<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 October 1, 2000
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.
SUCCESSOR TO: UNITED MERCHANDISING CORP.
DBA: BIG 5 SPORTING GOODS
(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 November 14, 2000.
<PAGE> 2
BIG 5 CORP.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Title Page 1
Index 2
PART I -FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
Condensed Balance Sheet - October 1, 2000 and
January 2, 2000 3
Condensed Statements of Operations - Three months and nine
months ended October 1, 2000 and October 3, 1999 4
Condensed Statements of Cash Flows - Nine months ended
October 1, 2000 and October 3, 1999 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-14
Item 3. Market Risk Disclosure 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.
Condensed Balance Sheets
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
October 1, January 2,
2000 2000
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ -- $ --
Trade and other receivables, net of allowance for doubtful
accounts of $224 and $93, respectively 3,481 6,405
Merchandise inventories 173,182 155,283
Prepaid expenses 1,334 1,435
--------- ---------
Total current assets 177,997 163,123
--------- ---------
Property and equipment:
Land 186 186
Buildings and improvements 25,418 22,885
Furniture and equipment 48,403 45,396
Less accumulated depreciation and amortization (36,125) (32,910)
--------- ---------
Net property and equipment 37,882 35,557
--------- ---------
Deferred income taxes, net 7,824 7,824
Leasehold interest, net of accumulated amortization of
$18,942 and $17,452 respectively 9,792 11,131
Other assets, at cost, less accumulated
amortization of $1,513 and $1,015, respectively 9,148 8,903
Goodwill, less accumulated amortization of $1,803
and $1,618, respectively 4,741 4,927
--------- ---------
$ 247,384 $ 231,465
========= =========
Liabilities and Stockholder's Deficit
Current liabilities:
Accounts payable $ 64,784 $ 51,087
Accrued expenses 35,451 39,955
--------- ---------
Total current liabilities 100,235 91,042
--------- ---------
Deferred rent 7,440 7,159
Long-term debt 150,342 151,309
--------- ---------
Total liabilities 258,017 249,510
--------- ---------
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 40,639 40,639
Accumulated deficit (51,272) (58,684)
--------- ---------
Total stockholder's deficit (10,633) (18,045)
--------- ---------
$ 247,384 $ 231,465
========= =========
</TABLE>
See accompanying notes to condensed financial statements
3
<PAGE> 4
BIG 5 CORP.
Condensed Statements of Operations
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
October 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $146,169 $ 131,440 $413,153 $ 374,116
Cost of goods sold, buying and
occupancy 97,256 88,400 272,960 248,950
-------- --------- -------- ---------
Gross profit 48,913 43,040 140,193 125,166
-------- --------- -------- ---------
Operating expenses:
Selling and administration 36,967 33,730 107,881 98,136
Depreciation and amortization 2,325 2,386 6,970 7,101
-------- --------- -------- ---------
Total operating expenses 39,292 36,116 114,851 105,237
-------- --------- -------- ---------
Operating income 9,621 6,924 25,342 19,929
Interest expense, net 4,156 4,339 12,930 13,388
-------- --------- -------- ---------
Income before income taxes 5,465 2,585 12,412 6,541
Income taxes 2,274 1,059 5,087 2,681
-------- --------- -------- ---------
Income before extraordinary loss 3,191 1,526 7,325 3,860
Extraordinary gain/(loss) from early extinguishment
of debt, net of income tax benefit -- (346) 87 (346)
-------- --------- -------- ---------
Net income $ 3,191 $ 1,180 $ 7,412 $ 3,514
======== ========= ======== =========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
BIG 5 CORP.
Condensed Statement of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
October 1, 2000 October 3, 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,412 $ 3,514
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Depreciation and amortization 6,970 7,101
Amortization of deferred finance charge and discounts (27) 67
Extraordinary loss/(gain) from early extinguishment of debt (148) 586
Change in assets and liabilities:
Merchandise inventories (17,899) (15,561)
Trade accounts receivable, net 2,924 3,796
Prepaid expenses and other assets (180) (584)
Accounts payable 8,311 3,076
Accrued expenses (4,504) 1,154
-------- --------
Net cash provided by operating activities 2,859 3,149
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (7,641) (8,037)
Purchase of long-term investments 0 (1,363)
-------- --------
Net cash used in investing activities (7,641) (9,400)
-------- --------
Cash flows from financing activities:
Net borrowings under revolving credit facilities, and other 12,121 21,190
Repurchase of Senior Notes (7,339) (14,939)
-------- --------
Net cash provided by financing activities 4,782 6,251
-------- --------
Net increase/(decrease) in cash and cash equivalents 0 0
Cash and cash equivalents at beginning of period 0 0
-------- --------
Cash and cash equivalents at end of period $ 0 $ 0
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE> 6
BIG 5 CORP.
Notes to Unaudited Condensed Financial Statements
(Dollars in Thousands)
FINANCIAL INFORMATION
1. Big 5 Corp. ("the Company") operates in one business segment, as a sporting
goods retailer under the Big 5 Sporting Goods name carrying a broad range
of hardlines, softlines and footwear, operating 240 stores at October 1,
2000 in California, Washington, Arizona, Oregon, Texas, New Mexico, Nevada,
Utah and Idaho.
2. In the opinion of management of the Company, the accompanying unaudited
condensed 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 as of October 1, 2000 and
January 2, 2000 and the results of operations and cash flows for the three
and nine-month periods ended October 1, 2000 and October 3, 1999. 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.
3. These unaudited condensed financial statements should be read in
conjunction with the Company's 1999 audited financial statements included
in the Company's Annual Report on Form 10-K for the fiscal year ended
January 2, 2000.
4. During the nine months ended October 1, 2000, the Company repurchased and
retired $7.75 million face value of the Company's Series B 10 7/8% Senior
Notes due 2007 (the "Senior Notes"). The gain on retirement, net of income
tax expense and deferred costs related to the Senior Notes was $0.1
million.
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 OCTOBER 1, 2000 VERSUS THREE MONTHS ENDED OCTOBER 3, 1999
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
-----------------------------------------------------
October 1, 2000 October 3, 1999
---------------------- -----------------------
<S> <C> <C> <C> <C>
Net sales $146,169 100.0% $ 131,440 100.0%
Cost of goods sold, buying and
occupancy 97,256 66.5 88,400 67.3
-------- ----- --------- -----
Gross profit 48,913 33.5 43,040 32.7
-------- ----- --------- -----
Operating expenses:
Selling and administrative 36,967 25.3 33,730 25.7
Depreciation and amortization 2,325 1.6 2,386 1.8
-------- ----- --------- -----
Total operating expense 39,292 26.9 36,116 27.5
-------- ----- --------- -----
Operating income 9,621 6.6 6,924 5.3
Interest expense, net 4,156 2.8 4,339 3.3
-------- ----- --------- -----
Income before
income taxes 5,465 3.8 2,585 2.0
Income taxes 2,274 1.6 1,059 0.8
-------- ----- --------- -----
Income before
extraordinary loss 3,191 2.2 1,526 1.2
Extraordinary loss from early
extinguishment of debt, net
of income tax benefit -- 0.0 (346) (0.3)
-------- ----- --------- -----
Net income $ 3,191 2.2% $ 1,180 0.9%
======== ===== ========= =====
EBITDA (a) $ 11,946 8.2% $ 9,310 7.1%
======== ===== ========= =====
</TABLE>
(a) EBITDA represents net earnings before taking into consideration net
interest expense, income tax expense, depreciation expense, amortization
expense, 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 January 2, 2000), and where relevant to the period referenced,
extraordinary loss from early
7
<PAGE> 8
extinguishment of debt. 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 11.2% (or $14.8 million) from $131.4 million reported
for the three months ended October 3, 1999 to $146.2 million for the three
months ended October 1, 2000. Same store sales (sales for stores open
throughout the quarter in 2000 and 1999) increased 7.2%, representing the
nineteenth consecutive quarter of positive same store comparisons. Sales
attributable to an increase in store count from 225 at October 3, 1999 to
240 at October 1, 2000 constituted the remainder of the 11.2% sales
increase for the quarter.
2. Gross Profit
Gross profit increased 13.6% (or $5.9 million) from $43.0 million for the
three months ended October 3, 1999 to $48.9 million for the three months
ended October 1, 2000, reflecting increased sales and improved product
margins. Gross profit margin increased from 32.7% of sales for the three
months in 1999 to 33.5% of sales for the three months in 2000. The
improvement for the three months ended October 1, 2000 was due to positive
comparisons in many of the Company's product categories.
3. Operating Expenses
Selling and administrative expenses increased 9.6% (or $3.3 million) from
$33.7 million for the three months ended October 3, 1999 to $37.0 million
for the three months ended October 1, 2000, primarily reflecting the
increase in the Company's store count between periods. As a percentage of
sales, selling and administrative expenses decreased from 25.7% of sales
for the 1999 period to 25.3% of sales in the 2000 period.
Depreciation and amortization decreased 2.6% (or $0.1 million) from $2.4
million for the three months ended October 3, 1999 to $2.3 million for the
three months ended October 1, 2000.
4. Interest Expense, Net
Interest expense, net decreased 4.2% (or $0.1 million) from $4.3 million
for the prior year period to $4.2 million for the three months ended
October 1, 2000. This decrease reflected a lower weighted average interest
rate during the third quarter of 2000 versus the same period last year as
the Company bought back Senior Notes using excess liquidity from its lower
cost CIT Credit Facility. The Company's debt balances consist of borrowings
under the CIT Credit Facility and the Senior Notes (see "Liquidity and
Capital Resources").
5. Income Taxes
Income tax expense increased from $1.1 million for the prior year period to
$2.3 million for the three months ended October 1, 2000, reflecting an
increase in pre-tax income between years. Income taxes are based upon the
estimated effective tax rate for the entire fiscal year applied to the
pre-tax income for the period. The effective tax rate is subject to ongoing
evaluation by management.
8
<PAGE> 9
6. Extraordinary Loss from Early Extinguishment of Debt
There was no extraordinary loss for the three months ended October 1, 2000.
There was an extraordinary loss of $0.3 million, net of taxes, for the
three months ended October 3, 1999, in connection with the repurchase of
$15 million face value of the Company's previously outstanding Senior
Notes. Recognition of deferred costs related to the Senior Notes resulted
in an extraordinary loss of $0.3 million, net of related income taxes of
$0.2 million.
7. Net Income
Net income for the three months ended October 1, 2000 increased 170.3% (or
$2.0 million) from $1.2 million for the three months ended October 3, 1999
to $3.2 million for the three months ended October 1, 2000. This increase
reflects the positive sales and margin results achieved during the three
months ended October 1, 2000.
8. Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA")
EBITDA increased 28.3% (or $2.6 million) from $9.3 million for the three
months ended October 3, 1999 to $11.9 million for the three months ended
October 1, 2000. This improvement reflects the positive sales and margin
results achieved during the three months ended October 1, 2000 compared to
the three months ended October 3, 1999.
9
<PAGE> 10
NINE MONTHS ENDED OCTOBER 1, 2000 VERSUS NINE MONTHS ENDED OCTOBER 3, 1999
The following table sets forth for the periods indicated operating results in
thousands of dollars and expressed as a percentage of sales.
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------------------------
October 1, 2000 October 3, 1999
---------------------- ------------------------
<S> <C> <C> <C> <C>
Net sales $413,153 100.0% $ 374,116 100.0%
Cost of goods sold, buying and
occupancy 272,960 66.1 248,950 66.5
-------- ----- --------- -----
Gross profit 140,193 33.9 125,166 33.5
-------- ----- --------- -----
Operating expenses:
Selling and administration 107,881 26.1 98,136 26.2
Depreciation and amortization 6,970 1.7 7,101 1.9
-------- ----- --------- -----
Total operating expense 114,851 27.8 105,237 28.1
-------- ----- --------- -----
Operating income 25,342 6.1 19,929 5.3
Interest expense, net 12,930 3.1 13,388 3.6
-------- ----- --------- -----
Income before
income taxes 12,412 3.0 6,541 1.7
Income taxes 5,087 1.2 2,681 0.7
-------- ----- --------- -----
Income before
extraordinary loss 7,325 1.0 3,860 1.0
Extraordinary gain/(loss) from early
extinguishment of debt, net
of income tax benefit 87 0.0 (346) (0.1)
-------- ----- --------- -----
Net income $ 7,412 1.8% $ 3,514 0.9%
======== ===== ========= =====
EBITDA (a) $ 32,312 7.8% $ 27,030 7.2%
======== ===== ========= =====
</TABLE>
(a) EBITDA represents net earnings before taking into consideration net
interest expense, income tax expense, depreciation expense, amortization
expense, 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 January 2, 2000), and where relevant to the period referenced,
extraordinary gain/(loss) from early extinguishment of debt. 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.
10
<PAGE> 11
1. Net Sales
Net sales increased 10.4% (or $39.1 million) from $374.1 million reported
for the nine months ended October 3, 1999 to $413.2 million for the nine
months ended October 1, 2000. Same store sales (sales for stores open
throughout the nine months in 2000 and 1999) increased 6.1% compared with
the same period last year. Sales attributable to an increase in store count
from 225 at October 3, 1999 to 240 at October 1, 2000 constituted the
remainder of the 10.4% sales increase.
2. Gross Profit
Gross profit increased 12.0% (or $15.0 million) from $125.2 million for the
nine months ended October 3, 1999 to $140.2 million for the nine months
ended October 1, 2000, reflecting the increased sales discussed above and
improved product margins. Gross profit margin increased from 33.5% of sales
for the first nine months in 1999 to 33.9% for the comparable first nine
months in 2000. The improvement in gross profit margin for the nine months
ended October 1, 2000 was due to positive comparisons in many of the
Company's product categories.
3. Operating Expenses
Selling and administrative expenses increased 9.9% (or $9.8 million) from
$98.1 million for the nine months ended October 3, 1999 to $107.9 million
for the nine months ended October 1, 2000. This increase resulted primarily
from an increase in the Company's store base from 225 stores at October 3,
1999 to 240 at October 1, 2000. When measured as a percentage of sales,
selling and administrative expenses decreased from 26.2% of sales during
the 1999 period to 26.1% of sales during the 2000 period.
Depreciation and amortization expense decreased 1.9% (or $0.1 million) from
$7.1 million for the prior year period to $7.0 million for the nine months
ended October 1, 2000.
4. Interest Expense, Net
Interest expense, net decreased 3.4% (or $0.5 million) from $13.4 million
for the prior year period to $12.9 million for the nine months ended
October 1, 2000. This decrease reflected a lower weighted average interest
rate during the first nine months of 2000 versus the same period last year
as the Company bought back Senior Notes using excess liquidity from its
lower cost CIT Credit Facility. The Company's debt balances consist of
borrowings under the CIT Credit Facility and the Senior Notes (see
"Liquidity and Capital Resources").
5. Income Taxes
Income tax expense was $5.1 million for the nine months ended October 1,
2000 versus $2.7 million for the same period last year, reflecting an
increase in pre-tax income between years. Income taxes are based upon the
estimated effective tax rate for the entire fiscal year applied to the
pre-tax income for the period. The effective tax rate is subject to ongoing
evaluation by management.
6. Extraordinary Gain/(Loss) from Early Extinguishment of Debt
There was an extraordinary gain of $0.1 million, net of taxes and costs
related to the repurchase of the Senior Notes, for the nine months ended
October 1, 2000. There was an extraordinary loss of $0.3 million, net of
taxes and costs related to the repurchase of the Senior Notes, for the nine
months ended October 3, 1999.
11
<PAGE> 12
7. Net Income
Net income increased 111.0% (or $3.9 million) from net income of $3.5
million for the nine months ended October 3, 1999 to net income of $7.4
million for the nine months ended October 1, 2000. This improvement
reflects the positive sales and margin results and lower interest expense
achieved during the nine months ended October 1, 2000.
8. Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA")
EBITDA increased 19.5% (or $5.3 million) from $27.0 million for the nine
months ended October 3, 1999 to $32.3 million for the nine months ended
October 1, 2000. This improvement reflects the positive sales and margin
results achieved during the nine months ended October 1, 2000.
LIQUIDITY AND CAPITAL RESOURCES
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 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 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 October 1, 2000 was approximately $156.5
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 from incurring additional indebtedness, among
other things, by restrictions contained in the CIT Credit Facility and the
indenture governing the Senior Notes. Available borrowings on the CIT Credit
Facility amounted to $48.7 million at October 1, 2000.
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 repurchased and retired $19.1 million face value
of the Senior Notes during the 1999 fiscal period and $7.75 million face value
of the Senior Notes during the nine months ended October 1, 2000.
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
12
<PAGE> 13
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 decreased from $3.1
million for the nine months ended October 3, 1999 to $2.9 million for the nine
months ended October 1, 2000, primarily reflecting the increased payment of
estimated state and federal income taxes partially offset by improved net
income between periods for the nine months ended October 1, 2000.
Net cash provided by financing activities decreased from $6.3
million last year to $4.8 million for the nine months ended October 1, 2000. As
of October 1, 2000, the Company had borrowings of $46.6 million and letter of
credit commitments of $6.4 million outstanding under the CIT Credit Facility,
and $103.8 million of Senior Notes outstanding. These balances compared to
borrowings of $39.8 million and letter of credit commitments of $6.9 million
outstanding under the CIT Credit Facility and $115.5 million of Senior Notes
outstanding as of October 3, 1999. There were no cash and cash equivalents at
both October 1, 2000 and at October 3, 1999.
Capital expenditures decreased from $8.0 million for the nine
months ended October 3, 1999 to $7.6 million for the nine months ended October
1, 2000. Management expects capital expenditures for the current fiscal year
will range from $10 to $11 million which will be used primarily to fund the
opening of 15 new stores (of which 12 have already been opened as of the date of
this filing), as well as approximately $1.5 million in remaining additional
expenses for the installation of new point-of-sale registers and software for
the Company's stores. The Company incurred approximately $2.5 million in
expenditures related to this project in Fiscal 1999.
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 certain financial ratios and other financial covenants. The
Company is currently 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.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, (Accounting for Derivative
Instruments and Hedging Activities) effective for all fiscal quarters of fiscal
years beginning after June 15, 2000, as amended by SFAS No. 137. Management has
determined that the accounting and disclosure requirements from this statement
will not impact the financial statements of the Company.
13
<PAGE> 14
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, revenues and income are highest during fourth quarters, due to
industry wide holiday retail sales trends. The fourth quarter contributed 27.3%
in 1999 and 27.8% in 1998 of fiscal year net sales and 35.1% in 1999 and 32.9%
in 1998 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 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the ordinary course of its business, the Company is exposed to
certain market risks, primarily changes in interest rates. After an assessment
of these risks to the Company's operations, the Company believes that its
primary market risk exposures (within the meaning of Regulation S-K Item 305)
are not material and are not expected to have any material adverse effect on the
Company's financial condition, results of operations or cash flows for the next
fiscal year.
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: 11/14/00 By: /S/ STEVEN G. MILLER
-------- ------------------------------------
Steven G. Miller
President and
Chief Operating Officer
Date: 11/14/00 By: /S/ CHARLES P. KIRK
-------- ------------------------------------
Charles P. Kirk
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
