<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934.
For the transition period from __________________ to _________________________
Commission File Number : 333-43129
BIG 5 CORP.
FKA: UNITED MERCHANDISING CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State of Incorporation)
95-1854273
(I.R.S employer identification number)
2525 EAST EL SEGUNDO BOULEVARD
EL SEGUNDO, CALIFORNIA 90245
(310) 536-0611
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the registrant 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). Yes [X] No [ ]
Indicate by check mark whether the registrant has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding for each of the registrant's classes
of common stock, as of the latest practicable date. 1,000 shares of common
stock, $.01 par value, at August 10, 1998.
1
<PAGE> 2
BIG 5 CORP.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Title Page 1
Index 2
PART I -FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 28, 1998 and
December 28, 1997 3
Statements of Operations -
Three months and six months ended June 28, 1998 and
June 29, 1997 4
Statements of Cash Flows -
Six months ended June 28, 1998 and six months ended
June 29, 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of
Security-Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
2
<PAGE> 3
BIG 5 CORP.
Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
June 28, December 28,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,030 $ 1,364
Trade and other receivables, net of allowance
for doubtful accounts of $127 and
$118, respectively 3,513 6,702
Merchandise inventories 155,757 147,279
Prepaid expenses 1,078 1,053
--------- ---------
Total current assets 161,378 156,398
--------- ---------
Property and equipment:
Land 186 186
Buildings and improvements 16,395 15,353
Furniture and equipment 34,991 33,481
Less accumulated depreciation and amortization (24,011) (21,719)
--------- ---------
Net property and equipment 27,561 27,301
--------- ---------
Deferred income taxes, net 6,257 6,257
Leasehold interest, net of accumulated amortization of
$14,764 and $13,882 respectively 13,713 14,610
Other assets, at cost, less accumulated
amortization of $1,449 and $975, respectively 5,816 6,336
Goodwill, less accumulated amortization of $1,247
and $1,124, respectively 5,297 5,420
--------- ---------
$ 220,022 $ 216,322
========= =========
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 51,689 $ 44,089
Accrued expenses 28,281 31,428
--------- ---------
Total current liabilities 79,970 75,517
--------- ---------
Deferred rent 6,290 5,988
Long-term debt 170,426 173,660
--------- ---------
Total liabilities 256,686 255,165
--------- ---------
Commitments and contingencies
Stockholder's deficit:
Common stock, $.01 par value. Authorized
3,000 shares; issued and outstanding
1,000 shares -- --
Additional paid-in capital 35,080 35,080
Accumulated deficit (71,744) (73,923)
--------- ---------
Total stockholder's deficit (36,664) (38,843)
--------- ---------
$ 220,022 $ 216,322
========= =========
</TABLE>
See accompanying notes to condensed financial statements
3
<PAGE> 4
BIG 5 CORP.
Statements of Operations
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ -------------------------------
June 28, 1998 June 29, 1997 June 28, 1998 June 29, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $118,125 $110,308 $228,214 $207,098
Cost of goods sold, buying and
occupancy 76,992 71,818 151,757 138,401
-------- -------- -------- --------
Gross profit 41,133 38,490 76,457 68,697
-------- -------- -------- --------
Operating expenses:
Selling and administration 29,616 27,832 58,925 54,071
Depreciation and amortization 2,066 2,031 4,133 3,998
-------- -------- -------- --------
Total operating expenses 31,682 29,863 63,058 58,069
-------- -------- -------- --------
Operating income 9,451 8,627 13,399 10,628
Interest expense, net 4,785 2,706 9,661 5,417
-------- -------- -------- --------
Income before income taxes 4,666 5,921 3,738 5,211
Income taxes 1,913 -- 1,533 --
-------- -------- -------- --------
Net income $ 2,753 $ 5,921 $ 2,205 $ 5,211
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
BIG 5 CORP.
Statement of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
June 28, 1998 June 29, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,205 $ 5,211
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,133 3,998
Amortization of deferred finance charges 474 330
Deferred tax benefit -- (1,336)
Change in assets and liabilities:
Merchandise inventories (8,478) (17,122)
Trade & other receivables 3,189 331
Prepaid expenses and other assets 96 (305)
Accounts payable 7,600 6,701
Accrued expenses (3,147) (6,000)
-------- --------
Net cash provided by (used in) operating activities 6,072 (8,192)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (3,131) (2,003)
-------- --------
Net cash used in investing activities (3,131) (2,003)
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facilities (3,248) 9,113
Dividends paid to parent (27) --
-------- --------
Net cash provided by (used in) financing activities (3,275) 9,113
-------- --------
Net decrease in cash and cash equivalents (334) (1,082)
Cash and cash equivalents at beginning of period 1,364 4,797
-------- --------
Cash and cash equivalents at end of period $ 1,030 $ 3,715
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE> 6
BIG 5 CORP.
Notes to Financial Statements
(Dollars in Thousands)
FINANCIAL INFORMATION
1. In the opinion of management of Big 5 Corp. ("the Company"), the
accompanying unaudited financial statements contain all adjustments,
consisting only of normal recurring adjustments, which in the opinion of
management are necessary to present fairly and in accordance with generally
accepted accounting principles the financial position and cash flows as of
and for the period ended June 28, 1998. It should be understood that
accounting measurements at interim dates inherently involve greater
reliance on estimates than at fiscal year-end. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission; however, management believes that the
disclosures are adequate to make the information presented not misleading.
2. These unaudited financial statements should be read in conjunction with the
Company's 1997 audited financial statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 28, 1997.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
RESULTS OF OPERATIONS
The results of the interim periods are not necessarily indicative of results for
the entire fiscal year.
THREE MONTHS ENDED JUNE 28, 1998 VERSUS THREE MONTHS ENDED JUNE 29, 1997
The following table sets forth for the periods indicated operating results in
thousands of dollars and expressed as a percentage of sales.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
June 28, 1998 June 29, 1997
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net sales $118,125 100.0% $110,308 100.0%
Cost of goods sold, buying and
occupancy 76,992 65.2 71,818 65.1
-------- -------- -------- --------
Gross profit 41,133 34.8 38,490 34.9
-------- -------- -------- --------
Operating expenses:
Selling and administrative 29,616 25.1 27,832 25.2
Depreciation and amortization 2,066 1.7 2,031 1.9
-------- -------- -------- --------
Total operating expense 31,682 26.8 29,863 27.1
-------- -------- -------- --------
Operating income 9,451 8.0 8,627 7.8
Interest expense 4,785 4.1 2,706 2.4
-------- -------- -------- --------
Net income before
income taxes 4,666 3.9 5,921 5.4
Income taxes 1,913 1.6 -- --
-------- -------- -------- --------
Net income $ 2,753 2.3% $ 5,921 5.4%
======== ======== ======== ========
EBITDA (a) $ 11,517 9.7% $ 10,658 9.7%
======== ======== ======== ========
</TABLE>
(a) EBITDA represents net earnings (loss) before taking into consideration net
interest expense, income tax expense, depreciation expense, amortization
expense and non-cash rent expense (see Footnote 5 in "Notes to Financial
Statements" of the Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 1997). While EBITDA is not intended to represent cash
flow from operations as defined by generally accepted accounting principles
("GAAP") and should not be considered as an indicator of operating
performance or an alternative to cash flow (as measured by GAAP) as a
measure of liquidity, it is included herein because some investors believe
it provides additional information with respect to the ability of the
Company to meet its future debt service, capital expenditure and working
capital requirements.
7
<PAGE> 8
1. Net Sales
Net sales increased 7.1% (or $7.8 million) from $110.3 million reported for
the three months ended June 29, 1997 to $118.1 million for the three months
ended June 28, 1998. Same store sales increased 3.4% compared with the same
period last year, representing the tenth consecutive quarter of positive
same store comparisons. These favorable comparisons reflect the continued
success of the Company's merchandising programs and positive general
economic conditions in the Western United States, partially offset by one
less business day in the accounting period due to the timing of the Easter
Holiday. Sales attributable to an increase in store count from 200 at June
29, 1997 to 209 at June 28, 1998 constituted the remainder of the 7.1%
sales increase for the quarter.
2. Gross Profit
Gross profit increased 6.9% (or $2.6 million) from $38.5 million for the
three months ended June 29, 1997 to $41.1 million for the three months
ended June 28, 1998, reflecting the increased sales discussed above. Gross
profit margin decreased marginally from 34.9% of sales in the 1997 quarter
to 34.8% of sales this year.
3. Operating Expenses
Selling and administrative expenses increased 6.4% (or $1.8 million) from
$27.8 million for the three months ended June 29, 1997 to $29.6 million for
the three months ended June 28, 1998, reflecting the increase in the
Company's store count between periods. As a percentage of sales, selling
and administrative expenses decreased from 25.2% of sales for the 1997
period to 25.1% of sales in the 1998 period, which is a result of
management's continued focus on controlling expenses and leveraging fixed
costs due to increased sales.
Depreciation and amortization increased 1.7% (or $0.1 million) from $2.0
million for the prior year period to $2.1 million for the three months
ended June 28, 1998. This increase is due to capital expenditures and the
related depreciation and amortization for expenditures related to the
growth in the Company's store base during the past fiscal year.
4. Interest Expense, Net
Interest expense, net increased 76.8% (or $2.1 million) from $2.7 million
for the prior year period to $4.8 million for the three months ended June
28, 1998. This increase is the result of the Company's Recapitalization
(see "Liquidity and Capital Resources") which increased debt levels
beginning in the fourth quarter of 1997.
5. Income Taxes
The Company recorded income tax expense against operations of $1.9 million
for the three months ended June 28, 1998 versus no tax provision for the
same period last year. Income tax expense is based upon the estimated
effective tax rate for the entire fiscal year. The effective tax rate is
subject to ongoing evaluation by management.
8
<PAGE> 9
6. Net Income
Net income for the three months ended June 28, 1998 decreased 53.5% (or
$3.1 million) from $5.9 million for the three months ended June 29, 1997 to
$2.8 million for three months ended June 28, 1998. This decrease reflects
the impact of the company's fourth quarter 1997 Recapitalization (see
"Liquidity and Capital Resources") which raised debt levels resulting in
increased interest expense as well as income tax expense recorded during
the quarter. These factors more than offset the positive operating results
achieved by the Company during the three months ended June 28, 1998.
7. Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA")
EBITDA increased 8.1% (or $0.9 million) from $10.7 million for the three
months ended June 29, 1997 to $11.5 million for the three months ended June
28, 1998. This improvement reflects the positive operating results achieved
during the three months ended June 28, 1998.
SIX MONTHS ENDED JUNE 28, 1998 VERSUS SIX MONTHS ENDED JUNE 29, 1997
The following table sets forth for the periods indicated operating results in
thousands of dollars and expressed as a percentage of sales.
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------------
June 28, 1998 June 29, 1997
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net sales $228,214 100.0% $207,098 100.0%
Cost of goods sold, buying and
occupancy 151,757 66.5 138,401 66.8
-------- -------- -------- --------
Gross profit 76,457 33.5 68,697 33.2
-------- -------- -------- --------
Operating expenses:
Selling and administration 58,925 25.8 54,071 26.1
Depreciation and amortization 4,133 1.8 3,998 2.0
-------- -------- -------- --------
Total operating expense 63,058 27.6 58,069 28.1
-------- -------- -------- --------
Operating income 13,399 5.9 10,628 5.1
Interest expense, net 9,661 4.2 5,417 2.6
-------- -------- -------- --------
Net income (loss)
before income taxes 3,738 1.7 5,211 2.5
Income taxes 1,533 0.7 -- --
-------- -------- -------- --------
Net income (loss) $ 2,205 1.0% $ 5,211 2.5%
======== ======== ======== ========
EBITDA (a) $ 17,532 7.7% $ 14,626 7.1%
======== ======== ======== ========
</TABLE>
9
<PAGE> 10
(a) EBITDA represents net earnings (loss) before taking into consideration net
interest expense, income tax expense, depreciation expense, amortization
expense and non-cash rent expense (see Footnote 5 in "Notes to Financial
Statements" of the Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 1997). While EBITDA is not intended to represent cash
flow from operations as defined by generally accepted accounting principles
("GAAP") and should not be considered as an indicator of operating
performance or an alternative to cash flow (as measured by GAAP) as a
measure of liquidity, it is included herein because some investors believe
it provides additional information with respect to the ability of the
Company to meet its future debt service, capital expenditure and working
capital requirements.
1. Net Sales
Net sales increased 10.2% (or $21.1 million) from $207.1 million reported
for the six months ended June 29, 1997 to $228.2 million for the six months
ended June 28, 1998. Same store sales increased 6.0% compared with the same
period last year reflecting the continued success of the Company's
merchandising programs, a favorable winter season, and positive general
economic conditions in the Western United States. Sales attributable to an
increase in store count from 200 at June 29, 1997 to 209 at June 28, 1998
constituted the remainder of the 10.2% sales increase for the 26 week
period.
2. Gross Profit
Gross profit increased 11.3% (or $7.8 million) from $68.7 million for the
six months ended June 29, 1997 to $76.5 million for the six months ended
June 28, 1998, reflecting the increased sales discussed above and improved
gross profit margin. Gross profit margin increased from 33.2% of sales for
the first six month period in 1997 to 33.5% for the comparable first six
month period this year. The improvement in gross profit margin for the six
months ended June 28, 1998 was due to positive comparisons in many of the
Company's product categories including shoes and the seasonal ski related
product categories along with the leveraging of fixed costs due to
increased sales.
3. Operating Expenses
Selling and administrative expenses increased 9.0% (or $4.8 million) from
$54.1 million for the six months ended June 29, 1997 to $58.9 million for
the six months ended June 28, 1998. This increase resulted primarily from
an increase in the Company's store base from 200 stores last year to 209 at
the end of June 1998. When measured as a percentage of sales, selling and
administrative expenses decreased from 26.1% of sales for the 1997 period
to 25.8% of sales in the 1998 period, as a result of management's continued
focus on controlling expenses and its leveraging of fixed costs due to
increased sales.
Depreciation and amortization increased 3.4% (or $0.1 million) from $4.0
million for the prior year period to $4.1 million for the six months ended
June 28, 1998. The increase is due to capital expenditures, and the related
depreciation and amortization for expenditures related to the growth in the
Company's store base during the past fiscal year.
4. Interest Expense, Net
Interest expense, net increased 78.3% (or $4.3 million) from $5.4 million
for the prior year period to $9.7 million for the six months ended June 28,
1998. This increase is a result of the impact of the
10
<PAGE> 11
Company's Recapitalization (see "Liquidity and Capital Resources") which
increased debt levels beginning in the fourth quarter of 1997.
5. Income Taxes
The Company recorded income tax expense against operations of $1.5 million
for the six months ended June 28, 1998 versus no tax provision for the same
period last year. Income tax expense is based upon the estimated effective
tax rate for the entire fiscal year. The effective tax rate is subject to
ongoing evaluation by management.
6. Net Income/(Loss)
Net income for the six months ended June 28, 1998 decreased $3.0 million
from a net income of $5.2 million for the six months ended June 29, 1997 to
a net income of $2.2 million for six months ended June 28, 1998. This
decrease reflects the impact of the company's fourth quarter 1997
Recapitalization (see "Liquidity and Capital Resources") which raised debt
levels resulting in increased interest expense as well as income tax
expense recorded during the six month period this year. These factors more
than offset the positive operating results achieved by the Company during
the three months ended June 28, 1998.
7. Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA")
EBITDA increased 19.9% (or $2.9 million) from $14.6 million for the six
months ended June 29, 1997 to $17.5 million for the six months ended June
28, 1998. Increased same store sales, gross margin and operating
efficiencies were the primary factors contributing to the significant
improvement.
LIQUIDITY AND CAPITAL RESOURCES
In October 1997, Big 5 Holdings Corp. (the "Parent"), Robert W. Miller,
Steven G. Miller and Green Equity Investors, L.P. ("GEI") agreed to a
recapitalization agreement (the "Recapitalization Agreement") which resulted in
existing management and employees of the Company (and members of their families)
beneficially gaining majority ownership of the Company when the recapitalization
was completed on November 13, 1997 (the "Recapitalization").
In connection with the Recapitalization, the Company issued $131.0
million in aggregate principal amount of Series A 10 7/8% Senior Notes due 2007,
requiring semi-annual interest payments. These notes were subsequently exchanged
for a like aggregate principal amount of Series B 10 7/8% Senior Notes due 2007
(the "Senior Notes"), having substantially identical terms. The Company has no
mandatory payments of principal on the Senior Notes prior to their final
maturity in 2007.
The Company's primary sources of liquidity are cash flow from
operations and borrowings under the Company's five year, non-amortizing, $125.0
million revolving credit facility (the "CIT Credit Facility"). The Company
amended its then-current Credit Facility effective November 13, 1997, to provide
for the CIT Credit Facility. The CIT Credit Facility is secured by the Company's
trade accounts receivable, merchandise inventories and general intangible
assets. Subject to certain terms and conditions, the CIT Credit Facility permits
the Company to obtain revolving loans up to a maximum
11
<PAGE> 12
aggregate principal amount that, together with the aggregate undrawn amount of
all outstanding letters of credit and of all unreimbursed amounts drawn under
letters of credit, does not exceed the lesser of $125.0 million and the
Borrowing Base (as defined therein), which is generally equal to 70% of the
aggregate value of Eligible Inventory (as defined therein) during November
through February and 65% of the aggregate value of Eligible Inventory during the
remaining months of the year. The value of the Company's Eligible Inventory as
of June 28, 1998 was approximately $146.0 million. The Company intends to use
net cash provided by operating activities and borrowings under the CIT Credit
Facility to fund its anticipated capital expenditures and working capital
requirements. However, if additional cash is required, it may be difficult for
the Company to obtain because the Company is highly leveraged and is limited by
restrictions contained in the CIT Credit Facility and the indenture governing
the Senior Notes.
As a result of borrowings under the Recapitalization, the Company's
interest expense increased from $5.4 million for the six months ended June 29,
1997 to $9.7 million for the six months ended June 28, 1998. The Company
believes that cash flow from operations will be sufficient to cover the interest
expense arising from the CIT Credit Facility and the Senior Notes. However, the
Company's ability to meet its debt service obligations depends upon its future
performance, which, in turn, is subject to, among other things, general economic
conditions and regional risks, and to financial, business and other factors
affecting the operations of the Company, including factors beyond its control.
Accordingly, there can be no assurance that cash flow from operations will be
sufficient to meet the Company's debt service obligations.
Net cash provided by operating activities was $6.1 million for the six
months ended June 28, 1998 versus net cash used of $8.2 million for the six
months ended June 29, 1997, primarily reflecting improved operating results
combined with reduced inventory purchases during the six month period ended June
28, 1998.
Capital expenditures for the six months ended June 28, 1998 were $3.1
million versus $2.0 million for the same period last year. Management expects
capital expenditures for Fiscal 1998 will range from $6.0 to $6.5 million and
will be used primarily to fund the opening of approximately 15 new stores.
Net cash used in financing activities was $3.3 million for the six
months ended June 28, 1998 versus cash provided of $9.1 million for the same
period last year. As of June 28, 1998, the Company had borrowings of $40.0
million and letter of credit commitments of $5.3 million outstanding under the
CIT Credit Facility compared to $59.1 million and $3.1 million as of June 29,
1997, with cash and cash equivalents of $1.0 million at June 28, 1998 compared
to $3.7 million at June 29, 1997.
The CIT Credit Facility and the Senior Notes indenture contain various
covenants which impose certain restrictions on the Company, including the
incurrence of additional indebtedness, the payment of dividends, and the ability
to make acquisitions. In addition, the CIT Credit Facility requires compliance
with the maintenance of certain financial ratios and other financial covenants.
The Company is in compliance with all the covenants under the CIT Credit
Agreement and the Senior Notes indenture.
The Company is not aware of any material environmental liabilities
relating to either past or current properties owned, operated or leased by it.
There can be no assurance that such liabilities do not currently exist or will
not exist in the future.
12
<PAGE> 13
IMPACT OF ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standard Board issued Statement No. 130, (Reporting
Comprehensive Income); Statement No. 131, (Disclosure about Segment of an
Enterprise and Related Information); and Statement No. 132, (Employers'
Disclosures about Pensions and other Post Retirement Benefits). These statements
are effective for fiscal years beginning after December 15, 1997. Management has
determined that the disclosure requirements from these statements will not
impact the financial statements of the Company.
The Financial Accounting Standards Board issued Statement No. 133, (Accounting
for Derivative Instruments and Hedging Activities) effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Management has
determined that the disclosure requirements from this statement will not impact
the financial statements of the Company.
YEAR 2000
In 1997, the Company developed a plan to make its computer systems Year 2000
compliant. The plan provides for the conversion efforts to be completed by the
end of 1998. The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year. The
Company's plan is to upgrade its existing software with a version which is Year
2000 compliant. As the upgrade is from its existing vendors, the Company does
not expect the costs to have a material impact on its results of operations.
SEASONALITY
The Company's business is seasonal in nature. As a result, the
Company's results of operations are likely to vary during its fiscal year.
Historically, the Company's revenues and income are highest during its fourth
quarter, due to several factors. The fourth quarter contributed 26.9% in 1997
and 26.7% in 1996 of fiscal year net sales and 33.7% in 1997 and 37.5% in 1996
of fiscal year EBITDA. Any decrease in sales for such period could have a
material adverse effect on the Company's business, financial condition and
operating results for the entire fiscal year.
IMPACT OF INFLATION
The Company does not believe that inflation has a material impact on
the Company's earnings from operations. The Company believes that it is
generally able to pass any inflationary increases in costs to its customers.
FORWARD-LOOKING STATEMENTS
Certain information contained herein includes "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and is subject to the safe harbor created by that Act. Forward-looking
statements can be identified by the use of forward-looking terminology, such as
"may," "will," "should," "expect," "anticipate," "estimate," "continue," "plan,"
"intend" or other
13
<PAGE> 14
similar terminology. Such forward-looking statements, which relate to, among
other things, the financial condition, results of operations and business of the
Company, are subject to significant risks and uncertainties that could cause
actual results to differ materially and adversely from those set forth in such
statements. These include, without limitation, the Company's ability to open new
stores on a timely and profitable basis, the impact of competition on revenues
and margins, the effect of weather conditions and general economic conditions in
the western United States (which is the Company's area of operation), the
seasonal nature of the Company's business, and other risks and uncertainties
including the risk factors listed in the Company's Registration Statement on
Form S-4 as filed with the Securities and Exchange Commission on January 16,
1998 and as may be detailed from time to time in the Company's public
announcements and filings with the Securities and Exchange Commission. The
Company assumes no obligation to publicly release the results of any revisions
to the forward-looking statements contained herein which may be made to reflect
events or circumstances occurring subsequent to the filing of this Form 10-Q
with the Securities and Exchange Commission or otherwise to revise or update any
oral or written forward-looking statements that may be made from time to time by
or on behalf of the Company.
14
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions arising in the
ordinary course of business. In the opinion of management, the
ultimate disposition of matters currently pending against the Company
will not have a material adverse effect on the Company's financial
position.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None.
______________________________________
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIG 5 CORP.,
A DELAWARE CORPORATION
Date: 08/11/98 By: /S/ STEVEN G. MILLER
--------------------------------------
Steven G. Miller
President and Chief Operating Officer
Date: 08/11/98 By: /S/ CHARLES P. KIRK
--------------------------------------
Charles P. Kirk
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> JUN-28-1998
<CASH> 1,030
<SECURITIES> 0
<RECEIVABLES> 3,513
<ALLOWANCES> 127
<INVENTORY> 155,757
<CURRENT-ASSETS> 161,378
<PP&E> 27,561
<DEPRECIATION> 24,011
<TOTAL-ASSETS> 220,022
<CURRENT-LIABILITIES> 79,970
<BONDS> 170,426
0
0
<COMMON> 35,080
<OTHER-SE> (71,744)
<TOTAL-LIABILITY-AND-EQUITY> 220,022
<SALES> 118,125
<TOTAL-REVENUES> 118,125
<CGS> 76,992
<TOTAL-COSTS> 76,992
<OTHER-EXPENSES> 31,682
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,785
<INCOME-PRETAX> 4,666
<INCOME-TAX> 1,913
<INCOME-CONTINUING> 2,753
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,753
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
