<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 July 2, 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 August 15, 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 Sheets - July 2, 2000 and
January 2, 2000 3
Condensed Statements of Operations -
Three months and six months ended July 2, 2000 and
July 4, 1999 4
Condensed Statements of Cash Flows -
Six months ended July 2, 2000 and
July 4, 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>
July 2, 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 $132 and $93, respectively 4,632 6,405
Merchandise inventories 169,536 155,283
Prepaid expenses 1,509 1,435
--------- ---------
Total current assets 175,677 163,123
--------- ---------
Property and equipment:
Land 186 186
Buildings and improvements 24,261 22,885
Furniture and equipment 47,813 45,396
Less accumulated depreciation and amortization (35,012) (32,910)
--------- ---------
Net property and equipment 37,248 35,557
--------- ---------
Deferred income taxes, net 7,824 7,824
Leasehold interest, net of accumulated amortization of
$18,497 and $17,452 respectively 10,237 11,131
Other assets, at cost, less accumulated
amortization of $1,340 and $1,015, respectively 9,063 8,903
Goodwill, less accumulated amortization of $1,742
and $1,618, respectively 4,803 4,927
--------- ---------
$ 244,852 $ 231,465
========= =========
Liabilities and Stockholder's Deficit
Current liabilities:
Accounts payable $ 61,267 $ 51,087
Accrued expenses 31,724 39,955
--------- ---------
Total current liabilities 92,991 91,042
--------- ---------
Deferred rent 7,348 7,159
Long-term debt 158,335 151,309
--------- ---------
Total liabilities 258,674 249,510
--------- ---------
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 (54,461) (58,684)
--------- ---------
Total stockholder's deficit (13,822) (18,045)
--------- ---------
$ 244,852 $ 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 Six Months Ended
-------------------------- ---------------------------
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $137,271 $125,579 $266,984 $242,676
Cost of goods sold, buying and
occupancy 88,877 81,722 175,702 160,550
-------- -------- -------- --------
Gross profit 48,394 43,857 91,282 82,126
-------- -------- -------- --------
Operating expenses:
Selling and administration 36,039 32,700 70,914 64,406
Depreciation and amortization 2,317 2,335 4,645 4,715
-------- -------- -------- --------
Total operating expenses 38,356 35,035 75,559 69,121
-------- -------- -------- --------
Operating income 10,038 8,822 15,723 13,005
Interest expense, net 4,446 4,507 8,774 9,049
-------- -------- -------- --------
Income before income taxes 5,592 4,315 6,949 3,956
Income taxes 2,271 1,769 2,813 1,622
-------- -------- -------- --------
Income before extraordinary gain 3,321 2,546 4,136 2,334
Extraordinary gain from early extinguishment
of debt, net of income tax expense 51 -- 87 --
-------- -------- -------- --------
Net income $ 3,372 $ 2,546 $ 4,223 $ 2,334
======== ======== ======== ========
</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>
Six Months Ended
---------------------------
July 2, 2000 July 4, 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,223 $ 2,334
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 4,645 4,715
Amortization of deferred finance charge and discounts (3) 136
Extraordinary gain from early extinguishment of debt (148) --
Change in assets and liabilities:
Merchandise inventories (14,253) (17,208)
Trade accounts receivable, net 1,773 2,902
Prepaid expenses and other assets (338) (574)
Accounts payable 7,751 9,639
Accrued expenses (8,231) (3,653)
-------- --------
Net cash used in operating activities (4,581) (1,709)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (5,237) (4,828)
Purchase of long-term investments -- (1,363)
-------- --------
Net cash used in investing activities (5,237) (6,191)
-------- --------
Cash flows from financing activities:
Net (payment)/borrowings under revolving credit facilities, and other 17,157 7,900
Repurchase of long-term debt (7,339) --
-------- --------
Net cash provided by financing activities 9,818 7,900
-------- --------
Net increase/(decrease) in cash and cash equivalents -- --
Cash and cash equivalents at beginning of period -- --
-------- --------
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 236 stores at July 2, 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 July 2, 2000 and January
2, 2000 and the results of operations and cash flows for the periods ended
July 2, 2000 and July 4, 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 six months ended July 2, 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 deferred
costs related to the Senior Notes was $0.1 million, net of related income
tax expense.
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 JULY 2, 2000 VERSUS THREE MONTHS ENDED JULY 4, 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
---------------------------------------------
July 2, 2000 July 4, 1999
------------------- -------------------
(dollar amounts in thousands)
<S> <C> <C> <C> <C>
Net sales $137,271 100.0% $125,579 100.0%
Cost of goods sold, buying and
occupancy 88,877 64.7 81,722 65.1
-------- ----- -------- -----
Gross profit 48,394 35.3 43,857 34.9
-------- ----- -------- -----
Operating expenses:
Selling and administrative 36,039 26.3 32,700 26.0
Depreciation and amortization 2,317 1.7 2,335 1.9
-------- ----- -------- -----
Total operating expense 38,356 28.0 35,035 27.9
-------- ----- -------- -----
Operating income 10,038 7.3 8,822 7.0
Interest expense, net 4,446 3.2 4,507 3.6
-------- ----- -------- -----
Net income before
income taxes 5,592 4.1 4,315 3.4
Income taxes 2,271 1.7 1,769 1.4
-------- ----- -------- -----
Income before
extraordinary gain 3,321 2.4 2,546 2.0
Extraordinary gain from early
extinguishment of debt, net
of income tax benefit 51 0.1 -- 0.0
-------- ----- -------- -----
Net income $ 3,372 2.5% $ 2,546 2.0%
======== ===== ======== =====
EBITDA (a) $ 12,355 9.0% $ 11,157 8.9%
======== ===== ======== =====
</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). 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
7
<PAGE> 8
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 9.3% (or $11.7 million) from $125.6 million reported for
the three months ended July 4, 1999 to $137.3 million for the three months
ended July 2, 2000. Same store sales (sales for stores open throughout the
quarter in 2000 and 1999) increased 5.0%, representing the eighteenth
consecutive quarter of same store sales increases. The Company's stores are
closed on Easter, which fell in the second quarter this year versus the
first quarter last year, resulting in one less business day for the three
months ended July 2, 2000 versus the three months ended July 4, 1999. On a
like day comparison to last year, same store sales were up 6.2% for the
three months ended July 2, 2000 versus the three months ended July 4, 1999.
Sales attributable to an increase in store count from 223 at July 4, 1999 to
236 at July 2, 2000 constituted the remainder of the 9.3% sales increase for
the quarter.
2. Gross Profit
Gross profit increased 10.3% (or $4.5 million) from $43.9 million for the
three months ended July 4, 1999 to $48.4 million for the three months ended
July 2, 2000, reflecting the increased sales discussed above and improved
gross product margins. Gross profit margin increased from 34.9% for the
three months in 1999 to 35.3% for the comparable period this year. The
improvement for the three months ended July 2, 2000 was due to positive
comparisons in many of the Company's product categories.
3. Operating Expenses
Selling and administrative expenses increased 10.2% (or $3.3 million) from
$32.7 million for the three months ended July 4, 1999 to $36.0 million for
the three months ended July 2, 2000, reflecting the increase in the
Company's store count between periods. As a percentage of sales, selling and
administrative expenses increased from 26.0% in 1999 to 26.3% in 2000.
Depreciation and amortization remained unchanged at $2.3 million for the
three months ended July 2, 2000 compared to the prior year period.
4. Interest Expense, Net
Interest expense, net decreased 1.3% (or $0.1 million) from $4.5 million for
the three months ended July 4, 1999 to $4.4 million for the three months
ended July 2, 2000. This decrease reflected lower average interest rates
during the second 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 $1.8 million for the prior year period to
$2.3 million for the three months ended July 2, 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 Gain From Early Extinguishment of Debt
There was an extraordinary gain of $0.05 million, net of taxes and costs
related to the Senior Notes, for the three months ended July 2, 2000. There
was no such extraordinary gain for the same period last year.
7. Net Income
Net income for the three months ended July 2, 2000 increased 32.4% (or $0.8
million) from $2.5 million for the three months ended July 4, 1999 to $3.4
million for the three months ended July 2, 2000. This increase reflects the
positive sales and margin results achieved during the three months ended
July 2, 2000.
8. Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA")
EBITDA increased 10.7% (or $1.2 million) from $11.2 million for the three
months ended July 4, 1999 to $12.4 million for the three months ended July
2, 2000. This improvement reflects the positive sales and margin results
achieved during the three months ended July 2, 2000 compared to the three
months ended July 4, 1999.
9
<PAGE> 10
SIX MONTHS ENDED JULY 2, 2000 VERSUS SIX MONTHS ENDED JULY 4, 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>
Six Months Ended
---------------------------------------------
July 2, 2000 July 4, 1999
------------------- -------------------
(dollar amounts in thousands)
<S> <C> <C> <C> <C>
Net sales $266,984 100.0% $242,676 100.0%
Cost of goods sold, buying and
occupancy 175,702 65.8 160,550 66.2
-------- ----- -------- -----
Gross profit 91,282 34.2 82,126 33.8
-------- ----- -------- -----
Operating expenses:
Selling and administration 70,914 26.6 64,406 26.5
Depreciation and amortization 4,645 1.7 4,715 1.9
-------- ----- -------- -----
Total operating expense 75,559 28.3 69,121 28.4
-------- ----- -------- -----
Operating income 15,723 5.9 13,005 5.4
Interest expense, net 8,774 3.3 9,049 3.7
-------- ----- -------- -----
Net income before
income taxes 6,949 2.6 3,956 1.7
Income taxes 2,813 1.1 1,622 0.7
-------- ----- -------- -----
Income before
extraordinary gain 4,136 1.5 2,334 1.0
Extraordinary gain from early
extinguishment of debt, net
of income tax benefit 87 0.1 -- 0.0
-------- ----- -------- -----
Net income $ 4,223 1.6% $ 2,334 1.0%
======== ===== ======== =====
EBITDA (a) $ 20,368 7.6% $ 17,720 7.3%
======== ===== ======== =====
</TABLE>
(a) EBITDA represents net earnings 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 January
2, 2000). 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
10
<PAGE> 11
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 10.0% (or $24.3 million) from $242.7 million reported
for the six months ended July 4, 1999 to $267.0 million for the six months
ended July 2, 2000. Same store sales (sales for stores open throughout the
six months in 2000 and 1999) increased 5.6% compared with the same period
last year. Sales attributable to an increase in store count from 223 at July
4, 1999 to 236 at July 2, 2000 constituted the remainder of the 10.0% sales
increase.
2. Gross Profit
Gross profit increased 11.1% (or $9.2 million) from $82.1 million for the
six months ended July 4, 1999 to $91.3 million for the six months ended July
2, 2000, reflecting the increased sales discussed above and improved gross
product margins. Gross profit margin increased from 33.8% for the first six
months in 1999 to 34.2% for the comparable period this year. The improvement
in gross profit margin for the six months ended July 2, 2000 was due to
positive comparisons in many of the Company's product categories.
3. Operating Expenses
Selling and administrative expenses increased 10.1% (or $6.5 million) from
$64.4 million for the six months ended July 4, 1999 to $70.9 million for the
six months ended July 2, 2000. This increase resulted primarily from an
increase in the Company's store base from 223 stores last year to 236 at
July 2, 2000. When measured as a percentage of sales, selling and
administrative expenses increased from 26.5% in 1999 to 26.6% in 2000.
Depreciation and amortization decreased 1.5% (or $0.1 million) from $4.7
million for the prior year period to $4.6 million for the six months ended
July 2, 2000.
4. Interest Expense, Net
Interest expense, net decreased 3.0% (or $0.2 million) from $9.0 million for
the prior year period to $8.8 million for the six months ended July 2, 2000.
This decrease reflected lower average interest rates during the first six
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 $2.8 million for the six months ended July 2, 2000
versus $1.6 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 From Early Extinguishment of Debt
There was an extraordinary gain of $0.1 million, net of taxes and costs
related to the Senior Notes, for the six months ended July 2, 2000. There
was no such extraordinary gain for the same period last year.
11
<PAGE> 12
7. Net Income
Net income for the six months ended July 2, 2000 increased 80.9% (or
$1.9 million) from $2.3 million for the six months ended July 4, 1999 to
$4.2 million for the six months ended July 2, 2000. This improvement
reflects the positive sales and margin results and lower interest expense
achieved during the six months ended July 2, 2000.
8. Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA")
EBITDA increased 14.9% (or $2.7 million) from $17.7 million for the six
months ended July 4, 1999 to $20.4 million for the six months ended July 2,
2000. This improvement reflects the positive sales and margin results
achieved during the six months ended July 2, 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 July 2, 2000 was approximately $159.5 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.
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 six months ended July 2, 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 meet its debt service
obligations depends upon its future performance, which, in turn, is subject to,
among
12
<PAGE> 13
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 used in operating activities changed from net cash used of $1.7
million for the 26 weeks ended July 4, 1999 to net cash used of $4.6 million for
the 26 weeks ended July 2, 2000, primarily reflecting $3.9 million in payments
of estimated state and federal income taxes in the six months ended July 2, 2000
versus $0.06 million during the six month period last year.
Net cash provided by financing activities changed from net cash provided
of $7.9 million last year to net cash provided of $9.8 million for the six
months ended July 2, 2000. As of July 2, 2000, the Company had borrowings of
$54.6 million and letter of credit commitments of $5.0 million outstanding under
the CIT Credit Facility, and $103.8 million of Senior Notes outstanding. These
balances compared to borrowings of $30.5 million and letter of credit
commitments $3.7 million outstanding under the CIT Credit Facility, and $130.5
million of Senior Notes outstanding as of July 4, 1999. There were no cash and
cash equivalents at both July 2, 2000 and at July 4, 1999.
Capital expenditures increased from $4.8 million for the six months
ended July 4, 1999 to $5.2 million for the six months ended July 2, 2000.
Management expects capital expenditures for the current fiscal year will range
from $10 to $11 million and will be used primarily to fund the opening of
approximately 16 new stores (of which 2 have already been opened), as well as
approximately $1.5 million in remaining additional expenses for the installation
of new point-of-sale registers and software in 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: 8/15/00 By: /S/ STEVEN G. MILLER
----------------------------------
Steven G. Miller
President and
Chief Operating Officer
Date: 8/15/00 By: /S/ CHARLES P. KIRK
----------------------------------
Charles P. Kirk
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
