |
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13,363 |
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Other assets, net of accumulated amortization of $320 and $293, respectively |
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1,050 |
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1,155 |
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Goodwill |
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4,433 |
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4,433 |
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Total assets |
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$ |
378,061 |
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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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$ |
103,451 |
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$ |
88,079 |
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Accrued expenses |
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48,200 |
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55,862 |
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Current portion of capital lease obligations |
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2,188 |
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1,942 |
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Total current liabilities |
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153,839 |
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145,883 |
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Deferred rent, less current portion |
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24,262 |
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24,960 |
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Capital lease obligations, less current portion |
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2,815 |
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2,948 |
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Long-term debt |
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72,608 |
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96,499 |
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Other long-term liabilities |
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6,513 |
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6,267 |
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Total liabilities |
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260,037 |
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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, $0.01 par value, authorized 50,000,000 shares; issued 23,008,536 and 23,004,087 shares, respectively; outstanding 21,525,241 and 21,520,792
shares, respectively |
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230 |
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230 |
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Additional paid-in capital |
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93,666 |
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92,704 |
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Retained earnings |
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45,494 |
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40,232 |
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Less: Treasury stock, at cost; 1,483,295 and 1,483,295 shares, respectively |
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(21,366 |
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(21,366 |
) |
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Total stockholders equity |
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118,024 |
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111,800 |
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Total liabilities and stockholders equity |
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$ |
378,061 |
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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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26 Weeks Ended |
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June 28, |
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June 29, |
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June 28, |
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June 29, |
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2009 |
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2008 |
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2009 |
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2008 |
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Net sales |
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$ |
216,040 |
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$ |
208,995 |
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$ |
426,331 |
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$ |
421,861 |
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Cost of sales |
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144,709 |
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140,620 |
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287,929 |
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281,903 |
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Gross profit |
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71,331 |
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68,375 |
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138,402 |
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139,958 |
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Selling and administrative expense |
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63,029 |
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64,393 |
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124,867 |
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127,623 |
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Operating income |
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8,302 |
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3,982 |
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13,535 |
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12,335 |
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Interest expense |
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608 |
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1,156 |
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1,321 |
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2,745 |
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Income before income taxes |
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7,694 |
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2,826 |
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12,214 |
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9,590 |
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Income taxes |
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3,039 |
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1,102 |
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4,800 |
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3,746 |
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Net income |
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$ |
4,655 |
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$ |
1,724 |
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$ |
7,414 |
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$ |
5,844 |
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Earnings per share: |
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Basic |
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$ |
0.22 |
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$ |
0.08 |
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$ |
0.35 |
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$ |
0.27 |
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Diluted |
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$ |
0.22 |
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$ |
0.08 |
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$ |
0.35 |
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$ |
0.27 |
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Dividends per share |
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$ |
0.05 |
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$ |
0.09 |
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$ |
0.10 |
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$ |
0.18 |
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Weighted-average shares of common stock outstanding: |
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Basic |
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21,429 |
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21,684 |
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21,422 |
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21,785 |
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Diluted |
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21,554 |
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21,693 |
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21,483 |
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21,793 |
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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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26 Weeks Ended |
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June 28, |
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June 29, |
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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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$ |
7,414 |
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$ |
5,844 |
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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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9,716 |
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9,534 |
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Share-based compensation |
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1,031 |
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961 |
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Tax deficiency from exercise of stock options |
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(16 |
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Amortization of deferred finance charges |
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27 |
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26 |
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Deferred income taxes |
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674 |
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(1,516 |
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(Gain) loss on disposal of equipment |
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(11 |
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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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7,921 |
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5,729 |
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Merchandise inventories, net |
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(8,194 |
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1,235 |
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Prepaid expenses and other assets |
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(2,257 |
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(652 |
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Accounts payable |
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20,181 |
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13,541 |
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Accrued expenses and other long-term liabilities |
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(7,968 |
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(13,400 |
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Net cash provided by operating activities |
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28,534 |
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21,336 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(2,198 |
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(9,143 |
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Proceeds from disposal of property and equipment |
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30 |
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Net cash used in investing activities |
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(2,198 |
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(9,113 |
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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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(28,648 |
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(7,045 |
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Principal payments under capital lease obligations |
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(1,206 |
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(948 |
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Proceeds from exercise of stock options |
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8 |
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Tax withholding payments for share-based compensation |
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(47 |
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Purchases of treasury stock |
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(4,329 |
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Dividends paid |
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(2,150 |
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(3,925 |
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Net cash used in financing activities |
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(32,043 |
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(16,247 |
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Net decrease in cash and cash equivalents |
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(5,707 |
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(4,024 |
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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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$ |
3,351 |
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$ |
5,717 |
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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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$ |
96 |
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Property and equipment purchases accrued |
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$ |
457 |
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$ |
2,221 |
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Treasury stock purchases accrued |
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$ |
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$ |
186 |
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Stock awards vested and issued to employees |
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$ |
182 |
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$ |
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Supplemental disclosures of cash flow information: |
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Interest paid |
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$ |
1,443 |
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$ |
3,192 |
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Income taxes paid |
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$ |
296 |
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$ |
6,878 |
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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
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(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 382 stores in 11 states at June 28, 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 (Interim
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 Financial Statements do not include all of the
information and notes required by GAAP for complete financial statements. These Interim 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 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.
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(2) |
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Summary of Significant Accounting Policies |
Consolidation
The accompanying Interim 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 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.
- 6 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 Interim
Financial Statements and reported amounts of revenues and expenses during the reporting period to
prepare these Interim 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.
Adjustments
In the second quarter of fiscal 2008, the Company recorded a nonrecurring pre-tax charge of
$1.5 million to correct an error in its previously recognized straight-line rent expense,
substantially all of which related to prior periods and accumulated over a period of 15 years. This
charge reduced net income by $0.9 million, or $0.04 per diluted share, on the Companys interim
unaudited condensed consolidated statement of operations, and increased the deferred rent liability
by $1.5 million and the related deferred income tax asset by $0.6 million on the Companys interim
unaudited condensed consolidated balance sheet as of June 29, 2008. The Company determined this
charge to be immaterial to its prior period consolidated financial statements.
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 second quarter of fiscal 2009). The Company recognized
approximately $115,000 and $231,000 in gift card breakage revenue for the 13 weeks and 26 weeks
ended June 28, 2009, respectively, compared to approximately $122,000 and $245,000 for the 13 weeks
and 26 weeks ended June 29, 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
- 7 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 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
- 8 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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.
Recently Issued Accounting Pronouncements
In May 2009, the FASB issued SFAS No. 165, Subsequent Events, which establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued. Specifically, SFAS No. 165
sets forth the period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that occurred after the balance
sheet date. SFAS No. 165 is effective for interim or annual financial periods ending after June 15,
2009, and shall be applied prospectively. Accordingly, the Company
adopted SFAS No. 165 in the second quarter of fiscal 2009. The adoption of SFAS No. 165 had no impact on the Companys Interim Financial Statements.
|
|
|
(3) |
|
Fair Value Measurements |
The carrying values 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 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,
which did not have a material impact on the Companys Interim Financial Statements.
- 9 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 28, |
|
|
December 28, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Payroll and related expenses |
|
$ |
16,713 |
|
|
$ |
18,156 |
|
Occupancy costs |
|
|
6,276 |
|
|
|
6,956 |
|
Sales tax |
|
|
5,892 |
|
|
|
8,721 |
|
Advertising |
|
|
3,778 |
|
|
|
6,002 |
|
Other |
|
|
15,541 |
|
|
|
16,027 |
|
|
|
|
|
|
|
|
Accrued expenses |
|
$ |
48,200 |
|
|
$ |
55,862 |
|
|
|
|
|
|
|
|
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 statutes of limitations for 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 June 28, 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 expense. At June 28, 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 $1.0 million in
share-based compensation expense, including stock options and nonvested stock awards, for the 13
weeks and 26 weeks ended June 28, 2009, respectively, compared to $0.5 million and $1.0 million for
the 13 weeks and 26 weeks ended June 29, 2008, respectively.
Stock
Options
In the 26 weeks ended June 28, 2009, the Company granted 560,700 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 quoted 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 26 weeks ended
June 28, 2009 and June 29, 2008 was $1.92 and $2.85, 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 |
|
26 Weeks Ended |
|
|
June 28, |
|
June 29, |
|
June 28, |
|
June 29, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
3.3% |
|
3.7% |
|
2.3% |
|
2.8% |
Expected term |
|
6.50 years |
|
6.18 years |
|
6.50 years |
|
6.18 years |
Expected volatility |
|
55.2% |
|
46.0% |
|
55.2% |
|
46.0% |
Expected dividend yield |
|
1.52% |
|
4.46% |
|
4.07% |
|
4.02% |
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 June 28, 2009, there was $2.7 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 3.0 years.
- 11 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Nonvested
Stock Awards
In the 26 weeks ended June 28, 2009, the Company granted 12,000 nonvested stock awards to
certain employees, as defined by SFAS No. 123(R), under the Plan. The weighted-average grant-date
fair value per share of the Companys nonvested stock awards granted in the 26 weeks ended June 28,
2009 and June 29, 2008 was $13.17 and $7.92, respectively.
The following table illustrates the Companys nonvested stock awards activity for the 26 weeks
ended June 28, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
|
|
Shares |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2008 |
|
|
109,100 |
|
|
$ |
7.92 |
|
Granted |
|
|
12,000 |
|
|
|
13.17 |
|
Vested |
|
|
(27,075 |
) |
|
|
7.92 |
|
Forfeited |
|
|
(800 |
) |
|
|
7.91 |
|
|
|
|
|
|
|
|
Balance at June 28, 2009 |
|
|
93,225 |
|
|
$ |
8.60 |
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of nonvested stock awards is the quoted market
price 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 June 28, 2009, there was $0.7 million of total unrecognized compensation cost related to
nonvested stock awards. That cost is expected to be recognized over a weighted-average period of
2.9 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 26
weeks ended June 28, 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, 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 |
|
|
26 Weeks Ended |
|
|
|
June 28, |
|
|
June 29, |
|
|
June 28, |
|
|
June 29, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,655 |
|
|
$ |
1,724 |
|
|
$ |
7,414 |
|
|
$ |
5,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
of common stock
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
21,429 |
|
|
|
21,684 |
|
|
|
21,422 |
|
|
|
21,785 |
|
Dilutive
effect of
common stock
equivalents
arising from
stock
options and
nonvested
stock awards |
|
|
125 |
|
|
|
9 |
|
|
|
61 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
21,554 |
|
|
|
21,693 |
|
|
|
21,483 |
|
|
|
21,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.22 |
|
|
$ |
0.08 |
|
|
$ |
0.35 |
|
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.22 |
|
|
$ |
0.08 |
|
|
$ |
0.35 |
|
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The computation of diluted earnings per share for the 13 weeks ended June 28, 2009, the 26
weeks ended June 28, 2009, the 13 weeks ended June 29, 2008 and the 26 weeks ended June 29, 2008
does not include stock options in the amounts of 1,389,996, 1,403,855, 1,416,256 and 1,314,598,
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 and the 26 weeks ended June 28, 2009 does not include nonvested
stock awards in the amounts of 2,637 and 1,319, respectively, that were outstanding and
antidilutive. No nonvested stock awards were antidilutive for the comparable periods in fiscal
2008.
The Company did not repurchase any of its common stock in the first half of fiscal 2009. In
fiscal 2008, the Company repurchased 210,474 shares of its common stock for $1.7 million in the
second quarter and repurchased 490,242 shares of its common stock for $4.5 million in the first
- 13 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
half of the fiscal year. 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 June 28,
2009, a total of $14.2 million remained available for share repurchases under the Companys current
share repurchase program.
|
|
|
(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
and the plaintiff in the Zimerman case have entered into a settlement agreement effective June 4,
2009 that will result in dismissal of the case upon approval by the Superior Court. Following
dismissal of the Zimerman case, the Company would be required to pay the plaintiff an amount that
would not be material to the Companys Interim Financial Statements. The Company believes that the
Zimerman complaint is without merit and, if the case is not dismissed, the Company intends to
continue to defend the suit vigorously.
On June 26, 2009, a complaint was filed in the California Superior Court for the County of San
Diego, entitled Shane Weyl v. Big 5 Corp., et al., Case No. 37-2009-00093109-CU-OE-CTL, alleging
violations of the California Labor Code and the California Business and Professions Code. The
Company has not been served in this action, but has reviewed a copy of the complaint. The complaint
was brought as a purported class action on behalf of the Companys hourly employees in California
for the four years prior to the filing of the complaint. The plaintiff alleges, among other things,
that the Company failed to provide hourly employees with meal and rest periods and failed to pay
wages within required time periods during employment and upon termination of employment. The
plaintiff seeks, on behalf of the class members, an award of one hour of pay
- 14 -
BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(wages) for each workday that a meal or rest period was not provided; restitution of unpaid
wages; actual, consequential and incidental losses and damages; pre-judgment interest; statutory
penalties including an additional thirty days wages for each hourly employee in California whose
employment terminated in the four years preceding the filing of the complaint; civil penalties; an
award of attorneys fees and costs; and injunctive and declaratory relief. The Company believes
that the complaint is without merit and, if served, the Company 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 labor 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 $0.2 million at
June 28, 2009. Since there is no reason to believe that the third party will default, no provision
has been made in the Interim 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.
The Company has evaluated all subsequent events through August 5, 2009, the date these Interim
Financial Statements were issued.
On July 30, 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 September 15, 2009 to stockholders of
record as of September 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 June 28, 2009, and the related condensed
consolidated statements of operations for the 13 week and 26 week periods ended June 28, 2009 and
June 29, 2008, and cash flows for the 26 week periods ended June 28, 2009 and June
29, 2008. These condensed consolidated interim financial statements are the responsibility of the
Corporations management.
We conducted our reviews 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
August 5, 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 (Interim 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 382 stores in
11 states under the name Big 5 Sporting Goods at June 28, 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. 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. While our
results for the first half of fiscal 2009 and fiscal 2008 reflect this economic downturn, we
experienced improved results in the second quarter of fiscal 2009 compared with the second quarter
of fiscal 2008.
|
|
|
Net income for the second quarter of fiscal 2009 increased 170.0% to $4.7 million, or
$0.22 per diluted share, compared to $1.7 million, or $0.08 per diluted share, for the
second quarter of fiscal 2008. The increase primarily reflected higher sales levels and
lower selling and administrative expense, partially offset by the impact of reduced
merchandise margins. Additionally, in the second quarter of fiscal 2008 we recorded a
nonrecurring pre-tax charge of $1.5 million ($0.9 million after-tax), or $0.04 per diluted
share, to correct an error in our previously recognized straight-line rent expense (see
footnote 2 of table on page 19). |
|
|
|
|
Net sales for the second quarter of fiscal 2009 increased 3.4% to $216.0 million
compared to $209.0 million for the second quarter of fiscal 2008. The increase in net
sales was primarily attributable to an increase of $0.6 million in same store sales and
$6.5 million in new store sales, offset by a decrease of $0.4 million in closed store
sales. |
|
|
|
|
Gross profit as a percentage of net sales for the second quarter of fiscal 2009
increased by 30 basis points to 33.02%, compared to the second quarter of fiscal |
- 17 -
|
|
|
2008, primarily reflecting lower store occupancy costs partially offset by the impact of
lower merchandise margins. Store occupancy costs in the second quarter of fiscal 2008
include a nonrecurring pre-tax charge of $1.5 million to correct an error in our previously
recognized straight-line rent expense (see footnote 2 of table on page 19). |
|
|
|
Selling and administrative expense for the second quarter of fiscal 2009 declined 2.1%
to $63.0 million, or 29.2% of net sales, compared to $64.4 million, or 30.8% of net sales,
for the second quarter of fiscal 2008. The decrease was due mainly to lower advertising
expense. |
|
|
|
|
Operating income for the second quarter of fiscal 2009 increased 108.5% to $8.3
million, or 3.8% of net sales, compared to $4.0 million, or 1.9% of net sales, for the
second quarter of fiscal 2008. The higher operating income primarily reflects an increase
in net sales and a decrease in selling and administrative expense. Additionally, in the
second quarter of fiscal 2008 we recorded a nonrecurring pre-tax charge of $1.5 million to
correct an error in our previously recognized straight-line rent expense (see footnote 2
of table on page 19). |
- 18 -
Results of Operations
The results of the interim periods are not necessarily indicative of results for the entire
fiscal year.
13 Weeks Ended June 28, 2009 Compared to 13 Weeks Ended June 29, 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 |
|
|
|
June 28, 2009 |
|
|
June 29, 2008 |
|
|
|
(In thousands, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
216,040 |
|
|
|
100.0 |
% |
|
$ |
208,995 |
|
|
|
100.0 |
% |
Cost of sales (1) (2) |
|
|
144,709 |
|
|
|
67.0 |
|
|
|
140,620 |
|
|
|
67.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (2) |
|
|
71,331 |
|
|
|
33.0 |
|
|
|
68,375 |
|
|
|
32.7 |
|
Selling and administrative expense (3) |
|
|
63,029 |
|
|
|
29.2 |
|
|
|
64,393 |
|
|
|
30.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (2) |
|
|
8,302 |
|
|
|
3.8 |
|
|
|
3,982 |
|
|
|
1.9 |
|
Interest expense |
|
|
608 |
|
|
|
0.2 |
|
|
|
1,156 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes (2) |
|
|
7,694 |
|
|
|
3.6 |
|
|
|
2,826 |
|
|
|
1.3 |
|
Income taxes |
|
|
3,039 |
|
|
|
1.4 |
|
|
|
1,102 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (2) |
|
$ |
4,655 |
|
|
|
2.2 |
% |
|
$ |
1,724 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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) |
|
In the second quarter of fiscal 2008, we recorded a nonrecurring pre-tax charge of
$1.5 million to correct an error in our previously recognized straight-line rent expense,
substantially all of which related to prior periods and accumulated over a period of 15 years.
This charge reduced net income by $0.9 million, or $0.04 per diluted share. We have determined
this charge to be immaterial to our prior period consolidated financial statements. |
|
(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. |
Net Sales. Net sales increased by $7.0 million, or 3.4%, to $216.0 million in the 13
weeks ended June 28, 2009 from $209.0 million in the same period last year. The increase in net
sales was primarily attributable to the following:
|
|
|
New store sales increased $6.5 million, which reflected the opening of 18 new
stores, net of relocations, since March 30, 2008, and same store sales increased $0.6
million, partially offset by a decrease in closed store sales of $0.4 million. Same
store sales increased 0.3% in the 13 weeks ended June 28, 2009 versus the 13 weeks
ended June 29, 2008, which reversed a trend of same store sales declines over our
previous six fiscal quarters resulting from the weakened consumer environment. |
- 19 -
|
|
|
Net sales for the 13 weeks ended June 28, 2009 continued to be impacted by the
challenging consumer environment. However, customer traffic into our retail stores for
the 13 weeks ended June 28, 2009 increased slightly when compared with the 13 weeks
ended June 29, 2008. |
|
|
|
|
Net sales for the second quarter of fiscal 2009 were negatively affected by the
shift in the timing of the Easter holiday, during which our stores are closed, from
the first fiscal quarter of the prior year to the second fiscal quarter this year. |
Store count at June 28, 2009 was 382 versus 370 at June 29, 2008. We opened one new store in
the 13 weeks ended June 28, 2009, and opened six new stores, including one relocation of a store
that was closed subsequent to the end of the period, in the 13 weeks ended June 29, 2008. We expect
to open approximately five new stores in fiscal 2009, substantially fewer than in fiscal 2008, due
primarily to the continued challenging consumer environment.
Gross Profit. Gross profit increased by $2.9 million, or 4.3%, to $71.3 million, or 33.0% of
net sales, in the 13 weeks ended June 28, 2009 from $68.4 million, or 32.7% of net sales, in the 13
weeks ended June 29, 2008. The change in gross profit was primarily attributable to the following:
|
|
|
Net sales increased by $7.0 million in the 13 weeks ended June 28, 2009 compared to
the same period last year. |
|
|
|
|
Store occupancy costs decreased by $0.7 million, or 62 basis points, year over
year. Store occupancy costs in the second quarter of fiscal 2008 include a
nonrecurring pre-tax charge of $1.5 million to correct an error in our previously
recognized straight-line rent expense (see footnote 2 of table on page 19) which
offset the current year impact of new store openings. |
|
|
|
Merchandise margins, which exclude buying, occupancy and distribution costs,
decreased 85 basis points versus the same period in the prior year, primarily due to
shifts in product sales mix and product cost inflation. |
Selling and Administrative Expense. Selling and administrative expense decreased by $1.4
million to $63.0 million, or 29.2% of net sales, in the 13 weeks ended June 28, 2009 from $64.4
million, or 30.8% of net sales, in the same period last year. The decrease in selling and
administrative expense compared to the same period last year was largely attributable to a decline
in advertising expense of $2.4 million due primarily to a reduction in the frequency and
distribution of advertising circulars. This decrease was partially offset by an increase in
store-related expense, excluding occupancy, of $1.0 million due mainly to higher labor and
operating costs to support the increase in store count.
Interest Expense. Interest expense decreased by $0.6 million, or 47.4%, to $0.6 million in
the 13 weeks ended June 28, 2009 from $1.2 million in the same period last year. This decrease was
due to a reduction in average debt levels by approximately $24.5 million to $74.4 million in the
second quarter of fiscal 2009 from $98.9 million in the same period
- 20 -
last year, combined with a reduction in average interest rates by approximately 200 basis
points to 2.2% in the second quarter of fiscal 2009 from 4.2% in the same period last year.
Income Taxes. The provision for income taxes was $3.0 million for the 13 weeks ended June 28,
2009 and $1.1 million for the 13 weeks ended June 29, 2008, primarily reflecting our higher pre-tax
income. Our effective tax rate was 39.5% for the second quarter of fiscal 2009 compared with 39.0%
for the second quarter of fiscal 2008.
26 Weeks Ended June 28, 2009 Compared to 26 Weeks Ended June 29, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended |
|
|
|
June 28, 2009 |
|
|
June 29, 2008 |
|
|
|
(In thousands, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
426,331 |
|
|
|
100.0 |
% |
|
$ |
421,861 |
|
|
|
100.0 |
% |
Cost of sales (1) (2) |
|
|
287,929 |
|
|
|
67.5 |
|
|
|
281,903 |
|
|
|
66.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (2) |
|
|
138,402 |
|
|
|
32.5 |
|
|
|
139,958 |
|
|
|
33.2 |
|
Selling and administrative expense (3) |
|
|
124,867 |
|
|
|
29.3 |
|
|
|
127,623 |
|
|
|
30.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (2) |
|
|
13,535 |
|
|
|
3.2 |
|
|
|
12,335 |
|
|
|
2.9 |
|
Interest expense |
|
|
1,321 |
|
|
|
0.3 |
|
|
|
2,745 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes (2) |
|
|
12,214 |
|
|
|
2.9 |
|
|
|
9,590 |
|
|
|
2.3 |
|
Income taxes |
|
|
4,800 |
|
|
|
1.1 |
|
|
|
3,746 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (2) |
|
$ |
7,414 |
|
|
|
1.8 |
% |
|
$ |
5,844 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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) |
|
In the second quarter of fiscal 2008, we recorded a nonrecurring pre-tax charge of
$1.5 million to correct an error in our previously recognized straight-line rent expense,
substantially all of which related to prior periods and accumulated over a period of 15 years.
This charge reduced net income by $0.9 million, or $0.04 per diluted share. We have determined
this charge to be immaterial to our prior period consolidated financial statements. |
|
(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. |
Net Sales. Net sales increased by $4.4 million, or 1.1%, to $426.3 million in the 26
weeks ended June 28, 2009 from $421.9 million in the same period last year. The change in net sales
was primarily attributable to the following:
|
|
|
New store sales increased by $14.0 million, which reflected the opening of 19 new
stores, net of relocations, since December 30, 2007, partially offset by decreases in
same store sales and closed store sales of $8.6 million and $1.2 million,
respectively. Same store sales decreased 2.1% in the 26 weeks ended June 28, 2009
versus the 26 weeks ended June 29, 2008. |
- 21 -
|
|
|
Net sales for the first half of fiscal 2009 continued to be impacted by the
challenging consumer environment, which resulted in lower customer traffic into our
retail stores. |
Store count at June 28, 2009 was 382 versus 370 at June 29, 2008. We opened one new store in
the 26 weeks ended June 28, 2009, and opened seven new stores, including one relocation of a store
that was closed in a subsequent period, in the 26 weeks ended June 29, 2008. We expect to open
approximately five new stores in fiscal 2009, substantially fewer than in fiscal 2008, due
primarily to the continued challenging consumer environment.
Gross Profit. Gross profit decreased by $1.6 million, or 1.1%, to $138.4 million, or 32.5% of
net sales, in the 26 weeks ended June 28, 2009 from $140.0 million, or 33.2% of net sales, in the
26 weeks ended June 29, 2008. The change in gross profit was primarily attributable to the
following:
|
|
|
Merchandise margins, which exclude buying, occupancy and distribution costs,
decreased 86 basis points versus the same period in the prior year, primarily due to
shifts in product sales mix and product cost inflation. |
|
|
|
|
Store occupancy costs increased by $0.7 million, or 8 basis points, year over year,
due primarily to the increase in store count. The increase in store occupancy costs
was offset by the impact of a second quarter of fiscal 2008 nonrecurring pre-tax
charge of $1.5 million to correct an error in our previously recognized straight-line
rent expense (see footnote 2 of table on page 21). |
|
|
|
Net sales increased by $4.4 million in the 26 weeks ended June 28, 2009 compared to
the same period last year. |
Selling and Administrative Expense. Selling and administrative expense decreased by $2.7
million to $124.9 million, or 29.3% of net sales, in the 26 weeks ended June 28, 2009 from $127.6
million, or 30.3% of net sales, in the same period last year. The decrease in selling and
administrative expense compared to the same period last year was largely attributable to a decline
in advertising expense of $3.6 million due primarily to a reduction in the frequency and
distribution of advertising circulars, as well as 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 $1.7 million, or 21 basis points as a percentage of net sales, due
mainly to higher labor and operating costs to support the increase in store count.
Interest Expense. Interest expense decreased by $1.4 million, or 51.9%, to $1.3 million in
the 26 weeks ended June 28, 2009 from $2.7 million in the same period last year. This decrease was
due to a reduction in average debt levels by approximately $19.1 million to $84.9 million in the
first half of fiscal 2009 from $104.0 million in the same period last year, combined with a
reduction in average interest rates by approximately 280 basis points to 2.3% in the first half of
fiscal 2009 from 5.1% in the same period last year.
Income Taxes. The provision for income taxes was $4.8 million for the 26 weeks ended June 28,
2009 and $3.7 million for the 26 weeks ended June 29, 2008. This increase
- 22 -
was primarily due to higher pre-tax income in the first half of fiscal 2009. Our effective tax
rate was 39.3% for the first half of fiscal 2009 compared with 39.1% for the first half of fiscal
2008.
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 12 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 half of fiscal 2009 with $3.4 million of cash and cash equivalents compared
with $5.7 million at the end of the same period in fiscal 2008. Our cash flows from operating,
investing and financing activities for the 26 weeks ended June 28, 2009 and June 29, 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended |
|
|
|
June 28, |
|
|
June 29, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
28,534 |
|
|
$ |
21,336 |
|
Investing activities |
|
|
(2,198 |
) |
|
|
(9,113 |
) |
Financing activities |
|
|
(32,043 |
) |
|
|
(16,247 |
) |
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
$ |
(5,707 |
) |
|
$ |
(4,024 |
) |
|
|
|
|
|
|
|
Operating Activities. Net cash provided by operating activities for the 26 weeks ended June
28, 2009 and June 29, 2008 was $28.5 million and $21.3 million, respectively. The increase in cash
provided by operating activities for the 26 weeks ended June 28, 2009 compared to the same period
last year primarily reflects higher net income, reduced funding for accrued expenses mainly related
to employee compensation and benefit plans and advertising, and an increased collection of accounts
receivable, primarily credit card receivables. Reduced cash flow resulting from increased
merchandise inventory purchases this year was offset by an increased cash flow benefit from higher
accounts payable.
Investing Activities. Net cash used in investing activities for the 26 weeks ended June 28,
2009 and June 29, 2008 was $2.2 million and $9.1 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 store expansion activity and a corresponding reduction in new store capital
expenditures. Due primarily to the current challenging operating and economic environment, we
expect to substantially reduce our capital expenditures, particularly store expansion investments,
in fiscal 2009 in comparison to previous years.
- 23 -
Financing Activities. Net cash used in financing activities for the 26 weeks ended June 28,
2009 and June 29, 2008 was $32.0 million and $16.2 million, respectively. For the 26 weeks ended
June 28, 2009, cash was used primarily to pay down borrowings under our revolving credit facility
and pay dividends. For the 26 weeks ended June 29, 2008, cash was used primarily to pay down
borrowings under our revolving credit facility, repurchase stock and pay dividends.
As of June 28, 2009, we had revolving credit borrowings of $72.6 million and letter of credit
commitments of $3.2 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 $103.3 million and letter of
credit commitments of $0.8 million outstanding as of June 29, 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 dividends were paid at that rate on March 20, 2009 and
June 15, 2009. The dividend rate 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.
Our dividend payments and stock repurchases are generally funded by distributions from our
subsidiary, Big 5 Corp. Generally, as long as there is no default or event of default under our
financing agreement, Big 5 Corp. may make distributions to us of up to $15.0 million per year (and
up to $5.0 million per quarter) for any purpose (including dividend payments or stock repurchases)
and may make additional distributions for the purpose of paying our dividends or repurchasing our
common stock if Big 5 Corp. will have post-dividend liquidity (as defined in the financing
agreement) of at least $30 million.
In light of the current economic climate, we did not repurchase any shares of our common stock
during the first half of fiscal 2009. We repurchased 490,242 shares of our common stock for $4.5
million in the first half of fiscal 2008. Since the inception of our initial share repurchase
program in May 2006 through June 28, 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. (CIT)
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
- 24 -
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 June 28, 2009 and December 28, 2008, our
total remaining borrowing capacity under the revolving credit facility, after subtracting letters
of credit, was $67.7 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 June 28, 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 $3.4 million at June 28, 2009. We expect
capital expenditures for the second half of fiscal 2009, excluding non-cash property and equipment
acquisitions, to range from approximately $4.0 million to $6.0 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 continue to slow
our store expansion efforts substantially in fiscal
- 25 -
2009 in comparison to previous years, and anticipate opening approximately five new stores in
fiscal 2009. 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. On July 30, 2009, our Board of Directors declared a quarterly cash dividend of $0.05
per share of outstanding common stock, which will be paid on September 15, 2009 to stockholders of
record as of September 1, 2009. Also, although a total of $14.2 million remained available for
share repurchases under our share repurchase program at June 28, 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.
We believe we will be able to fund our cash requirements, for at least the next 12 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. There is
no assurance 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. In addition, CIT (the
administrative agent and primary lender under our revolving credit facility) has publicly announced
that its liquidity position has been materially adversely affected by the ongoing stress in the
credit markets, that there is doubt about its ability to continue as a going concern and that it
may be required to seek bankruptcy protection. If that were to occur, we believe that commitments
from the other lenders under the credit facility, together with our cash on hand and anticipated
operating cash flows, should be sufficient to fund our cash requirements for at least the next 12
months. However, if CIT were to stop performing, or suffer delays in performance with respect to
its role as administrative agent, our operations could nonetheless be disrupted while suitable
alternatives are put in place. 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, or if we are unable to maintain our ability to borrow sufficient amounts under our
revolving credit facility, whether due to CITs financial condition or otherwise, 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
- 26 -
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 $3.2 million at June 28, 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 half of fiscal 2009, our revolving credit
borrowings declined by 24.8% 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 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 26 weeks ended June 28, 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.
- 27 -
In fiscal 2008 we experienced increasing inflation in the purchase cost of certain products,
which continued into fiscal 2009. During the 13 weeks ended June 28, 2009, the trend of inflation
in product purchase costs generally appeared to stabilize.
Recently Issued Accounting Pronouncements
See Note 2 to Interim Financial Statements included in Part I, Item 1, Financial Statements,
of this Quarterly Report on Form 10-Q.
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 (including, without limitation, any continued or
worsening financial distress of our primary lender, The CIT Group/Business Credit, Inc.), 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.
- 28 -
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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 June 28, 2009, our
interest expense would change approximately $0.7 million on an annual basis based on the
outstanding balance of our borrowings under our revolving credit facility at June 28, 2009. We do
not hold any derivative instruments and do not engage in foreign currency transactions or hedging
activities.
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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 June 28, 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.
- 29 -
PART II. OTHER INFORMATION
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|
|
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
and the plaintiff in the Zimerman case have entered into a settlement agreement effective as of
June 4, 2009 that will result in dismissal of the case upon approval by the Superior Court.
Following dismissal of the Zimerman case, the Company would be required to pay the plaintiff an
amount that would not be material to the Companys Interim Financial Statements. The Company
believes that the Zimerman complaint is without merit and, if the case is not dismissed, the
Company intends to continue to defend the suit vigorously.
On June 26, 2009, a complaint was filed in the California Superior Court for the County of San
Diego, entitled Shane Weyl v. Big 5 Corp., et al., Case No. 37-2009-00093109-CU-OE-CTL, alleging
violations of the California Labor Code and the California Business and Professions Code. The
Company has not been served in this action, but has reviewed a copy of the complaint. The complaint
was brought as a purported class action on behalf of the Companys hourly employees in California
for the four years prior to the filing of the complaint. The plaintiff alleges, among other things,
that the Company failed to provide hourly employees with meal and rest periods and failed to pay
wages within required time periods during employment and upon termination of employment. The
plaintiff seeks, on behalf of the class members, an award of one hour of pay (wages) for each
workday that a meal or rest period was not provided; restitution of unpaid wages; actual,
consequential and incidental losses and damages; pre-judgment interest; statutory penalties
including an
- 30 -
additional thirty days wages for each hourly employee in California whose employment
terminated in the four years preceding the filing of the complaint; civil penalties; an award of
attorneys fees and costs; and injunctive and declaratory relief. The Company believes that the
complaint is without merit and, if served, the Company 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 labor 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.
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,
except as follows:
CITs Financial Difficulty Could Disrupt our Business and Operations. The Company has in
place a financing agreement with The CIT Group/Business Credit, Inc. (CIT) and a syndicate of
other lenders which provides for a line of credit of up to $175.0 million, and under which CIT acts
as administrative agent and has the largest lending commitment totaling $65.0 million. CIT has
publicly announced that its liquidity position has been materially adversely affected by the
ongoing stress in the credit markets, that there is doubt about its ability to continue as a going
concern and that it may be required to seek bankruptcy protection. Although we believe the
commitments from the other lenders under the credit facility should be sufficient to meet our near
term borrowing requirements, if CIT is unable to perform its lending or administrative commitments
under the facility, this could result in disruptions to our business and could require us to
replace this facility with a new facility or to raise capital from alternative sources on less
favorable terms, including higher rates of interest.
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Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
None.
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Item 3. |
|
Defaults Upon Senior Securities |
None.
- 31 -
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Item 4. |
|
Submission of Matters to a Vote of Security Holders |
On June 9, 2009, the Company held its annual meeting of stockholders. At the annual meeting,
the following matters were voted upon and the final votes on the proposals were recorded as
follows:
|
1. |
|
The Companys stockholders approved the proposal to re-elect the following
two Class A directors to the Companys Board of Directors, each to hold office until
the 2012 annual meeting of stockholders (and until each such directors successor
shall have been duly elected and qualified): |
|
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|
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|
|
|
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|
|
|
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Votes For |
|
Votes Withheld |
|
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|
|
|
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|
|
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G. Michael Brown |
|
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12,151,422 |
|
|
|
7,960,030 |
|
David R. Jessick |
|
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18,210,108 |
|
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1,901,344 |
|
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|
The term of office for the following directors continued after the meeting:
Sandra N. Bane (Class B director), Michael D. Miller (Class B director), Jennifer
Holden Dunbar (Class C Director) and Steven G. Miller (Class C Director). |
|
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There were no abstentions or broker non-votes. |
|
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2. |
|
The Companys stockholders ratified the appointment of Deloitte & Touche LLP
as its independent registered public accounting firm for the fiscal year ended January
3, 2010. |
|
|
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|
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|
|
|
|
|
|
|
|
|
|
Votes For |
|
Votes Against |
|
Votes Abstained |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,071,922 |
|
|
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25,859 |
|
|
|
13,671 |
|
|
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There were no broker non-votes. |
|
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|
Item 5. |
|
Other Information |
None.
(a) Exhibits
|
|
|
|
|
Exhibit Number |
|
Description of Document |
|
|
|
|
|
|
15.1 |
|
|
Independent Auditors Awareness Letter Regarding 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. |
- 32 -
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.
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BIG 5 SPORTING GOODS CORPORATION,
a Delaware corporation
|
|
Date: August 5, 2009 |
By: |
/s/ Steven G. Miller
|
|
|
|
Steven
G. Miller |
|
|
|
Chairman of the Board of Directors,
President and Chief Executive Officer |
|
|
|
|
|
Date: August 5, 2009 |
By: |
/s/ Barry D. Emerson
|
|
|
|
Barry
D. Emerson |
|
|
|
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and
Accounting Officer) |
|
|
- 33 -