SEC Filing | Big 5 Sporting Goods Corporation

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Big 5 Sporting Goods Corporation Form 10-K 12/28/3

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


(Mark One)
þ		ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended December 28, 2003

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

		For the transition period from to

Commission file number: 000-49850

Big 5 Sporting Goods Corporation

(Exact name of registrant as specified in its charter)


Delaware		95-4388794
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2525 East El Segundo Boulevard El Segundo, California (Address of Principal Executive Offices)		90245 (Zip Code)

Registrant’s telephone number, including area code:

(310) 536-0611

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 on Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or in any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $133,669,171.90 as of June 27, 2003 (the last business day of the registrant’s most recently completed second fiscal quarter) based upon the closing price of the registrant’s common stock on the Nasdaq National Market reported for June 27, 2003. Shares of common stock held by each executive officer and director and by each person who, as of such date, may be deemed to have beneficially owned more than 5% of the outstanding voting stock have been excluded in that such persons may be deemed to be affiliates of the registrant under certain circumstances. This determination of affiliate status is not necessarily a conclusive determination of affiliate status for any other purpose.

22,664,627 shares of the registrant’s common stock, par value $0.01 per share, were outstanding at March 5, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive proxy statement (the “Proxy Statement”) for its annual meeting of shareholders to be held on June 3, 2004.

TABLE OF CONTENTS


PART I
	Item 1: Business
	Item 2: Properties
	Item 3: Legal Proceedings
	Item 4: Submission of Matters to a Vote of Security Holders
PART II
	Item 5: Market for Registrant’s Common Equity and Related Stockholder Matters.
	Item 6: Selected Consolidated Financial and Other Data
	Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A: Quantitative and Qualitative Disclosures About Market Risk
	Item 8: Financial Statements and Supplementary Data
	Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
PART III
	Item 10: Directors and Executive Officers of the Registrant
	Item 11: Executive Compensation
	Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13: Certain Relationships and Related Transactions
	Item 14: Controls and Procedures
PART IV
	Item 15: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
EXHIBIT 10.28 )
EXHIBIT 10.29 )
EXHIBIT 10.30 )
EXHIBIT 14.1 )
EXHIBIT 23.1 )
EXHIBIT 31.1 )
EXHIBIT 31.2 )
EXHIBIT 32.1 )
EXHIBIT 32.2 )

PART I


Item 1:	*Business*

General

We are the leading sporting goods retailer in the western United States, operating 293 stores in 10 states under the “Big 5 Sporting Goods” name at December 28, 2003. We provide a full-line product offering in a traditional sporting goods store format that averages approximately 11,000 square feet. Our product mix includes athletic shoes, apparel and accessories, as well as a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, snowboarding and in-line skating.

We believe that over the past 49 years we have developed a reputation with the competitive and recreational sporting goods customer as a convenient neighborhood sporting goods retailer that consistently delivers value on quality merchandise. Our stores carry a wide range of products at competitive prices from well-known brand name manufacturers, including Nike, Reebok, adidas, New Balance, Wilson, Spalding and Columbia. We also offer brand name merchandise produced exclusively for us, private label merchandise and specials on quality items we purchased through opportunistic buys of vendor over-stock and close-out merchandise. We reinforce our value reputation through weekly print advertising in major and local newspapers and mailers designed to generate customer traffic, drive net sales and build brand awareness.

Robert W. Miller co-founded our company in 1955 with the establishment of five retail locations in California. We sold World War II surplus items until 1963, when we began focusing exclusively on sporting goods and changed our trade name to “Big 5 Sporting Goods.” In 1971, we were acquired by Thrifty Corporation, which was subsequently purchased by Pacific Enterprises. In 1992, management bought our company in conjunction with Green Equity Investors, L.P., an affiliate of Leonard Green & Partners, L.P. In 1997, Robert W. Miller, Steven G. Miller and Green Equity Investors, L.P. recapitalized our company so that the majority of our common stock would be owned by our management and employees.

In June 2002, we completed an initial public offering (“IPO”) of 8.1 million shares of common stock, of which 1.6 million shares were sold by selling stockholders. In July 2002, our underwriters exercised their right to purchase an additional 1.2 million shares through their over-allotment option, of which 0.5 million shares were sold by selling stockholders. With net proceeds of $76.1 million from the offering and total net proceeds of $84.0 million after exercise of the underwriters’ over-allotment option, and together with borrowings under our credit facility, we redeemed all of our outstanding 13.45% senior discount notes due 2008 and 13.45% senior exchangeable preferred stock, paid bonuses to executive officers and directors which were funded by a reduction in the redemption price of our preferred stock and repurchased 0.5 million shares of our common stock from non-executive employees.

Our accumulated management experience and expertise in sporting goods merchandising, advertising, operations and store development have enabled us to generate consistent, profitable growth. As of December 28, 2003, we have realized 32 consecutive quarterly increases in same store sales over comparable prior periods. All but one of our stores has generated positive store-level operating profit in each of the past five fiscal years. In fiscal 2003, we generated net sales of $709.7 million, operating income of $58.7 million, net income excluding charges from debt redemption of $28.3 million and diluted earnings per share excluding charges from debt redemption of $1.25. When measured in accordance with generally accepted accounting principles (“GAAP”), net income was $26.3 million and diluted earnings per share was $1.16. For the past four fiscal years, our net sales and operating income have increased at compounded annual growth rates of 8.4% and 16.6%, respectively. We believe our success can be attributed to one of the most experienced management teams in the sporting goods industry, a value-based and execution-driven operating philosophy, a controlled growth strategy and a proven business model.

We are a holding company incorporated in Delaware on October 31, 1997. We conduct our business through Big 5 Corp., a wholly owned subsidiary incorporated in Delaware on October 27, 1997. As of the beginning of fiscal 2004, we conduct our gift card operations through Big 5 Services Corp., a wholly owned subsidiary of Big 5 Corp. incorporated in Virginia on December 19, 2003.

Our Internet address is www.big5sportinggoods.com. Our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended, are available on our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Expansion and Store Development

Throughout our operating history, we have sought to expand our business with the addition of new stores through a disciplined strategy of controlled growth. Our expansion within and beyond California has been systematic and designed to capitalize on our name recognition, economical store format and economies of scale related to distribution and advertising. Over the past five fiscal years, we have opened 79 stores, an average of 16 new stores annually, of which 72% were outside of California. The following table illustrates the results of our expansion program during the periods indicated:


			Other										Number of Stores
Year	California		Markets		Total		Stores Relocated			Stores Closed			at Period End

1999		3		12		15		(1	)		(1	)		234
2000		5		10		15		—			—			249
2001		3		12		15		(4	)		—			260
2002		6		9		15		—			—			275
2003		5		14		19		—			(1	)		293

Our format enables us to have substantial flexibility regarding new store locations. We have successfully operated stores in major metropolitan areas and in areas with as few as 60,000 people. Our 11,000 square foot store format differentiates us from superstores that typically average over 35,000 square feet, require larger target markets, are more expensive to operate and require higher net sales per store for profitability.

New store openings represent attractive investment opportunities due to the relatively low investment required and the relatively short time necessary before our stores become profitable. Our store format requires investments of approximately $0.4 million in fixtures and equipment and approximately $0.4 million in net working capital with limited pre-opening and real estate expenses related to leased locations that are built to our specifications. We seek to maximize new store performance by staffing new store management with experienced personnel from our existing stores. Based on our operating experience, a new store typically achieves store-level return on investment of approximately 40% in its first full fiscal year of operation.

Our in-house store development personnel, who have opened an average of 16 stores during each of the past 5 fiscal years, analyze new store locations with the assistance of real estate firms that specialize in retail properties. We have identified numerous expansion opportunities to further penetrate our established markets, develop recently entered markets and expand into new, contiguous markets with attractive demographic, competitive and economic profiles. We opened 19 new stores and closed one store in fiscal 2003 and expect to open 15 to 20 new stores in fiscal 2004.

Management Experience

We believe the experience, commitment and tenure of our professional staff drive our superior execution and strong operating performance and give us a substantial competitive advantage. The table below describes the tenure of our professional staff in some of our key functional areas as of December 28, 2003:


			Average
	Number of		Number of
	Employees		Years With Us

Senior Management		6		26
Vice Presidents		8		23
Buyers		13		19
Store District/ Division Supervisors		32		19
Store Managers		293		9

Merchandising

We target the competitive and recreational sporting goods customer with a full-line product offering at a wide variety of price points. We offer a product mix that includes athletic shoes, apparel and accessories, as well as a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, snowboarding and in-line skating. As a key element of our long history of success, we offer consistent value to consumers by offering a distinctive merchandise mix that includes a combination of well-known brand name merchandise, merchandise produced exclusively for us under a manufacturer’s brand name, private label merchandise and specials on quality items we purchased through opportunistic buys of vendor over-stock and close-out merchandise.

We believe we enjoy significant advantages in making opportunistic buys of vendor over-stock and close-out merchandise because of our strong vendor relationships and rapid decision-making process. Although vendor over-stock and close-out merchandise typically represent only approximately 15% of our net sales, our weekly advertising highlights these items together with merchandise produced exclusively for us under a manufacturer’s brand name in order to reinforce our reputation as a retailer that offers attractive values to our customers.

The following table illustrates our mix of hard goods, which are durable items such as fishing rods and golf clubs, and soft goods, which are non-durable items such as shirts and shoes, as a percentage of net sales:



			Fiscal Year

			2000			2001			2002			2003

Soft Goods
	Athletic and sport apparel			16.2	%		16.5	%		15.9	%		16.1	%
	Athletic and sport footwear			29.8			30.3			30.8			30.4

		Total soft goods		46.0			46.8			46.7			46.5
Hard goods				54.0			53.2			53.3			53.5

		Total		100.0	%		100.0	%		100.0	%		100.0	%

We purchase our popular branded merchandise from an extensive list of major sporting goods equipment, athletic footwear and apparel manufacturers. Below is a selection of some of the brands we carry:


adidas	Crosman	Icon (Proform)	Rawlings	Shimano
Asics	Easton	JanSport	Razor	Spalding
Bausch & Lomb	Everlast	K2	Reebok	Speedo
Browning	Fila	Lifetime	Remington	Timex
Bushnell	Footjoy	Mizuno	Rockport	Titleist
Casio	Franklin	New Balance	Rollerblade	Under Armour
Coleman	Head	Nike	Russell Athletic	Wilson
Columbia	Hillerich & Bradsby	Prince	Saucony	Zebco

We also offer a variety of private label merchandise to complement our branded product offerings. Our private label items include shoes, apparel, golf equipment, binoculars, camping equipment and fishing supplies.

Private label merchandise is sold under the labels Fives, Court Casuals, Sport Essentials, Rugged Exposure, Golden Bear, Pacifica, South Bay and Kemper, the last of which is licensed from a third party.

Through our 49 years of experience across different demographic, economic and competitive markets, we have refined our merchandising strategy to increase net sales by offering a selection of products that meets customer demands while effectively managing inventory levels. In terms of category selection, we believe our merchandise offering compares favorably to our competitors, including the superstores. Our edited selection of products enables customers to comparison shop without being overwhelmed by a large number of different products in any one category. We further tailor our merchandise selection on a store-by-store basis in order to satisfy each region’s specific needs and seasonal buying habits.

Our 13 buyers, who average 19 years of experience with us, work closely with senior management to determine the product selection, promotion and pricing of our merchandise mix. Management utilizes an integrated merchandising, distribution, point-of-sale and financial information system to continuously refine our merchandise mix, pricing strategy, advertising effectiveness and inventory levels to best serve the needs of our customers.

Advertising

Through years of targeted advertising, we have solidified our reputation for offering quality products at attractive prices. We have advertised almost exclusively through weekly print advertisements since 1955. We typically utilize four-page color advertisements to highlight promotions across our merchandise categories. We believe our print advertising, which includes the weekly distribution of over 13 million newspaper inserts or mailers, consistently reaches more households in our established markets than that of our full-line sporting goods competitors. The consistency and reach of our print advertising programs drive sales and create high customer awareness of the name Big 5 Sporting Goods.

We use our professional in-house advertising staff rather than an outside advertising agency to generate our advertisements, including design, layout, production and media management. Our in-house advertising department provides management the flexibility to react quickly to merchandise trends and to maximize the effectiveness of our weekly inserts and mailers. We are able to effectively target different population zones for our advertising expenditures. We place inserts in over 150 newspapers throughout our markets, supplemented in many areas by mailer distributions to create market saturation.

Vendor Relationships

We have developed strong vendor relationships over the past 49 years. In fiscal 2003, no single vendor represented greater than 6.1% of total purchases. We believe current relationships with our vendors are good.

We benefit from the long-term working relationships that our senior management and our buyers have carefully nurtured throughout our history.

Management Information Systems

We have fully integrated management information systems that track, on a daily basis, individual sales transactions at each store, inventory receiving and distribution, merchandise movement and financial information. The management information system also includes a local area network that connects all corporate users to electronic mail, scheduling and the host system. The host system and our stores are linked by a network that provides satellite communications for credit card, in-house tender authorization, and daily polling of sales and merchandise movement at the store level.

Our in-store point-of-sale system tracks all sales by stock keeping unit and allows management to compare the current performance of each stock keeping unit against historical performance on a daily basis. The point-of-sale system uses satellite communications to verify credit cards and checks and to provide corporate data exchange. We believe our management information systems are efficiently supporting our current operations and provide a foundation for future growth.

Distribution

We maintain a 440,000 square foot leased distribution center in Fontana, California that services all of our stores. The distribution center is fully integrated with our management information systems that provide warehousing and distribution capabilities. The distribution center was constructed in 1990 and warehouses the majority of the merchandise carried in our stores. We estimate that 98% of all store merchandise is received from this distribution center. We distribute merchandise from the distribution center to our stores at least once a week, Monday through Saturday, using a fleet of 34 leased and two owned tractors, as well as contract carriers. Our lease for the distribution center has an initial term that expires in 2006 and includes three additional five-year renewal options. In August 2002, we leased an additional 136,000 square foot satellite distribution center to handle seasonal merchandise and returns. Based on our expected net sales and store growth, we plan to replace our existing distribution center during the next 12 to 24 months at a cost of approximately $15 million.

Industry and Competition

The retail market for sporting goods is highly competitive. In general, our competitors tend to fall into the following five basic categories:

Traditional Sporting Goods Stores. This category consists of traditional sporting goods chains, including us. These stores range in size from 5,000 to 20,000 square feet and are frequently located in regional malls and multi-store shopping centers. The traditional chains typically carry a varied assortment of merchandise and attempt to position themselves as convenient neighborhood stores. Sporting goods retailers operating stores within this category include Hibbett’s and Modell’s.

Mass Merchandisers. This category includes discount retailers such as Wal-Mart, Target and Kmart and department stores such as JC Penney, Sears and Kohl’s. These stores range in size from approximately 50,000 to 200,000 square feet and are primarily located in regional malls, shopping centers or free-standing sites. Sporting goods merchandise and apparel represent a small portion of the total merchandise in these stores and the selection is often more limited than in other sporting goods retailers. Although generally price competitive, discount and department stores typically have limited customer service in their sporting goods departments.

Specialty Sporting Goods Stores. This category consists of two groups. The first group generally includes athletic footwear specialty stores, which are typically 2,000 to 20,000 square feet in size and are located in shopping malls. Examples include such retail chains as Foot Locker, Lady Foot Locker and The Athlete’s Foot. These retailers are highly focused, with most of their sales coming from athletic footwear and team licensed apparel. The second group consists of pro shops and stores specializing in a particular sport or

recreation. This group includes backpacking and mountaineering specialty stores and specialty skate shops and golf shops. Prices at specialty stores tend to be higher than prices at the sporting goods superstores and traditional sporting goods stores.

Sporting Goods Superstores. Stores in this category typically are larger than 35,000 square feet and tend to be freestanding locations. These stores emphasize high volume sales and a large number of stock keeping units. Examples include Sport Chalet and The Sports Authority, Inc., as well as its other operating units, Oshman’s, Sportmart and Gart Sports Company.

Internet Retailers. This category consists of numerous retailers that sell a broad array of new and used sporting goods products via the internet.

We compete successfully with each of the competitors discussed above by focusing on what we believe are the primary factors of competition in the sporting goods retail industry. These factors include experienced and knowledgeable personnel; customer service; breadth, depth, price and quality of merchandise offered; advertising; purchasing and pricing policies; effective sales techniques; direct involvement of senior officers in monitoring store operations; management information systems and store location and format.

Employees

We manage our stores through regional, district and store-based personnel. Our Senior Vice President of Store Operations has general oversight responsibility for all of our stores. Field supervision is led by five regional supervisors who report directly to the Vice President of Store Operations and who oversee 27 district supervisors. The district supervisors are each responsible for an average of 11 stores. Each of our stores has a store manager who is responsible for all aspects of store operations and who reports directly to a district supervisor. In addition, each store has at least two assistant managers, at least one full-time cashier, at least one management trainee and a complement of full and part-time associates.

As of December 28, 2003, we had approximately 7,123 full and part-time employees. The Steel, Paper House, Chemical Drivers & Helpers, Local Union 578, affiliated with the International Brotherhood of Teamsters, currently represents 449 hourly employees in our distribution center and some of our retail personnel in our stores. In September 2000, we negotiated two contracts with Local 578 covering these employees. These contracts expire on August 31, 2005. We have not had a strike or work stoppage in the last 23 years. We believe we provide working conditions and wages that are comparable to those offered by other retailers in the sporting goods industry and that our employee relations are good.

Employee Training

We have developed a comprehensive training program that is tailored for each store position. All employees are given an orientation and reference materials that stress excellence in customer service and selling skills. All full-time employees, including salespeople, cashiers and management trainees, receive additional training specific to their job responsibilities. Our tiered curriculum includes seminars, individual instruction and performance evaluations to promote consistency in employee development. The manager trainee schedule provides seminars on operational responsibilities such as merchandising strategy, loss prevention and inventory control. Ongoing store management training includes topics such as advanced merchandising, delegation, personnel management, scheduling, payroll control and loss prevention.

We also provide unique opportunities for our employees to gain knowledge about our products. These opportunities include “hands-on” training seminars and a sporting goods product expo. At the sporting goods product expo, our vendors set up booths where full–time store employees from every store receive intensive training on the products we carry. We believe this event is a successful program for both training and motivating our employees.

Description of Service Marks and Trademarks

We use the Big 5 and Big 5 Sporting Goods names as service marks in connection with our business operations and have registered these names as federal service marks. These service marks are due for renewal

in 2005 and 2013, respectively. We have also registered Court Casuals, Golden Bear, Pacifica, Rugged Exposure and South Bay as federal trademarks under which we sell a variety of merchandise. The renewal dates for these trademark registrations range from 2004 to 2013. We believe we will be successful in renewing the trademark registrations scheduled for renewal in 2004.


Item 2:	*Properties*

Properties

We lease all but one of our store sites. Most of our long-term leases contain fixed-price renewal options and the average lease expiration term from inception of our existing leases, taking into account renewal options, is approximately 25 years. Of the total store leases we have, only 15 are due to expire in the next five years without renewal options.

Our Stores

Throughout our history, we have focused on operating traditional, full-line sporting goods stores. Our stores generally range from 8,000 to 15,000 square feet and average approximately 11,000 square feet. Our typical store is located in either a free-standing street location or a multi-store shopping center. Our numerous convenient locations and accessible store format encourage frequent customer visits. In fiscal 2003, we processed approximately 22.8 million sales transactions and our average transaction size was approximately $31.

Our store format has resulted in productivity levels that we believe are among the highest of any full-line sporting goods retailer, with net sales per gross square foot of approximately $227 for fiscal 2003. Our high net sales per square foot combined with our efficient store-level operations and low store maintenance costs allow us to generate consistently strong store-level returns. All but one of our stores open at least a year have generated positive store-level operating profit in each of the past five fiscal years. In addition, we have never closed a store due to poor performance. The following table details our store locations as of December 28, 2003:


			Year		Number		Percentage of Total
Regions			Entered		of Stores		Number of Stores

California:
	Southern California			1955		92		31.4	%
	Northern California			1972		77		26.3

		Total California				169		57.7
Washington				1984		35		11.9
Arizona				1993		22		7.5
Oregon				1995		16		5.5
Texas				1995		10		3.4
Nevada				1978		10		3.4
Utah				1997		10		3.4
New Mexico				1995		9		3.1
Idaho				1994		8		2.7
Colorado				2001		4		1.4

Total						293		100.0	%


Item 3:	*Legal Proceedings*

We are from time to time involved in routine litigation incidental to the conduct of our business. We regularly review all pending litigation matters in which we are involved and establish reserves deemed appropriate under generally accepted accounting principles for such litigation matters. We believe no litigation

currently pending against us will have a material adverse effect on our business, financial position or results of operations.


Item 4:	*Submission of Matters to a Vote of Security Holders*

There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 2003.

PART II


Item 5:	*Market for Registrant’s Common Equity and Related Stockholder Matters.*

Our common stock, par value $0.01 per share, has traded on the Nasdaq National Market under the symbol “BGFV” since June 25, 2002. The following table sets forth the high and low sale prices for our common stock as reported by the Nasdaq National Market during fiscal 2003.


Fiscal Period	High		Low

First Quarter	$	11.73	$	8.34
Second Quarter	$	14.42	$	11.03
Third Quarter	$	17.28	$	12.58
Fourth Quarter	$	22.17	$	15.05

As of March 5, 2004, there were 22,664,627 shares of common stock outstanding held by approximately 180 holders of record.

Dividend Policy

We have never declared or paid any dividends on our common stock. We anticipate that we will retain all of our earnings in the foreseeable future to finance the expansion of our business and, therefore, we do not anticipate paying any cash dividends on shares of our common stock in the foreseeable future. Any payment of cash dividends on our common stock will be dependent upon the ability of Big 5 Corp., our wholly owned subsidiary, to pay dividends or make cash payments or advances to us. The agreement governing our credit facility and the indenture governing our 10.875% senior notes due 2007 impose restrictions on Big 5 Corp.’s ability to make these payments. For example, Big 5 Corp.’s ability to pay dividends or make other distributions to us, and thus our ability to pay cash dividends on our common stock, will depend upon, among other things, its level of indebtedness at the time of the proposed dividend or distribution, whether it is in default under its financing agreements and the amount of dividends or distributions made in the past. Our future dividend policy will also depend on the requirements of any future financing agreements to which we may be a party and other factors considered relevant by our board of directors, including the General Corporation Law of the State of Delaware, which provides that dividends are only payable out of surplus or current net profits.


Item 6:	*Selected Consolidated Financial and Other Data*

The selected data presented below under the captions “Statements of Operations Data” and “Balance Sheet Data” for, and as of the end of the fiscal years ended December 31, 2000, December 30, 2001, December 29, 2002 and December 28, 2003 are derived from our audited consolidated financial statements, which financial statements have been audited by KPMG LLP, independent auditors. The selected data presented below under the captions “Statement of Operations” and “Balance Sheet Data” for, and as of the end of the fiscal year ended January 2, 2000 have been derived from our consolidated financial statements and have been reclassified to conform with the adoption of Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections. The consolidated financial statements as of December 29, 2002 and December 28, 2003 and for each of the years ended December 29, 2002 and December 28, 2003 and the report thereon are included elsewhere in this report. The information presented below under the captions “Pro Forma Operations”, “Store Data” and “Other Financial Data” is unaudited. You should read the following tables in conjunction with the

consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this report.



			Fiscal Year(1)

			1999		2000			2001			2002		2003


			(Dollars and shares in thousands, except per share and store data)
Statement of Operations Data:
Net sales			$	514,324	$	571,476		$	622,481		$	667,469	$	709,740
Cost of goods sold, buying and occupancy				341,852		377,040			407,679			429,858		453,814

	Gross profit			172,472		194,436			214,802			237,611		255,926
Operating expenses:
	Selling and administrative			131,222		144,703			160,044			174,868		186,798
	Litigation settlement			—		—			2,515			—		—
	Depreciation and amortization			9,479		9,340			10,031			9,966		10,412

Total operating expenses				140,701		154,043			172,590			184,834		197,210

Operating income				31,771		40,393			42,212			52,777		58,716
Premium (discount) and unamortized financing fees related to redemption of debt				621		(148	)		(2,662	)		4,557		3,434
Interest expense, net				21,574		22,008			19,629			15,825		11,405

Income before income taxes				9,576		18,533			25,245			32,395		43,877
Income taxes				3,751		7,385			10,280			13,313		17,587

Net income				5,825		11,148			14,965			19,082		26,290
Redeemable preferred stock dividends				5,621		6,400			7,284			7,999		—

Net income available to common stockholders			$	204	$	4,748		$	7,681		$	11,083	$	26,290

Earnings per share:
	Basic		$	0.02	$	0.35		$	0.54		$	0.60	$	1.16

	Diluted		$	0.01	$	0.30		$	0.48		$	0.57	$	1.16

Shares used to calculate earnings per share:
	Basic			12,801		13,525			14,247			18,358		22,651

	Diluted			16,098		16,094			16,090			19,476		22,753

Pro Forma Operations(2):
Operating income											$	55,783	$	58,716
Net income available to common stockholders											$	24,598	$	28,348
	Earnings per share:
		Basic									$	1.14	$	1.25

		Diluted									$	1.09	$	1.25

	Weighted average shares of common stock:
		Basic										21,546		22,651

		Diluted										22,664		22,753



	Fiscal Year(1)

	1999			2000			2001			2002			2003


	(Dollars and shares in thousands, except per share and store data)
Store Data:
Same store sales increase(3)		2.0	%		6.6	%		4.9	%		4.0	%		2.2	%
Net sales per gross square foot(4)	$	203		$	217		$	224		$	227		$	227
End of period stores		234			249			260			275			293
Average net sales per store(5)	$	2,285		$	2,405		$	2,448		$	2,541		$	2,546
Other Financial Data:
Gross margin		33.5	%		34.0	%		34.5	%		35.6	%		36.1	%
Capital expenditures	$	13,075		$	11,602		$	10,510		$	10,207		$	10,489
Inventory turns(6)		2.1	x		2.2	x		2.4	x		2.5	x		2.7x
Balance Sheet Data:
Cash and cash equivalents	$	5,091		$	3,753		$	7,865		$	9,441		$	9,030
Working capital(7)	$	71,289		$	69,427		$	66,292		$	72,767		$	74,403
Total assets	$	234,917		$	254,433		$	253,883		$	257,975		$	272,025
Total debt	$	178,446		$	172,098		$	153,351		$	125,131		$	99,686
Redeemable preferred stock	$	45,408		$	51,721		$	58,911			—			—
Stockholders’ equity (deficit)	$	(96,851	)	$	(92,105	)	$	(84,425	)	$	3,674		$	29,964

(Notes to table on previous page and this page)


(1)	Our fiscal year is the 52 or 53-week reporting period ending on the Sunday closest to the calendar year end. All years presented consisted of 52 weeks.

(2)	In the second quarter of 2002, we completed an initial public offering of 8.1 million shares of common stock, of which 1.6 million shares were sold by selling stockholders. In the third quarter of 2002, our underwriters exercised their right to purchase an additional 1.2 million shares through their over-allotment option, of which 0.5 million shares were sold by selling stockholders. With net proceeds of $76.1 million from the offering and total net proceeds of $84.0 million after exercise of the underwriters’ over-allotment option, and together with borrowings under our credit facility, we redeemed all of our outstanding senior discount notes and preferred stock, paid bonuses to executive officers and directors which were funded by a reduction in the redemption price of our preferred stock and repurchased 0.5 million shares of our common stock from non-executive employees. All uses of proceeds, other than the payment of a portion of the bonuses related to the initial public offering and certain initial public offering costs, occurred in the third quarter of fiscal 2002.

Our accompanying statements of operations report net income and earnings per diluted share in accordance with GAAP. In addition, we internally use pro forma reporting to evaluate our operating performance without regard to certain non-recurring financial effects of the initial public offering in 2002, including the exercise of the underwriters’ over-allotment option, or certain financial effects of the 2003 partial 10.875% senior note redemptions. We believe this presentation will provide investors with additional insight into our operating results. The pro forma figures assume that the initial public offering took place at the beginning of 2002 and exclude the effects of certain initial public offering related


	expenses and debt redemption premiums. The following table contains a reconciliation of the pro forma adjustments to GAAP:



		Fiscal Year

		2002			2003


		(In thousands except
		earnings per share
		data)
Reported net income (loss) available to common stockholders		$	11,083		$	26,290
Redeemable preferred stock dividends(a)			7,999			—

Reported net income			19,082			26,290
Bonus expense(b)			1,962			—
Management fees(c)			1,044			—
Interest expense(d)			1,775			—
Premium and unamortized financing fees related to
	redemption of debt(e)		4,557			3,434
Income taxes(f)			(3,822	)		(1,376	)

Pro forma net income available to common stockholders		$	24,598		$	28,348

Pro forma earnings per share — diluted		$	1.09		$	1.25

Pro forma weighted average shares outstanding — diluted			22,664			22,753
Reported operating income		$	52,777		$	58,716
Bonus expense(b)			1,962			—
Management fees(c)			1,044			—

Pro forma operating income		$	55,783		$	58,716


	(a)	To eliminate dividends and redemption premium on preferred stock redeemed in connection with the initial public offering.

	(b)	To eliminate from selling and administrative expenses, the payment of bonuses that was funded through a reduction of the redemption price that would otherwise have been applicable to redemption of the Company’s outstanding preferred stock.

	(c)	To eliminate from selling and administrative expenses, management services agreement fees and the management services agreement termination cost incurred in connection with the initial public offering.

	(d)	To eliminate interest expense and amortization of debt issue costs associated with the senior discount notes redeemed in connection with the initial public offering and to reflect interest expense on incremental borrowings under the credit facility.

	(e)	To eliminate the premium, unamortized financing fees and original issue discount associated with the 2003 partial redemptions of the 10.875% senior notes (2003 adjustment only) and the redemption of all of the senior discount notes in connection with the initial public offering (2002 adjustment only).

	(f)	To reflect tax benefit for items (b) through (e) noted above at the effective tax rate.


(3)	Same store sales data for a fiscal year presented reflects stores open throughout that fiscal year and the prior fiscal year.

(4)	Net sales per gross square foot is calculated by dividing net sales for stores open the entire period by the total gross square footage for those stores.

(5)	Average net sales per store is calculated by dividing net sales for stores open the entire period by total store count for stores open the entire period.

(6)	Inventory turns equal fiscal year cost of goods sold, buying and occupancy costs divided by fiscal year four-quarter average FIFO (first-in, first-out) inventory balances.

(7)	Working capital is defined as current assets less current liabilities.

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Throughout this section, our fiscal years ended December 30, 2001, December 29, 2002 and December 28, 2003 are referred to as fiscal 2001, fiscal 2002 and fiscal 2003, respectively. The following discussion and analysis of our financial condition and results of operations for fiscal 2001, fiscal 2002 and fiscal 2003 should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategies for our business, includes forward-looking statements that involve risk and uncertainties. You should review the “Risk Factors” set forth elsewhere in this report for a discussion of important factors that could cause actual results in future periods to differ materially from the results contemplated by the forward- looking statements contained herein.

Overview

We are the leading sporting goods retailer in the western United States, operating 293 stores in 10 states under the name “Big 5 Sporting Goods” at December 28, 2003. We provide a full-line product offering in a traditional sporting goods store format that averages 11,000 square feet. Our product mix includes athletic shoes, apparel and accessories, as well as a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, snowboarding and in-line skating. We believe over the past 49 years we have developed a reputation with the competitive and recreational sporting goods customer as a convenient neighborhood sporting goods retailer that delivers consistent value on quality merchandise.

Throughout our 49-year history, we have emphasized controlled growth. The following table summarizes our store count for the periods presented:



	Fiscal Year

	2001			2002		2003

Big 5 Sporting Goods stores
Beginning of period		249			260		275
New stores(1)		15			15		19
Stores relocated		(4	)		—		—
Stores closed		—			—		(1	)

End of period		260			275		293


(1)	Stores that are relocated during any period are classified as new stores.

Basis of Reporting


	*Net Sales*

Net sales consist of sales from all stores operated during the period presented, net of merchandise returns. Same store sales for a period reflect net sales from stores operated throughout that period as well as the corresponding prior period. New store sales for a period reflect net sales from stores opened in that period as well as net sales from stores opened during the prior fiscal year. Stores that are relocated during any period are treated as new stores.


	*Gross Profit*

Gross profit is comprised of net sales less all costs of sales, including the cost of merchandise, inventory markdowns, inventory shrinkage, inbound freight, distribution and warehousing, payroll for our buying personnel and store and corporate office occupancy costs. Store and corporate office occupancy costs include rent, contingent rents, common area maintenance, real estate property taxes and property insurance.


	*Selling and Administrative*

Selling and administrative includes store management and corporate expenses, including non-buying personnel payroll, employment taxes, employee benefits, management information systems, advertising, insurance other than property insurance, legal, store pre-opening expenses and other corporate level expenses. Store pre-opening expenses include store-level payroll, grand opening event marketing, travel, supplies and other store opening expenses.


	*Depreciation and Amortization*

Depreciation and amortization consists primarily of the depreciation of leasehold improvements, fixtures and equipment owned by us, amortization of leasehold interest and goodwill (for periods prior to fiscal 2002) and non-cash rent expense.

Discussion of Critical Accounting Policies

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our critical accounting policies, which are those that are most important to the portrayal of our financial condition.


	*Valuation of Inventory*

We value our inventories at the lower of cost or market using the weighted average cost method that approximates the first-in, first-out (“FIFO”) method. Management has evaluated the current level of inventories in comparison to planned sales volume and other factors and, based on this evaluation, has recorded adjustments to inventory and cost of goods sold for estimated decreases in inventory value. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual results if future economic conditions, consumer demand and competitive environments differ from our expectations. We are not aware of any events or changes in demand or price that would indicate to us that our inventory valuation may be materially inaccurate at this time.


	*Valuation of Long-Lived Assets*

Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future net cash flows estimated by us to be generated by these assets. If such assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets. We are not aware of any events or changes in circumstances that would indicate to us that our long-lived assets are impaired or that would require an impairment consideration at this time.

Results of Operations

The following table sets forth selected items from our statements of operations as a percentage of our net sales for the periods indicated:



		Fiscal Year

		2001			2002			2003

Statement of Operations Data:
Net sales			100.0	%		100.0	%		100.0	%
Costs of sales			65.5			64.4			63.9

	Gross profit		34.5			35.6			36.1
Selling and administrative			25.7			26.2			26.3
Litigation settlement			0.4			—			—
Depreciation and amortization			1.6			1.5			1.5

	Operating income		6.8			7.9			8.3
Premium (discount) and unamortized financing fees related to redemption of debt			(0.4	)		0.7			0.5
Interest expense, net			3.2			2.4			1.6

	Income before income tax expense		4.0			4.8			6.2
Income tax expense			1.6			1.9			2.5

	Net income		2.4	%		2.9	%		3.7	%

Fiscal 2003 Compared to Fiscal 2002

Net Sales. Net sales increased by $42.3 million, or 6.3%, to $709.7 million in fiscal 2003 from $667.5 million in fiscal 2002. This growth reflected an increase of $14.3 million in same store sales and an increase of $28.4 million in new store sales, which resulted from the opening of 19 new stores during fiscal 2003 and 15 new stores during fiscal 2002. The remaining variance was attributable to net sales from closed stores. Same store sales increased 2.2% for fiscal 2003 versus fiscal 2002. The increase in same store sales was primarily attributable to higher sales in each of our three major product categories of footwear, hard goods and apparel. Store count at the end of fiscal 2003 was 293 versus 275 at the end of fiscal 2002 as we opened 19 new stores and closed one store. We achieved positive same store sales of 3.6% during the fourth quarter of fiscal 2003, representing the thirty-second consecutive quarter of positive quarterly same store sales results.

Gross Profit. Gross profit increased by $18.3 million, or 7.7%, to $255.9 million in fiscal 2003 from $237.6 million in fiscal 2002. Gross profit margin was 36.1% in fiscal 2003 compared to 35.6% in fiscal 2002. We were able to achieve higher gross profit margins primarily due to improved selling margins in each of our three major product categories, partially offset by a 0.3% increase in occupancy and distribution center costs when measured as a percentage of sales.

Selling and Administrative. Selling and administrative expenses increased by $11.9 million, or 6.8%, to $186.8 million in fiscal 2003 from $174.9 million in fiscal 2002. The increase was driven by a $9.2 million increase in store-related expenses primarily resulting from the need to support our store growth, increased employee health benefit costs, increased workers’ compensation costs and higher credit and debit card fees related to increased use of credit and debit cards by our customers. Our advertising expenses increased by $2.9 million due to our store growth and a printing cost credit recorded in the third quarter of fiscal 2002. During fiscal 2003, legal, audit, and public liability insurance, including directors and officers insurance, increased by $2.1 million versus fiscal 2002 largely as a result of our public company reporting requirements after our IPO in 2002. These absolute and percentage increases in selling and administrative expenses were not as high as they otherwise might have been, because during fiscal 2002 we incurred expenses in connection with our IPO. These expenses included management services agreement fees and termination costs paid to Leonard Green & Associates, L.P., an affiliate of Leonard Green & Partners, L.P., which were $1.0 million in

fiscal 2002, as well as bonuses paid to our executive officers and directors during fiscal 2002. The bonuses totaled $2.0 million and were funded through a reduction of the redemption price that would otherwise have been applicable to the redemption of our outstanding preferred stock. When measured as a percentage of net sales and adjusting on a pro forma basis to exclude expenses related to our IPO in fiscal 2002, selling and administrative expenses were 26.3% for fiscal 2003 and 25.7% for fiscal 2002. GAAP selling and administrative expenses when measured as a percentage of net sales were 26.2% for fiscal 2002, reflecting the impact of the expenses incurred in connection with our IPO described above. (See note 2 to “Selected Consolidated Financial and Other Data”)

Depreciation and Amortization. Depreciation and amortization expense increased by $0.4 million in fiscal 2003 compared to fiscal 2002 primarily due to the increase in store count to 293 stores at the end of fiscal 2003 from 275 stores at the end of fiscal 2002.

Premium (Discount) and Unamortized Financing Fees Related to Redemption of Debt. Premium and unamortized financing fees related to redemption of debt were $3.4 million in fiscal 2003 versus $4.6 million in fiscal 2002. The $3.4 million charge in fiscal 2003 resulted from a $2.4 million premium related to the redemption of $55.0 million face value of our 10.875% senior notes and the related carrying value of applicable deferred financing costs and original issue discount which totaled $1.0 million in fiscal 2003. The $4.6 million charge in fiscal 2002 resulted from the repurchase of $2.8 million face value of our senior discount notes and $1.0 million face value of our 10.875% senior notes in fiscal 2002 and the redemption of all of our remaining senior discount notes for an aggregate redemption price of approximately $27.5 million in the third quarter of fiscal 2002 following our IPO. The $4.6 million charge consists of $4.0 million in redemption premium and $0.6 million in unamortized deferred financing costs associated with the related debt.

Interest Expense, net. Interest expense, net decreased by $4.4 million, or 27.9%, to $11.4 million in fiscal 2003 from $15.8 million in fiscal 2002. This decrease reflected lower average daily debt balances and lower average interest rates on our credit facility in fiscal 2003 versus fiscal 2002, as well as lower average interest costs associated with using borrowings from our credit facility to redeem $55.0 million of our 10.875% senior notes in fiscal 2003. In fiscal 2002, we used some of the proceeds from our IPO to redeem all of our outstanding senior discount notes for an aggregate redemption price of approximately $27.5 million. Accordingly, interest expense, net, included no interest expenses related to those senior discount notes in fiscal 2003 versus $2.1 million in fiscal 2002.

Income Taxes. Provision for income taxes was $17.6 million for fiscal 2003 and $13.3 million for fiscal 2002. The Company accrues taxes at the statutory tax rate, which is reevaluated on an ongoing basis by management. In fiscal 2003 we determined the Company’s effective tax rate to be 40.1% down from 41.1% in fiscal 2002, due in part to the growth in our store base outside of California.

Fiscal 2002 Compared to Fiscal 2001

Net Sales. Net sales increased by $45.0 million, or 7.2%, to $667.5 million in fiscal 2002 from $622.5 million in fiscal 2001. This growth reflected an increase of $24.0 million in same store sales and an increase of $23.8 million in new store sales, which reflected the opening of 15 new stores during each of fiscal 2002 and fiscal 2001. The remaining variance was attributable to net sales from relocated stores. Same store sales increased 4.0% for fiscal 2002 versus fiscal 2001. The increase in same store sales was primarily attributable to higher sales in the majority of our merchandise categories. Store count at the end of fiscal 2002 was 275 versus 260 at the end of fiscal 2001 as we opened 15 new stores. We achieved positive same store sales of 0.4% during the fourth quarter of fiscal 2002.

Gross Profit. Gross profit increased by $22.8 million, or 10.6%, to $237.6 million in fiscal 2002 from $214.8 million in fiscal 2001. Gross profit margin was 35.6% in fiscal 2002 compared to 34.5% in fiscal 2001. We were able to achieve higher gross profit margins primarily due to improved selling margins in the majority of our product categories, including favorable comparisons throughout our footwear and apparel categories. Improved margins in our skate category after the sale of excess scooter inventory in fiscal 2001 was the primary factor resulting in improved margins in our hard goods categories.

Selling and Administrative. Selling and administrative expenses increased by $14.9 million, or 9.3%, to $174.9 million in fiscal 2002 from $160.0 million in fiscal 2001. The increase was primarily due to a $9.1 million increase in store-related expenses associated with supporting increased sales, new store openings and increased employee health benefit costs and increased expenses due to electric utility rate increases in our California markets. Other factors impacting the increase included an increase of $1.2 million in advertising costs that resulted primarily from advertising expenditures for the 15 new stores opened in 2002 and the 15 new stores opened in 2001 and higher insurance related costs of $0.6 million primarily related to increased directors and officers insurance premiums after our IPO. The remaining increase in selling and administrative expenses resulted primarily from expenses incurred in connection with our IPO. These expenses include termination costs associated with our management services agreement with Leonard Green & Associates, L.P., an affiliate of Leonard Green & Partners, L.P., which were $0.9 million in 2002, as well as bonuses relating to our initial public offering paid to our executive officers and directors in 2002. The bonuses for that period totaled $2.0 million and were funded through a reduction of the redemption price that would otherwise have been applicable to redemption of our outstanding preferred stock. GAAP selling and administrative expenses when measured as a percentage of net sales were 26.2% for fiscal 2002 versus 25.7% for fiscal 2001 reflecting the impact of the expenses incurred in connection with our IPO. When measured as a percentage of net sales and adjusting on a pro forma basis to exclude expenses related to our IPO, selling and administrative expenses were 25.7% for both fiscal 2002 and fiscal 2001. (See note 2 to “Selected Consolidated Financial and Other Data”)

Depreciation and Amortization. Depreciation and amortization expense decreased by $0.1 million in fiscal 2002 compared to fiscal 2001 as a result of the implementation of SFAS No. 142, Goodwill and Other Intangible Assets, effective December 31, 2001, which reduced amortization expense by $0.1 million in 2002.

Premium (Discount) and Unamortized Financing Fees Related to Redemption of Debt. Premium and unamortized financing fees related to redemption of debt were $4.6 million in fiscal 2002 versus a discount of $2.7 million in fiscal 2001. The $4.6 million charge in fiscal 2002 resulted from the repurchase of $2.8 million face value of our senior discount notes and $1.0 million face value of our 10.875% senior notes in fiscal 2002 and redemption of all of our remaining senior discount notes for an aggregate redemption price of approximately $27.5 million in the third quarter of fiscal 2002 following our IPO. The $4.6 million charge consists of $4.0 million in redemption premium and $0.6 million in unamortized deferred financing costs associated with the related debt. The $2.7 million gain in fiscal 2001 resulted from the repurchase of $12.5 million face value of our senior discount notes.

Interest Expense, net. Interest expense, net decreased by $3.8 million, or 19.4%, to $15.8 million in fiscal 2002 from $19.6 million in fiscal 2001. This decrease reflected lower average daily debt balances and lower average interest rates on our credit facility in fiscal 2002 versus fiscal 2001. In fiscal 2002, we used some of the proceeds from our IPO to redeem all of our outstanding senior discount notes for an aggregate redemption price of approximately $27.5 million. Interest expense, net included expenses related to those senior discount notes of $2.1 million in fiscal 2002 versus $4.1 million in fiscal 2001.

Income Taxes. Provision for income taxes was $13.3 million for fiscal 2002 and $10.3 million for fiscal 2001. Our effective income tax rate was 41.1% for fiscal 2002 and 40.8% for fiscal 2001. The effective rate is subject to ongoing evaluation by management.

Liquidity and Capital Resources

Our principal liquidity requirements are for working capital and capital expenditures. We fund our liquidity requirements with cash flow from operations and borrowings under our credit facility.

Net cash provided by operating activities for fiscal 2003, fiscal 2002 and fiscal 2001 was $32.7 million, $32.1 million and $31.5 million, respectively. The increases for fiscal 2003 versus fiscal 2002 and fiscal 2002 versus fiscal 2001 primarily reflected increased net income after adjustments to reconcile net income to net cash provided by operating activities which was partially offset by increased working capital requirements between periods.

Capital expenditures for fiscal 2003, fiscal 2002 and fiscal 2001 were $10.5 million, $10.2 million, and $10.5 million, respectively. We expect capital expenditures for fiscal 2004 to range from $22.0 to $24.0 million. We expect to spend $12.0 to $13.0 million primarily to fund the opening of approximately 15 to 20 new stores, store improvements and remodelings, warehouse and headquarters improvements and computer hardware and software expenditures. In addition, we anticipate spending approximately $10 to $11 million of the anticipated $15 million of total capital spending requirements for our planned new distribution center, which is expected to be operational in 12 to 24 months.

Net cash used in financing activities in fiscal 2003 was $22.6 million versus net cash used in financing activities of $20.3 million in fiscal 2002 and $16.9 million in fiscal 2001. As of December 28, 2003, we had borrowings of $51.7 million and letter of credit commitments of $0.2 million outstanding under our revolving credit facility and $48.1 million of our 10.875% senior notes outstanding. These balances compare to borrowings of $22.3 million and letter of credit commitments of $4.3 million outstanding under our credit facility and $102.9 million of our 10.875% senior notes outstanding as of December 29, 2002. As of December 30, 2001, we had borrowings of $25.0 million and letter of credit commitments of $3.4 million outstanding under our credit facility, $103.8 million of our 10.875% senior notes outstanding and $25.0 million of our senior discount notes outstanding. We redeemed $20.0 million face value of our 10.875% senior notes in the first quarter of fiscal 2003, and $35.0 million face value in the fourth quarter of fiscal 2003 using borrowings under our revolving credit facility. We repurchased $0.5 million face value of our 10.875% senior notes and $2.8 million face value of our senior discount notes during the first quarter of 2002 and wholly redeemed the remainder of our senior discount notes following the consummation of our IPO during the third quarter of fiscal 2002. We repurchased an additional $0.5 million of our 10.875% senior notes during the last quarter of fiscal 2002. During fiscal 2001 we repurchased $12.5 million face value of our senior discount notes. We had cash of $9.0 million, $9.4 million and $7.9 million at December 28, 2003, December 29, 2002, and December 30, 2001 respectively.

We believe we will be able to fund our future cash requirements for operations from operating cash flows, cash on hand and borrowings under our credit facility. We believe these sources of funds will be sufficient to continue our operations and planned capital expenditures and satisfy our scheduled payments under debt obligations for at least the next twelve months. However, our ability to satisfy such obligations depends upon our future performance, which in turn is subject to general economic conditions and regional risks, and to financial, business and other factors affecting our operations, including factors beyond our control. See “Risk Factors.”

Our principal future obligations and commitments as of December 28, 2003, excluding periodic interest payments, include the following:



		Payments Due by Period

		Total		1 Year		2-3 Years		4-5 Years		After 5 Years


		(In thousands)
Long-term debt		$	48,030		—		—	$	48,030		—
Operating lease commitments			270,047		41,024		70,748		58,179		100,096
Revolving credit facility			51,656		—		51,656		—		—
Letters of credit			152		152		—		—		—

	Total	$	369,885	$	41,176	$	122,404	$	106,209	$	100,096

Long-term debt consists of our 10.875% senior notes that mature on November 13, 2007. We expect to repay our 10.875% senior notes by the maturity date using a combination of drawings under our credit facility, an expansion or replacement of our credit facility and the issuance of debt or equity securities. The 10.875% senior notes are general unsecured obligations, which rank senior in right of payment to all of our existing and future subordinated indebtedness and pari passu in right of payment with all of our current and future unsubordinated indebtedness, subject to the security interests that have been granted in substantially all of our assets in connection with our credit facility.

Operating lease commitments consist principally of leases for our retail store facilities, distribution center and corporate offices. These leases frequently include options which permit us to extend the terms beyond the initial fixed lease term. We intend to renegotiate those leases as they expire. Payments for these lease commitments are provided for by cash flows generated from operations.

We had a non-amortizing $125.0 million revolving credit facility, which was amended and restated in the first quarter of fiscal 2003 to a three-year non-amortizing $140.0 million revolving credit facility. The credit facility may be terminated by the lenders by giving at least 90 days prior written notice before any anniversary date, commencing with its anniversary date on March 20, 2006. We may terminate the credit facility by giving at least 30 days prior written notice, provided that if we terminate prior to March 20, 2006, we must pay an early termination fee. Unless it is terminated, the credit facility will continue on an annual basis from anniversary date to anniversary date beginning on March 21, 2006. The facility is secured by a first priority security interest in substantially all of our assets.

The credit facility bears interest at various rates based on our performance, with a floor of LIBOR plus 1.50% or the JP Morgan Chase Bank prime lending rate and a ceiling of LIBOR plus 2.50% or the JP Morgan Chase Bank prime lending rate plus 0.75% and is secured by trade accounts receivable, merchandise inventory and general intangible assets (including trademarks and trade names). At December 28, 2003, loans under the credit facility bear interest at a rate of LIBOR (1.15% at December 28, 2003) plus 1.50% or the JP Morgan Chase Bank prime lending rate (4.00% at December 28, 2003). An annual fee of 0.325%, payable monthly, is assessed on the unused portion of the amended and restated credit facility. On December 28, 2003, we had $51.7 million in LIBOR and prime lending rate borrowings and letters of credit of $0.2 million outstanding. Our maximum eligible borrowing available under the credit facility is limited to 70% of the aggregate value of eligible inventory during November through February and 65% of the aggregate value of eligible inventory during the remaining months of the year. Available borrowings over and above actual LIBOR and prime rate borrowings and letters of credit outstanding on the credit facility amounted to $72.9 million at December 28, 2003.

Our credit facility and the indenture governing our 10.875% senior notes contain various financial and other covenants, including covenants that require us to maintain various financial ratios, restrict our ability to incur indebtedness or to create various liens and restrict the amount of capital expenditures that we may incur. Our credit facility and the indenture governing our 10.875% senior notes also restrict our ability to engage in mergers or acquisitions, sell assets or pay dividends. We are currently in compliance with all covenants under our credit facility and the indenture governing our 10.875% senior notes.

If we fail to make any required payment under our credit facility or the indenture governing our 10.875% senior notes or if we otherwise default under these instruments, our debt may be accelerated under these instruments. This acceleration could also result in the acceleration of other indebtedness that we may have outstanding at that time.

If we are unable to generate sufficient cash flow from operations to meet our obligations and commitments, we will be required to refinance or restructure our indebtedness or raise additional debt or equity capital. Additionally, we may be required to sell material assets or operations or delay or forego expansion opportunities. We might not be able to effect these alternative strategies on satisfactory terms, if at all.

Seasonality

We experience seasonal fluctuations in our net sales and operating results. In fiscal 2003, we generated 27.0% of our net sales and 35.2% of our operating income in the fourth fiscal quarter, which includes the holiday selling season as well as the peak winter sports selling season. As a result, we incur significant additional expenses in the fourth fiscal quarter due to higher purchase volumes and increased staffing. If we miscalculate the demand for our products generally or for our product mix during the fourth fiscal quarter, our net sales could decline, resulting in excess inventory, which could harm our financial performance. Because a substantial portion of our operating income is derived from our fourth fiscal quarter net sales, a shortfall in expected fourth fiscal quarter net sales could cause our annual operating results to suffer significantly.

Impact of Inflation

We do not believe that inflation has a material impact on our earnings from operations.

Impact of New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (“FIN No. 46”), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, which addresses consolidation by business enterprises of variable interest entities (“VIEs”) either: (1) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) in which the equity investors lack an essential characteristic of a controlling financial interest. In December 2003, the FASB completed deliberations of proposed modifications to FIN No. 46 (“Revised Interpretations”) resulting in multiple effective dates based on the nature as well as the creation date of the VIE. VIEs created after January 31, 2003, but prior to January 1, 2004, may be accounted for either based on the original interpretation or the Revised Interpretations. VIEs created after January 1, 2004 must be accounted for under the Revised Interpretations. Special Purpose Entities (“SPEs”) created prior to February 1, 2003 may be accounted for under the original or revised interpretation’s provisions. Non-SPEs created prior to February 1, 2003 should be accounted for under the Revised Interpretation’s provisions. The Revised Interpretations are effective for periods after June 15, 2003 for VIEs in which the Company holds a variable interest it acquired before February 1, 2003. For entities acquired or created before February 1, 2003, the Revised Interpretations are effective no later than the end of the first reporting period that ends after March 15, 2004, except for those VIEs that are considered to be special-purpose entities, for which the effective date is no later that the end of the first reporting period that ends after December 31, 2003. The adoption of FIN No. 46 and the Revised Interpretations has not and is not expected to have an impact on our consolidated financial statements.

In December 2003, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition (“SAB No. 104”), which codifies, revises and rescinds certain sections of SAB No. 101, Revenue Recognition, in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The changes noted in SAB No. 104 did not have a material effect on our consolidated results of operations, consolidated financial position or consolidated cash flows.

In May 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for the classification and measurement of certain instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS No. 150 requires the classification of any financial instruments with a mandatory redemption feature, an obligation to repurchase equity shares, or a conditional obligation based on the issuance of a variable number of its equity shares, as a liability. The adoption of SFAS No. 150 did not have a material effect on our consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, effective for contracts entered into or modified after June 30, 2003. This amendment clarifies when a contract meets the characteristics of a derivative, clarifies when a derivative contains a financing component, and amends certain other existing pronouncements. The adoption of SFAS No. 149 did not have a material effect on our consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45 (“FIN No. 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. The disclosure requirements are effective for interim and annual financial statements ending after December 15, 2002. The Company does not have any material guarantees that require disclosure under FIN No. 45.

FIN No. 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees. FIN No. 45 requires the guarantor to recognize a liability for the non-contingent component of a guarantee, which is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even if it is not probable that payments will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements. The initial recognition and measurement provisions are effective for all guarantees within the scope of FIN No. 45 issued or modified after December 28, 2002.

As noted above the Company has adopted the disclosure requirements of FIN No. 45 and will apply the recognition and measurement provisions for all guarantees entered into or modified after December 31, 2002. For the year ended December 31, 2003, the Company has not entered into any guarantees within the scope of FIN No. 45.

Forward-Looking Statements

This document includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, our financial condition, our results of operations, our growth strategy and the business of our company generally. In some cases, you can identify such statements by terminology such as “may”, “will”, “should”, “expects”, “plans”, “anticipates”, “believes”, “intends” or other such terminology. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, without limitation, the risk factors set forth below and elsewhere in this report and other risks and uncertainties more fully described in our other filings with the Securities and Exchange Commission. We caution that the risk factors set forth in this report are not exclusive. We disclaim any obligation to revise or update any forward-looking statement that may be made from time to time by us or on our behalf.

Risk Factors That May Affect Future Results and Market Price of Our Common Stock

Set forth below and elsewhere in this report and in other documents we file with the Securities and Exchange Commission are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report.

Risks Related to Our Business


	*We are highly leveraged, future cash flows may not be sufficient to meet our obligations and we might have difficulty obtaining more financing.*

We have a substantial amount of debt. As of December 28, 2003, the aggregate principal amount of our outstanding indebtedness was approximately $99.7 million. Our highly leveraged financial position means:


	•	a substantial portion of our cash flow from operations will be required to service our indebtedness;

	•	our ability to obtain financing in the future for working capital, capital expenditures and general corporate purposes might be impeded; and

	•	we are more vulnerable to economic downturns and our ability to withstand competitive pressures is limited.

If our business declines, our future cash flow might not be sufficient to meet our obligations and commitments.

If we fail to make any required payment under our credit facility or indenture, our debt may be accelerated under these instruments. In addition, in the event of bankruptcy or insolvency or a material breach of any covenant contained in one of our debt instruments, our debt may be accelerated. This acceleration could also result in the acceleration of other indebtedness that we may have outstanding at that time.

If we are unable to generate sufficient cash flow from operations to meet our obligations and commitments, we will be required to refinance or restructure our indebtedness or raise additional debt or equity capital. Additionally, we may be required to sell material assets or operations or delay or forego expansion opportunities. These alternative strategies might not be effected on satisfactory terms, if at all.


	*The terms of our debt instruments impose operating and financial restrictions on us, which may impair our ability to respond to changing business and economic conditions.*

The terms of our debt instruments impose operating and financial restrictions on us, including, among other things, restrictions on our ability to incur additional indebtedness, create or allow liens, pay dividends, engage in mergers, acquisitions or reorganizations or make specified capital expenditures. For example, our ability to engage in the foregoing transactions will depend upon, among other things, our level of indebtedness at the time of the proposed transaction and whether we are in default under our financing agreements. As a result, our ability to respond to changing business and economic conditions and to secure additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might further our growth strategy or otherwise benefit us without obtaining consent from our lenders. In addition, our credit facility is secured by a first priority security interest in our trade accounts receivable, merchandise inventories, service marks and trademarks and other general intangible assets, including trade names. In the event of our insolvency, liquidation, dissolution or reorganization, the lenders under our debt instruments would be entitled to payment in full from our assets before distributions, if any, were made to our stockholders.


	*If we are unable to successfully implement our controlled growth strategy or manage our growing business, our future operating results could suffer.*

One of our strategies includes opening profitable stores in new and existing markets. Our ability to successfully implement our growth strategy could be negatively affected by any of the following:


	•	suitable sites may not be available for leasing;

	•	we may not be able to negotiate acceptable lease terms;

	•	we might not be able to hire and retain qualified store personnel; and

	•	we might not have the financial resources necessary to fund our expansion plans.

In addition, our expansion in new and existing markets may present competitive, distribution and merchandising challenges that differ from our current challenges. These potential new challenges include competition among our stores, added strain on our distribution center, additional information to be processed by our management information systems and diversion of management attention from ongoing operations. We face additional challenges in entering new markets, including consumers’ lack of awareness of us, difficulties in hiring personnel and problems due to our unfamiliarity with local real estate markets and demographics. New markets may also have different competitive conditions, consumer tastes and discretionary spending patterns than our existing markets. To the extent that we are not able to meet these new challenges, our net sales could decrease and our operating costs could increase.


	*Because our stores are concentrated in the western United States, we are subject to regional risks.*

Our stores are located in the western United States. Because of this, we are subject to regional risks, such as the economy, weather conditions, power outages, electricity costs and earthquakes and other natural disasters specific to the states in which we operate. For example, particularly in southern California where we have a high concentration of stores, seasonal factors such as unfavorable snow conditions, such as those that occurred in the winter of 2002-2003, inclement weather or other localized conditions such as flooding, fires (such as the major fires in 2003), earthquakes or electricity blackouts could harm our operations. State and local regulatory compliance, such as the recent rise in California’s workers compensation costs, also can impact our financial results. If the region were to suffer an economic downturn or other adverse regional event, our net sales and profitability and our ability to implement our planned expansion program could suffer.

Several of our competitors operate stores across the United States and thus are not as vulnerable to these regional risks.


	*If we lose key management or are unable to attract and retain the talent required for our business, our operating results could suffer.*

Our future success depends to a significant degree on the skills, experience and efforts of Steven G. Miller, our Chairman, President and Chief Executive Officer, and other key personnel who are not obligated to stay with us. The loss of the services of any of these individuals could harm our business and operations. In addition, as our business grows, we will need to attract and retain additional qualified personnel in a timely manner and develop, train and manage an increasing number of management level sales associates and other employees. Competition for qualified employees could require us to pay higher wages and benefits to attract a sufficient number of employees, and increases in the federal minimum wage or other employee benefits costs could increase our operating expenses. If we are unable to attract and retain personnel as needed in the future, our net sales growth and operating results may suffer.


	*Our hardware and software systems are vulnerable to damage that could harm our business.*

Our success, in particular our ability to successfully manage inventory levels, largely depends upon the efficient operation of our computer hardware and software systems. We use management information systems to track inventory information at the store level, communicate customer information and aggregate daily sales information. These systems and our operations are vulnerable to damage or interruption from:


	•	earthquake, fire, flood and other natural disasters;

	•	power loss, computer systems failures, internet and telecommunications or data network failure, operator negligence, improper operation by or supervision of employees, physical and electronic loss of data or security breaches, misappropriation and similar events; and

	•	computer viruses.

Any failure that causes an interruption in our operations or a decrease in inventory tracking could result in reduced net sales and profitability.


	*If our suppliers do not provide sufficient quantities of products, our net sales and profitability could suffer.*

We purchase merchandise from over 750 vendors. Although we did not rely on any single vendor for more than 6.1% of our total purchases during the fiscal year ended December 28, 2003, our dependence on principal suppliers involves risk. Our 20 largest vendors collectively accounted for 36.2% of our total purchases during the fiscal year ended December 28, 2003. If there is a disruption in supply from a principal supplier or distributor, we may be unable to obtain merchandise that we desire to sell and that consumers desire to purchase. In addition, a significant portion of the products that we purchase, including those purchased from domestic suppliers, are manufactured abroad. A vendor could discontinue selling products to us at any time for reasons that may or may not be in our control. Our net sales and profitability could decline if we are unable to promptly replace a vendor who is unwilling or unable to satisfy our requirements with a vendor providing equally appealing products.


	*Because all of our stores rely on a single distribution center, any disruption could reduce our net sales.*

We currently rely on a single distribution center in Fontana, California. Any natural disaster or other serious disruption to this distribution center due to fire, earthquake or any other cause could damage a significant portion of our inventory and could materially impair both our ability to adequately stock our stores and our net sales and profitability. If the security measures used at our distribution center do not prevent inventory theft, our gross margin may significantly decrease. In August 2002, we entered into a two-year lease for an additional 136,000 square foot satellite distribution center to handle seasonal merchandise and returns. We recently extended the lease on the satellite distribution center until the end of February 2005. In addition,

because of limited capacity at the current distribution center, we will need to build a replacement distribution center in the next 12 to 24 months. Any disruption to, or delay in, this process could harm our future operations.


	Because equity owners of a significant stockholder of one of our competitors serve on our board of directors and the board of directors of such competitor, there may be conflicts of interest.

Green Equity Investors, L.P., an affiliate of Leonard Green & Partners, L.P., holds approximately 7.8% of the outstanding common stock of The Sports Authority, Inc., one of our competitors. John G. Danhakl, an equity owner of Leonard Green & Partners, L.P., currently serves on our board of directors. Jonathan D. Sokoloff, an equity owner of Leonard Green & Partners, L.P. and a former member of our board of directors, currently serves on The Sports Authority, Inc.’s board of directors. Mr. Danhakl may have conflicts of interest with respect to certain matters affecting us, including the pursuit of certain business opportunities presented to Leonard Green & Partners, L.P. All potential conflicts may not be resolved in a manner that is favorable to us. We believe it is impossible to predict the precise circumstances under which future potential conflicts may arise and therefore intend to address potential conflicts on a case-by-case basis. Under Delaware law, directors have a fiduciary duty to act in good faith and in what they believe to be in the best interest of the corporation and its stockholders. Such duties include the duty to refrain from impermissible self-dealing and to deal fairly with respect to transactions in which the directors, or other companies with which such directors are affiliated, have an interest.


	*Recently enacted and proposed changes in securities laws and regulations are likely to increase our costs.*

The Sarbanes-Oxley Act of 2002 (the “Act”) that became law in July 2002, as well as new rules and regulations subsequently implemented by the Securities and Exchange Commission (the “SEC”), have required and will require changes in some of our corporate governance practices. The Act also requires the SEC to promulgate additional new rules on a variety of subjects. In addition to final rules and rule proposals already made by the SEC, Nasdaq has proposed revisions to its requirements for companies that are quoted on The Nasdaq Stock Market, Inc.’s National Market. We expect these new rules and regulations to increase our legal and financial compliance costs and to make some activities more difficult, time consuming and/or costly. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These new rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.

Risks Related to Our Industry


	*A downturn in the economy may affect consumer purchases of discretionary items, which could reduce our net sales.*

In general, our sales represent discretionary spending by our customers. Discretionary spending is affected by many factors, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, taxation, electricity power rates, unemployment trends and other matters that influence consumer confidence and spending. Our customers’ purchases of discretionary items, including our products, could decline during periods when disposable income is lower or periods of actual or perceived unfavorable economic conditions. If this occurs, our net sales and profitability could decline.


	*Seasonal fluctuations in the sales of sporting goods could cause our annual operating results to suffer significantly.*

miscalculate the demand for our products generally or for our product mix during the fourth fiscal quarter, our net sales could decline, resulting in excess inventory, which could harm our financial performance. Because a substantial portion of our operating income is derived from our fourth fiscal quarter net sales, a shortfall in expected fourth fiscal quarter net sales could cause our annual operating results to suffer significantly.


	*Intense competition in the sporting goods industry could limit our growth and reduce our profitability.*

The retail market for sporting goods is highly fragmented and intensely competitive. We compete directly or indirectly with the following categories of companies:


	•	other traditional sporting goods stores and chains;

	•	mass merchandisers, discount stores and department stores, such as Wal-Mart, Kmart, Target, Kohl’s, JC Penney, and Sears;

	•	specialty sporting goods shops and pro shops, such as The Athlete’s Foot and Foot Locker;

	•	sporting goods superstores, such as The Sports Authority, Inc., and its other operating units, Oshman’s, Sportmart and Gart Sports Company; and

	•	internet retailers.

Some of our competitors have a larger number of stores and greater financial, distribution, marketing and other resources than we have. Two of our major competitors, The Sports Authority, Inc. and Gart Sports Company (including its other operating units, Oshman’s and Sportmart), completed a merger in August 2003 and now operate under the name The Sports Authority, Inc. In addition, if our competitors reduce their prices, it may be difficult for us to reach our net sales goals without reducing our prices. As a result of this competition, we may also need to spend more on advertising and promotion than we anticipate. If we are unable to compete successfully, our operating results will suffer.


	*We may incur costs from litigation or increased regulation relating to products that we sell, particularly firearms.*

We sell products manufactured by third parties, some of which may be defective. If any product that we sell were to cause physical injury or injury to property, the injured party or parties could bring claims against us as the retailer of the product. Our insurance coverage may not be adequate to cover every claim that could be asserted against us. If a successful claim were brought against us in excess of our insurance coverage, it could harm our business. Even unsuccessful claims could result in the expenditure of funds and management time and could have a negative impact on our business. In addition, our products are subject to the Federal Consumer Product Safety Act, which empowers the Consumer Product Safety Commission to protect consumers from hazardous sporting goods and other articles. The Consumer Product Safety Commission has the authority to exclude from the market certain consumer products that are found to be hazardous. Similar laws exist in some states and cities in the United States. If we fail to comply with government and industry safety standards, we may be subject to claims, lawsuits, fines and negative publicity that could harm our operating results.

In addition, we sell firearms and ammunition, products associated with an increased risk of injury and related lawsuits. Sales of firearms and ammunition have historically represented less than 5% of our annual net sales. We may incur losses due to lawsuits relating to our performance of background checks on firearms purchases as mandated by state and federal law or the improper use of firearms sold by us, including lawsuits by municipalities or other organizations attempting to recover costs from firearms manufacturers and retailers relating to the misuse of firearms. In addition, in the future there may be increased federal, state or local regulation, including taxation, of the sale of firearms in both our current markets as well as future markets in which we may operate. Commencement of these lawsuits against us or the establishment of new regulations could reduce our net sales and decrease our profitability.


	*If we fail to anticipate changes in consumer preferences, we may experience lower net sales, higher inventory markdowns and lower margins.*

Our products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty. These preferences are also subject to change. Our success depends upon our ability to anticipate and respond in a timely manner to trends in sporting goods merchandise and consumers’ participation in sports. If we fail to identify and respond to these changes, our net sales may decline. In addition, because we often make commitments to purchase products from our vendors up to six months in advance of the proposed delivery, if we misjudge the market for our merchandise, we may over-stock unpopular products and be forced to take inventory markdowns that could have a negative impact on profitability.


	*Terrorism and the uncertainty of war may harm our operating results.*

Terrorist attacks or acts of war may cause damage or disruption to us and our employees, facilities, information systems, vendors, and customers, which could significantly impact our net sales, costs and expenses and financial condition. The threat of terrorist attacks since September 11, 2001 continues to create many economic and political uncertainties. The potential for future terrorist attacks, the national and international responses to terrorist attacks and other acts of war or hostility may cause greater uncertainty and cause our business to suffer in ways that we currently cannot predict. Military action taken by the United States and its allies in Iraq or elsewhere could have a short or long term negative economic impact upon the financial markets and our business in general.

Risks Related to Investing in Our Common Stock


	*The price of our common stock may be volatile.*

The trading price of our common stock may fluctuate widely as a result of a number of factors, many of which are outside our control. In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market prices of many companies. These broad market fluctuations could adversely affect the market price of our common stock. A significant decline in our stock price could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation.


	*Substantial amounts of our common stock could be sold in the near future, which could depress our stock price.*

We cannot predict the effect, if any, that the availability of shares of common stock for sale will have on the market price of our common stock prevailing from time to time. At March 5, 2004, there were 22,664,627 shares of our common stock outstanding. All of these shares are freely transferable without restriction or further registration under the federal securities laws, except for any shares held by our affiliates, sales of which will be limited by Rule 144 under the Securities Act of 1933. Sales of a significant number of these shares of common stock in the public market could reduce the market price of the common stock or our ability to raise capital by offering equity securities.


	*Our anti-takeover provisions could prevent or delay a change in control of our company, even if such change of control would be beneficial to our stockholders.*

Provisions of our amended and restated certificate of incorporation and amended and restated bylaws as well as provisions of Delaware law could discourage, delay or prevent a merger, acquisition or other change in control of our company, even if such change in control would be beneficial to our stockholders. These provisions include:


	•	a board of directors that is classified such that only one-third of directors are elected each year;

	•	authorization of the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt;

	•	limitations on the ability of stockholders to call special meetings of stockholders;


	•	prohibition of stockholder action by written consent and requiring all stockholder actions to be taken at a meeting of our stockholders; and

	•	establishment of advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition, Section 203 of the Delaware General Corporations Law limits business combination transactions with 15% stockholders that have not been approved by the board of directors. These provisions and other similar provisions make it more difficult for a third party to acquire us without negotiation. These provisions may apply even if the transaction may be considered beneficial by some stockholders.

Item 7A: Quantitative and Qualitative Disclosures About Market Risk

We are subject to risks resulting from interest rate fluctuations since interest on our borrowings under our revolving credit facility are based on variable rates. If the LIBOR rate were to increase 1.0% in 2004 as compared to the rate at December 28, 2003, our interest expense for 2004 would increase $0.5 million based on the outstanding balance of our revolving credit facility at December 28, 2003. We do not hold any derivative instruments and do not engage in hedging activities.

Item 8: Financial Statements and Supplementary Data

The financial statements and the supplementary financial information required by this Item and included in this report are listed in the Index to Consolidated Financial Statements beginning on page F-1.


Item 9:	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.*

None.

PART III

Item 10: Directors and Executive Officers of the Registrant

We have adopted a code of ethics that applies to our directors, executive officers and employees. A copy of our code of ethics is filed as an exhibit to this report.

The remaining information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 28, 2003.

Item 11: Executive Compensation

The information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 28, 2003.


Item 12:	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

Equity Compensation Plan Information(1)

Number of

securities

Number of

Weighted-

remaining available

securities to be

average exercise

for future issuance

issued upon

price of

under equity

exercise of

outstanding

compensation

outstanding

options,

plans (excluding

options, warrants

warrants and

securities reflected

Plan category

and rights

rights

in column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders(2)

383,400

10.72

3,261,600

(3)

Equity compensation plans not approved by security holders (none)

—

Total

383,400

10.72

3,261,600

(3)


(1)	Information is provided as of December 28, 2003.

(2)	The Company has two equity compensation plans: the 1997 Management Equity Plan and the 2002 Stock Incentive Plan.

(3)	Does not include 611,298 shares available for issuance under the 1997 Management Equity Plan because the Company does not intend to make any more grants under such plan.

Item 13: Certain Relationships and Related Transactions

Item 14: Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that (1) information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission and (2) this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objections is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process. Under the supervision and review of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 28, 2003. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective in alerting them in a timely manner to material information regarding us that is required to be included in our periodic reports. In addition, there have been no significant changes in our internal controls or in other factors that could significantly affect those controls since December 28, 2003, the date as of which our disclosure controls and procedures were last evaluated.

PART IV


Item 15:	*Exhibits, Financial Statement Schedules, and Reports on Form 8-K*

(A) Documents filed as part of this report:


	(1) Financial Statements.


	See Index to Consolidated Financial Statements on page F-1 hereof.


	(2) Financial Statement Schedule.


	See Index to Consolidated Financial Statements Index on page F-1 hereof.


	(3) Exhibits and Reports on Form 8-K.


	(a) Exhibits


	3.1			Amended and Restated Certificate of Incorporation of Big 5 Sporting Goods Corporation.(7)
	3.2			Amended and Restated Bylaws.(7)
	4.1			Specimen of Common Stock Certificate.(5)
	4.2			Indenture dated as of November 13, 1997 between Big 5 Corp. and First Trust National Association, as trustee.(1)
	4.3			Form of Big 5 Corp. 10.875% Series B Senior Notes due 2007 (included in Exhibit 4.2).(1)
	4.4			Indenture dated as of November 13, 1997 between Big 5 Sporting Goods Corporation and First Trust National Association, as trustee.(2)
	4.5			Form of Big 5 Sporting Goods Corporation 13.45% Senior Discount Notes due 2008.(2)
	10.1			Form of Amended and Restated Stockholders Agreement among Big 5 Sporting Goods Corporation, Green Equity Investors, L.P., Steven G. Miller and Robert W. Miller.(4)
	10.2			Management Services Agreement dated as of November 13, 1997 by and among Big 5 Sporting Goods Corporation, Big 5 Corp. and Leonard Green & Associates, L.P.(1)
	10.3			1997 Management Equity Plan.(2)
	10.4			2002 Stock Incentive Plan.(4)
	10.5			Form of Amended and Restated Employment Agreement between Robert W. Miller and Big 5 Sporting Goods Corporation.(4)
	10.6			Form of Amended and Restated Employment Agreement between Steven G. Miller and Big 5 Sporting Goods Corporation(4)
	10.7			Amended and Restated Indemnification Implementation Agreement between Big 5 Corp. (successor to United Merchandising Corp.) and Thrifty PayLess Holdings, Inc. dated as of April 20, 1994.(7)
	10.8			Agreement and Release among Pacific Enterprises, Thrifty PayLess Holdings, Inc., Thrifty PayLess, Inc., Thrifty and Big 5 Corp. (successor to United Merchandising Corp.) dated as of March 11, 1994.(7)
	10.9			Financing Agreement dated March 8, 1996 between The CIT Group/ Business Credit, Inc. and Big 5 Corp.(7)
	10.10			Grant of Security Interest in and Collateral Assignment of Trademarks and Licenses dated as of March 8, 1996 by Big 5 Corp. in favor of The CIT Group/ Business Credit, Inc.(7)
	10.11			Guarantee dated March 8, 1996 by Big 5 Corporation (now known as Big 5 Sporting Goods Corporation) in favor of The CIT Group/ Business Credit, Inc.(7)
	10.12			Letter agreement from The CIT Group/ Business Credit, Inc. to Big 5 Corp. dated November 13, 1997, amending the Financing Agreement dated March 8, 1996 between Big 5 Corp. (successor to United Merchandising Corp.) and The CIT Group/ Business Credit, Inc.(1)
	10.13			Letter agreement from The CIT Group/ Business Credit, Inc. to Big 5 Corp. dated December 16, 1997, amending the Financing Agreement dated March 8, 1996 between Big 5 Corp. (successor to United Merchandising Corp.) and The CIT Group/ Business Credit, Inc.(2)


	10.14			Fifth Amendment to Financing Agreement, dated March 21, 2000, by and among Big 5 Corp. and The CIT Group/ Business Credit, Inc., amending the Financing Agreement, dated March 8, 1996, between Big 5 Corp. (successor to United Merchandising Corp.) and The CIT Group/ Business Credit, Inc.(2)
	10.15			Sixth Amendment to Financing Agreement, dated February 27, 2002, by and among Big 5 Corp. and The CIT Group/ Business Credit, Inc., amending the Financing Agreement, dated March 8, 1996, between Big 5 Corp. (successor to United Merchandising Corp.) and The CIT Group/ Business Credit, Inc.(3)
	10.16			Seventh Amendment to Financing Agreement, dated April 30, 2002, by and among Big 5 Corp. and The CIT Group/ Business Credit, Inc., amending the Financing Agreement, dated March 8, 1996, between Big 5 Corp. (successor to United Merchandising Corp.) and The CIT Group/ Business Credit, Inc.(5)
	10.17			Form of Indemnification Agreement.(7)
	10.18			Form of Termination Agreement by and among Big 5 Sporting Goods Corporation, Big 5 Corp. and Leonard Green & Associates, L.P.(4)
	10.19			Stock Subscription Agreement dated as of September 25, 1992, between Big 5 Sporting Goods Corporation and Green Equity Investors, L.P.(4)
	10.20			Letter agreement from The CIT Group/ Business Credit, Inc. to Big 5 Corp. dated April 17, 1996, amending the Financing Agreement dated March 8, 1996, between Big 5 Corp. (successor to United Merchandising Corp.) and The CIT Group/ Business Credit, Inc.(4)
	10.21			Letter agreement from The CIT Group/ Business Credit, Inc. to Big 5 Corp. dated August 11, 1997, amending the Financing Agreement dated March 8, 1996, between Big 5 Corp. (successor to United Merchandising Corp.) and The CIT Group/ Business Credit, Inc.(4)
	10.22			Letter agreement from The CIT Group/ Business Credit, Inc. to Big 5 Corp. dated June 13, 2002, under the Financing Agreement dated March 8, 1996, between Big 5 Corp. (successor to United Merchandising Corp.) and The CIT Group/ Business Credit, Inc.(5)
	10.23			Form of Indemnification Letter Agreement.(5)
	10.24			Form of Subscription Agreement between Big 5 Sporting Goods Corporation and Green Equity Investors, L.P.(6)
	10.25			Form of Subscription Agreement between Big 5 Sporting Goods Corporation and Grand Avenue Associates, L.P.(6)
	10.26			Amended and Restated Financing Agreement dated March 20, 2003 between The CIT Group/ Business Credit, Inc., the Lenders and Big 5 Corp.(7)
	10.27			Modification and Reaffirmation of Guaranty dated March 20, 2003 by Big 5 Sporting Goods Corporation in favor of The CIT Group/ Business Credit, Inc.(7)
	10.28			First Amendment to Financing Agreement dated October 31, 2003, amending the Financing Agreement dated March 20, 2003 between The CIT Group/ Business Credit, Inc., the Lenders and Big 5 Corp.(8)
	10.29			Joinder Agreement, dated as of January 28, 2004, by and among Big 5 Corp., Big 5 Services Corp., the Lenders (as defined therein) and The CIT Group/Business Credit, Inc.(8)
	10.30			Co-Obligor Agreement, dated as of January 28, 2004, made by Big 5 Corp. and Big 5 Services Corp. in favor The CIT Group/Business Credit, Inc. as agent for the Lenders (as defined therein)(8)
	14.1			Code of Business Conduct and Ethics.(8)
	21.1			Subsidiaries of Big 5 Sporting Goods Corporation.(2)
	23.1			Consent of KPMG LLP(8)
	31.1			Rule 13-a14(a) Certification of Chief Executive Officer.(8)
	31.2			Rule 13-a14(a) Certification of Chief Financial Officer.(8)
	32.1			Section 1350 Certification of Chief Executive Officer.(8)
	32.2			Section 1350 Certification of Chief Financial Officer. (8)


(1)	Incorporated by reference to Big 5 Corp.’s Registration Statement on Form S-4 (File No. 333-43129) filed with the Securities and Exchange Commission on December 23, 1997.

(2)	Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-68094) filed by Big 5 Sporting Goods Corporation on August 21, 2001.

(3)	Incorporated by reference to Amendment No. 1 to the Registration Statement on Form S-1 filed by Big 5 Sporting Goods Corporation on March 18, 2002.

(4)	Incorporated by reference to Amendment No. 2 to the Registration Statement on Form S-1 filed by Big 5 Sporting Goods Corporation on June 5, 2002.

(5)	Incorporated by reference to Amendment No. 4 to the Registration Statement on Form S-1 filed by Big 5 Sporting Goods Corporation on June 24, 2002.

(6)	Incorporated by reference to Amendment No. 5 to the Registration Statement on Form S-1 filed by Big 5 Sporting Goods Corporation on June 25, 2002.

(7)	Incorporated by reference to the Annual Report on Form 10-K filed by Big 5 Sporting Goods Corporation on March 31, 2003.

(8)	Filed herewith.


	(b) Reports on Form 8-K

A Form 8-K was furnished October 29, 2003, under Item 12, reporting Big 5 Sporting Goods Corporation’s financial results for the fiscal quarter ended September 28, 2003.

A Form 8-K was filed November 17, 2003, under Item 5, reporting that Big 5 Sporting Goods Corporation entered into the Underwriting Agreement dated November 17, 2003 by and among Big 5 Sporting Goods Corporation, Green Equity Investors, L.P. and Credit Suisse First Boston LLC, acting on behalf of itself and as the representative of the several underwriters.

A Form 8-K was filed November 21, 2003, under Item 5, reporting the closing of the public offering on behalf of the selling stockholder, Green Equity Investors, L.P., of 5,200,000 shares of Big 5 Sporting Goods Corporation’s common stock.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	BIG 5 SPORTING GOODS CORPORATION
	a Delaware Corporation


	By:	/s/ STEVEN G. MILLER



	Steven G. Miller
	Chairman of the Board of Directors,
	President, Chief Executive Officer
	and Director of the Company

Date: March 12, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:



Signatures	Title	Date


/s/ STEVEN G. MILLER Steven G. Miller	Chairman of the Board of Directors, President, Chief Executive Officer and Director of the Company (Principal Executive Officer)	March 12, 2004

/s/ CHARLES P. KIRK Charles P. Kirk	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	March 12, 2004

/s/ SANDRA N. BANE Sandra N. Bane	Director of the Company	March 12, 2004

/s/ G. MICHAEL BROWN G. Michael Brown	Director of the Company	March 12, 2004

/s/ JOHN G. DANHAKL John G. Danhakl	Director of the Company	March 12, 2004

/s/ JENNIFER HOLDEN DUNBAR Jennifer Holden Dunbar	Director of the Company	March 12, 2004

/s/ MICHAEL D. MILLER Michael D. Miller	Director of the Company	March 12, 2004

BIG 5 SPORTING GOODS CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Index to Consolidated Financial Statements		F-1
Management’s Responsibility for Financial Statements		F-2
Independent Auditors’ Report		F-3
Consolidated Balance Sheets at December 29, 2002 and December 28, 2003		F-4
Consolidated Statements of Operations for the fiscal years ended December 30, 2001, December 29, 2002 and December 28, 2003		F-5
Consolidated Statements of Stockholders’ Equity (Deficit) for the fiscal years ended December 30, 2001, December 29, 2002 and December 28, 2003		F-6
Consolidated Statements of Cash Flows for the fiscal years ended December 30, 2001, December 29, 2002 and December 28, 2003		F-7
Notes to Consolidated Financial Statements		F-8
		Schedule
Consolidated Financial Statement Schedule:
	Valuation and Qualifying Accounts as of December 30, 2001, December 29, 2002 and December 28, 2003	II-1

F-1

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

We are responsible for the preparation of our consolidated financial statements and related information appearing in this Annual Report. We believe that the consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements reasonably present our financial position and results of operations in conformity with generally accepted accounting principles. We also have included in our financial statements amounts that are based on estimates and judgments which we believe are reasonable under the circumstances.

The independent auditors audit our consolidated financial statements in accordance with generally accepted auditing standards and provide an objective, independent review of the fairness of reported operating results and financial position.

Our board of directors has a standing audit committee, which is chaired by Sandra N. Bane and currently consists of Ms. Bane, Mr. Danhakl and Ms. Dunbar, each of whom is “independent” as that term is defined in Marketplace Rule 4200(a)(14) of the National Association of Securities Dealers’ listing standards. The audit committee meets periodically with financial management and the independent auditors to review accounting, internal control, auditing and financial reporting matters.



/s/ STEVEN G. MILLER Steven G. Miller Chairman of the Board, President & Chief Executive Officer		/s/ CHARLES P. KIRK ----------------------------------------------- Charles P. Kirk Senior Vice President & Chief Financial Officer

El Segundo, California

March 12, 2004

F-2

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders

Big 5 Sporting Goods Corporation:

We have audited the consolidated financial statements of Big 5 Sporting Goods Corporation and subsidiary as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the consolidated financial statement schedule as listed in the accompanying index. These consolidated financial statements and the consolidated financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the consolidated financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Big 5 Sporting Goods Corporation and subsidiary as of December 29, 2002 and December 28, 2003 and the results of their operations and their cash flows for each of the fiscal years ended December 30, 2001, December 29, 2002 and December 28, 2003 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in note 17 to the consolidated financial statements, effective December 31, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”


	KPMG LLP

Los Angeles, California

February 11, 2004

F-3

BIG 5 SPORTING GOODS CORPORATION

CONSOLIDATED BALANCE SHEETS


			December 29,			December 28,
			2002			2003


			(Dollars in thousands)
ASSETS
Current assets:
	Cash		$	9,441		$	9,030
	Trade and other receivables, net of allowances for doubtful accounts of $729 and $520, respectively			9,057			11,522
	Merchandise inventories			169,529			179,555
	Prepaid expenses			2,385			5,017

		Total current assets		190,412			205,124

Property and equipment:
	Land			186			186
	Buildings and improvements			36,861			38,666
	Furniture and equipment			55,930			64,341
	Less accumulated depreciation and amortization			(47,873	)		(56,241	)

		Net property and equipment		45,104			46,952
Deferred income taxes, net				9,658			9,628
Leasehold interest, net of accumulated amortization of $23,053 and $28,842, respectively				5,811			4,022
Other assets, at cost, less accumulated amortization of $4,974 and $2,281, respectively				2,557			1,865
Goodwill				4,433			4,433

		Total assets	$	257,975		$	272,025


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	67,937		$	76,004
	Accrued expenses			49,708			54,717

		Total current liabilities		117,645			130,721
Deferred rent				11,525			11,654
Long-term debt				125,131			99,686

		Total liabilities		254,301			242,061

Commitments and contingencies
Stockholders’ equity:
	Common stock, $.01 par value. Authorized 50,000,000 shares; issued and outstanding 22,178,018 shares at December 29, 2002 and 22,663,927 shares at December 28, 2003			222			227
	Additional paid-in capital			84,008			84,003
	Accumulated deficit			(80,556	)		(54,266	)

		Net stockholders’ equity		3,674			29,964

		Total liabilities and Stockholders’ equity	$	257,975		$	272,025

See accompanying notes to consolidated financial statements.

F-4

BIG 5 SPORTING GOODS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS


			Year ended			Year ended		Year ended
			December 30,			December 29,		December 28,
			2001			2002		2003


			(Dollars and shares in thousands,
			except per share data)
Net sales			$	622,481		$	667,469	$	709,740
Cost of goods sold, buying and occupancy, excluding depreciation and amortization shown separately below				407,679			429,858		453,814

		Gross profit		214,802			237,611		255,926

Operating expenses:
	Selling and administrative			160,044			174,868		186,798
	Litigation settlement (note 11)			2,515			—		—
	Depreciation and amortization			10,031			9,966		10,412

		Total operating expenses		172,590			184,834		197,210

		Operating income		42,212			52,777		58,716
Premium (discount) and unamortized financing fees related to redemption of debt				(2,662	)		4,557		3,434
Interest expense, net				19,629			15,825		11,405

		Income before income taxes		25,245			32,395		43,877
Income taxes				10,280			13,313		17,587

		Net income		14,965			19,082		26,290
Redeemable preferred stock dividends and redemption premium				7,284			7,999		—

		Net income available to common stockholders	$	7,681		$	11,083	$	26,290

Earnings per share:
		Basic	$	0.54		$	0.60	$	1.16

		Diluted	$	0.48		$	0.57	$	1.16

Weighted average shares of common stock outstanding:
		Basic		14,247			18,358		22,651

		Diluted		16,090			19,476		22,753

See accompanying notes to consolidated financial statements.

F-5

BIG 5 SPORTING GOODS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

YEARS ENDED DECEMBER 30, 2001, DECEMBER 29, 2002 AND DECEMBER 28, 2003



	Common Stock						Additional
							paid-in			Accumulated			Net Stockholders’
	Shares			Amount			capital			Deficit			Equity (Deficit)


	(Dollars in thousands)
Balance at December 31, 2000		15,604,650		$	156		$	7,059		$	(99,320	)	$	(92,105	)
Redeemable preferred stock dividend		—			—			—			(7,284	)		(7,284	)
Repurchase of common stock		(2,430	)		—			(1	)		—			(1	)
Net income		—			—			—			14,965			14,965

Balance at December 30, 2001		15,602,220			156			7,058			(91,639	)		(84,425	)
Redeemable preferred stock dividend and redemption premiums		—			—			—			(7,999	)		(7,999	)
Issuance of common stock		7,112,421			71			86,243			—			86,314
Repurchase of common stock		(536,623	)		(5	)		(6,951	)		—			(6,956	)
Stock issuance costs		—			—			(2,342	)		—			(2,342	)
Net income		—			—			—			19,082			19,082

Balance at December 29, 2002		22,178,018			222			84,008			(80,556	)		3,674
Net income		—			—			—			26,290			26,290
Exercise of warrant		485,909			5			(5	)		—			—

Balance at December 28, 2003		22,663,927		$	227		$	84,003		$	(54,266	)	$	29,964

See accompanying notes to consolidated financial statements.

F-6

BIG 5 SPORTING GOODS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


				Year ended			Year ended			Year ended
				December 30,			December 29,			December 28,
				2001			2002			2003


				(Dollars in thousands)
Cash flows from operating activities:
	Net income			$	14,965		$	19,082		$	26,290
	Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation and amortization		10,031			9,966			10,412
			Amortization of deferred finance charges and discounts		3,932			2,291			594
			Deferred tax provision (benefit)		806			4,050			30
			Loss on disposal of equipment and leasehold interest		43			6			140
			Premium (discount) and unamortized financing fees related to redemption of debt		(2,662	)		4,557			3,434
			Changes in assets and liabilities:
			Merchandise inventories		5,301			(5,849	)		(10,026	)
			Trade and other accounts receivable, net		(800	)		(828	)		(2,465	)
			Prepaid expenses and other assets		(959	)		(566	)		(3,446	)
			Accounts payable		(4,204	)		1,330			2,708
			Accrued expenses		5,068			(1,924	)		5,008

			Net cash provided by operating activities		31,521			32,115			32,679

Cash flows from investing activities — purchases of property and equipment					(10,510	)		(10,207	)		(10,482	)

Cash flows from financing activities:
	Net borrowings (repayments) under revolving credit facilities, and other				(10,210	)		1,579			34,735
	Issuance of common stock				—			86,314			—
	Stock issuance costs				—			(2,342	)		—
	Repayment of senior discount notes and 10.875% senior notes				(6,688	)		(31,006	)		(57,343	)
	Redemption of preferred stock				—			(67,921	)		—
	Repurchase of common stock				(1	)		(6,956	)		—

			Net cash used in financing activities		(16,899	)		(20,332	)		(22,608	)

			Net increase (decrease) in cash		4,112			1,576			(411	)
Cash at beginning of year					3,753			7,865			9,441

Cash at end of year				$	7,865		$	9,441		$	9,030

Supplemental disclosures of non-cash financing activities:
		Accreted dividends on preferred stock		$	7,284		$	3,529		$	—

Supplemental disclosures of cash flow information:
		Interest paid		$	14,690		$	13,066		$	11,505
		Income taxes paid			13,820			11,850			14,908

See accompanying notes to consolidated financial statements.

F-7

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 29, 2002 and December 28, 2003

(Dollars in thousands)


(1)	Basis of Presentation and Description of Business

The accompanying consolidated financial statements as of December 29, 2002 and December 28, 2003 and for the years ended December 30, 2001, December 29, 2002 and December 28, 2003 represent the financial position and results of operations of Big 5 Sporting Goods Corporation and its wholly owned subsidiary, 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 293 stores at December 28, 2003 in California, Washington, Arizona, Oregon, Texas, New Mexico, Nevada, Utah, Idaho and Colorado.


(2)	Initial Public Offering

In the second quarter of 2002, the Company completed an initial public offering of 8.1 million shares of common stock, of which 1.6 million shares were sold by selling stockholders. In the third quarter of 2002, the Company’s underwriters exercised their right to purchase an additional 1.2 million shares through their over-allotment option, of which 0.5 million shares were sold by selling stockholders. With net proceeds of $76.1 million from the offering and total net proceeds of $84.0 million after exercise of the underwriters’ over-allotment option, and together with borrowings under its credit facility, the Company redeemed all of its outstanding senior discount notes for $27.5 million and preferred stock for $67.9 million, paid bonuses to executive officers and directors of $2.0 million which were funded by a reduction in the redemption price of the Company’s preferred stock and repurchased 0.5 million shares of the Company’s common stock from non-executive employees for $6.9 million. All uses of proceeds, other than the payment of a portion of the bonuses related to the initial public offering and certain initial public offering costs, occurred in the third quarter of fiscal 2002.


(3)	Summary of Significant Accounting Policies

Consolidation

The consolidated financial statements include Big 5 Sporting Goods Corporation and Big 5 Corp. All significant intercompany balances and transactions have been eliminated in consolidation.

Reporting Period

The Company reports on the 52-53 week fiscal year ending on the Sunday nearest December 31. Information presented for the years ended December 30, 2001, December 29, 2002 and December 28, 2003 represents 52-week fiscal years.

Revenue Recognition

The Company’s revenue is received from retail sales of merchandise through the Company’s stores. Revenue is recognized when merchandise is received by the customer and is shown net of estimated returns.

Trade and Other Receivables

Trade accounts receivable consist primarily of third party credit card receivables. Other receivables consist principally of net amounts due from vendors for certain co-op advertising. Accounts receivable have not historically resulted in any material credit losses. An allowance for doubtful accounts is provided when accounts are determined to be uncollectible.

F-8

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Merchandise Inventories

The Company values merchandise inventories using the lower of weighted average cost (which approximates the first-in, first-out cost) or market method. Average cost includes the direct purchase price of merchandise inventory and overhead costs associated with the Company’s distribution center.

Property and Equipment

Property and equipment are stated at cost and depreciated over the estimated useful lives or lease terms, using the straight-line method.

The estimated useful lives are 40 years for buildings, 7 to 10 years for fixtures and equipment and the shorter of the lease term or 10 years for leasehold improvements. Maintenance and repairs are charged to expense as incurred.

Leasehold Interest

Upon acquisition of the Company by management and others in 1992, an asset was recognized for the net fair value of favorable operating lease agreements. The leasehold interest asset is being amortized on a straight-line basis over 13.5 years. The unamortized balance attributable to leases terminated subsequent to the acquisition has been reflected as a component of the gain or loss upon disposition of the underlying properties.

Goodwill

Goodwill, which represents the excess of purchase price over fair value of net assets acquired, was historically amortized on a straight-line basis over periods ranging from 15 to 30 years. In fiscal 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets , which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. Upon adoption of SFAS No. 142, the Company was required to evaluate its existing goodwill for impairment. To accomplish this, the Company was required to identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of December 31, 2001. The Company has determined that it has one reporting unit under SFAS No. 142. The Company was then required to determine the fair value of the reporting unit and compare it to the carrying amount of the reporting unit within six months of December 31, 2001 to determine if further impairment analysis was required. The results of this analysis did not require the Company to recognize an impairment loss upon adoption or upon the annual impairment test. Prior to the adoption of SFAS No. 142, the amount of goodwill and other intangible asset impairment, if any, was measured based upon projected discounted future operating cash flows using a discount rate reflecting the Company’s average cost of funds. The Company performed its annual impairment test as of December 28, 2003, and goodwill was not considered impaired.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.

F-9

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Assets

Other assets consist principally of deferred financing costs and are amortized straight-line over the terms of the respective debt, which approximates the effective interest method.

Self-Insurance Reserves

The Company maintains self-insurance programs for workers’ compensation and general liability risks. The Company is self-insured up to specified per-occurrence limits and maintains insurance coverage for losses in excess of specified amounts. Estimated costs under these programs, including incurred but not reported claims, are recorded as expenses based upon actuarially determined historical experience and trends of paid and incurred claims. Self-insurance reserves amount to $5.9 million and $6.5 million at December 29, 2002 and December 28, 2003, respectively, and are included in accrued liabilities.

Preopening Expenses

New store preopening expenses are charged against operations as incurred.

Advertising Expenses

The Company expenses advertising costs the first time the advertising takes place. Advertising expenses amounted to $36.0 million for the year ended December 30, 2001, $37.0 million for the year ended December 29, 2002, and $39.9 million for the year ended December 28, 2003. Advertising expense is included in selling and administrative expenses in the accompanying statements of operations. There are no amounts related to advertising reported as assets in the balance sheets presented. The Company receives cooperative advertising allowances from manufacturers in order to subsidize qualifying advertising and similar promotional expenditures made relating to vendors’ products. These advertising allowances are recognized as a reduction to selling and administrative expense when the Company incurs the advertising eligible for the credit. The Company recognized cooperative advertising allowances of $5.4 million, $6.0 million, and $6.3 million for the fiscal years ended December 30, 2001, December 29, 2002 and December 28, 2003, respectively.

Rent Expense

The Company leases the majority of store locations under operating leases that provide for annual payments that increase over the life of the leases. The aggregate of the minimum annual payments are expensed on a straight-line basis over the term of the related lease. The amount by which straight-line rent expense exceeds actual lease payment requirements in the early years of the leases is accrued as deferred rent liability and reduced in later years when the actual cash payment requirements exceed the straight-line expense.

Income Taxes

The Company accounts for income taxes under the asset and liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The realizability of deferred tax assets is assessed throughout the year and a valuation allowance is recorded if necessary to reduce net deferred tax assets to an amount whose realization is more likely than not.

F-10

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Use of Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates.

Stock Compensation

The Company measures compensation costs under Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and complies with the pro forma disclosure requirements of SFAS No. 123, except for options and warrants granted to non-employees, which are recorded in the financial statements under the fair value method.

SFAS Statement No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment to FASB Statement No. 123, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based compensation plans. As permitted by existing accounting standards, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123, as amended. The following table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding and unvested awards in each period.

Had the Company determined compensation cost based upon the fair value at the grant date for its stock options and restricted stock using the Black Scholes option pricing model, pro forma net income and pro forma net income per share, including the following weighted average assumptions used in these calculations, would have been as follows:



	Fiscal Year Ending

	December 30,			December 29,			December 28,
	2001			2002			2003

Net income, as reported	$	14,965		$	19,082		$	26,290
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects		323			310			293

Pro forma net income	$	14,642		$	18,772		$	25,997

Earnings per share:
Basic — as reported		0.54		$	0.60		$	1.16
Basic — pro forma		0.52		$	0.59		$	1.15
Diluted — as reported		0.48		$	0.57		$	1.16
Diluted — pro forma		0.46		$	0.55		$	1.14
Risk free interest rate		3.6	%		3.6	%		5.5	%
Expected lives		4 years			4 years			4 years
Expected volatility		60	%		60	%		60	%
Expected dividends		—			—			—

Earnings Per Share

Basic earnings per share is calculated by dividing net income available to common stockholder by the weighted average common shares outstanding during the period excluding unvested restricted shares issued

F-11

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

under the 1997 Management Equity Plan (“1997 Plan”) (see note 15). Diluted earnings per share is calculated by using the weighted average of common shares outstanding adjusted to include the potentially dilutive effect of an outstanding warrant, outstanding stock options and the dilutive effect of unvested restricted shares issued under the 1997 Plan (see note 16). The warrant was exercised in the first quarter of 2003 (see note 15).

Repurchase of Debt

In January 2003, we adopted the provisions of SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 provides that the gain or loss recognized upon early debt extinguishment may no longer be classified as extraordinary, but rather must be recognized as a component of net income before extraordinary items, unless the debt extinguishment meets certain criteria set forth in the APB Opinion No. 30, Reporting the Results of Operations: Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (APB No. 30). These criteria, which include that the debt extinguishment be unusual in nature and occur infrequently, are expected to be satisfied infrequently. SFAS No. 145 requires enterprises to reclassify prior period items that do not meet the extraordinary item classification criteria in APB No. 30 upon adoption. Upon adoption of SFAS No. 145, the Company has retroactively reclassified extraordinary gains and losses related to the redemption of debt for all prior periods presented.


(4)	Long-Term Debt

Long-term debt consists of the following:


		December 29,		December 28,
		2002		2003

Revolving credit facility		$	22,280	$	51,656
10.875% senior notes due 2007, net of unamortized discount, $48.1 million face amount at December 28, 2003			102,851		48,030

	Total long-term debt	$	125,131	$	99,686

In 1997, the Company issued $131.0 million face amount, 10.875% senior notes due 2007, less a discount of $0.6 million based on an imputed interest rate of 10.95%. The 10.875% senior notes require semiannual interest payments on each May 15 and November 15, commencing on May 15, 1998. The Company has no mandatory payments of principal on the 10.875% senior notes prior to their maturity in 2007. The 10.875% senior notes may be redeemed in whole or in part, at the option of the Company, at any time on or after November 15, 2002, at the redemption prices set forth below with respect to the indicated redemption date, together with any accrued and unpaid interest to such redemption date. The 10.875% senior notes are unsecured obligations that rank senior in right of payment to all existing and future indebtedness that is subordinated to the 10.875% senior notes and rank pari passu in right of payment with all current and future unsubordinated indebtedness, subject to restrictions due to the securitization of certain assets. During the fiscal year ended December 29, 2002, the Company repurchased $1.0 million face value of 10.875% senior notes for a repurchase price of $1.0 million. During the fiscal year ended December 28, 2003, the Company repurchased an additional $55.0 million face value for a repurchase price of $58.0 million.

F-12

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

If redeemed during the 12-month period beginning November 15 the redemption prices of the 10.875% senior notes before accrued and unpaid interest are as follows:


Year	Percentage

2003		103.650	%
2004		101.825
2005 and thereafter		100.000

In 1997, the Company issued $48.2 million face amount 13.45% senior discount notes due 2008, less a discount of $24.0 million based on an imputed interest rate of 13.85%. The senior discount notes were issued with a warrant (see note 15) for aggregate consideration of $24.5 million. The senior discount notes were unsecured and cash interest did not accrue on the senior discount notes prior to November 30, 2002. The Company had no mandatory payments of principal on the senior discount notes prior to their maturity in 2008. The senior discount notes could be redeemed in their entirety only, at the option of the Company, upon the Company’s receipt of proceeds from an initial public offering of its common stock at any time prior to November 30, 2002 at a redemption price equal to 113.45% of their accreted value plus accrued but unpaid interest. The Company repurchased in the open market $12.5 million face value of senior discount notes during the fiscal year ended December 30, 2001 for a repurchase price of $6.7 million. On February 1, 2002 the Company purchased an additional $2.8 million face value of the senior discount notes for a repurchase price of $2.5 million. The Company redeemed the remaining $25.4 million face value of senior discount notes upon completion of its initial public offering in July 2002 for a repurchase price of $27.5 million.

The Company had a non-amortizing $125.0 million revolving credit facility, which was amended and restated to a three-year, non-amortizing $140.0 million revolving credit facility in the first quarter of 2003. The amended and restated credit facility may be terminated by the lenders by giving at least 90 days prior written notice before any anniversary date, commencing with its third anniversary date on March 20, 2006. The Company may terminate the credit facility by giving at least 30 days prior written notice, provided that if the Company terminates prior to March 20, 2006, it must pay an early termination fee. Unless it is terminated, the credit facility will continue on an annual basis from anniversary date to anniversary date beginning on March 21, 2006. The credit facility bears interest at various rates based on the Company’s performance, with a floor of LIBOR plus 1.50% or the JP Morgan Chase Bank prime lending rate and a ceiling of LIBOR plus 2.50% or the JP Morgan Chase Bank prime lending rate plus 0.75% and is secured by trade accounts receivable, merchandise inventory and general intangible assets (including trademarks and trade names). At December 28, 2003, loans under the credit facility bear interest at a rate of LIBOR (1.15% at December 28, 2003) plus 1.50% or the JP Morgan Chase Bank prime lending rate (4.00% at December 28, 2003). An annual fee of 0.325%, payable monthly, is assessed on the unused portion of the credit facility. On December 28, 2003, the Company had $51.7 million in LIBOR and prime lending rate borrowings and letters of credit of $0.2 million outstanding. The Company’s maximum eligible borrowing available under the credit facility is limited to 70% of the aggregate value of eligible inventory during November through February and 65% of the aggregate value of eligible inventory during the remaining months of the year. Available borrowing capacity over and above actual borrowings and letters of credit outstanding on the credit facility amounted to $72.9 million at December 28, 2003.

The various debt agreements contain covenants restricting the ability of the Company to, among other things, incur additional debt, create or allow liens, pay dividends, merge or consolidate with or invest in other companies, sell, lease or transfer all or substantially all of its properties or assets, or make certain payments with respect to its outstanding capital stock, issue preferred stock and engage in certain transactions with affiliates. In addition, the Company must comply with certain financial covenants. The Company was in compliance with all such covenants at December 28, 2003.

F-13

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(5)	Fair Values of Financial Instruments

The fair value of cash, trade and other receivables, trade accounts payable and accrued expenses approximate the fair values of these instruments due to their short-term nature. The fair value of the 10.875% senior notes at December 28, 2003 approximated $50.5 million based upon recent market prices. The carrying amount of the credit facility reflects the fair value based on current rates available to the Company for debt with the same remaining maturities.


(6)	Leases

The Company currently leases certain stores, distribution facilities, vehicles and equipment under noncancelable operating leases that expire through the year 2019. These leases generally contain renewal options for periods ranging from 5 to 15 years and require the Company to pay all executory costs such as maintenance and insurance.

Certain leases contain escalation clauses and provide for contingent rentals based on percentages of sales. The Company recognizes rental expense on a straight-line basis over the terms of the underlying leases, without regard to when rentals are paid. The accrual of the current non-cash portion of this rental expense has been included in depreciation and amortization in the accompanying statements of operations and cash flows and deferred rent in the accompanying balance sheets.

Rental expense for operating leases consisted of the following:


		Year ended		Year ended		Year ended
		December 30,		December 29,		December 28,
		2001		2002		2003

Cash rental payments		$	31,602	$	33,693	$	36,768
Noncash rentals			258		195		129
Contingent rentals			1,710		1,730		1,730

	Rental expense	$	33,570	$	35,618	$	38,627

Future minimum lease payments (cash rentals) under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 28, 2003 are:


Year ending:

2004	$	41,024
2005		37,702
2006		33,046
2007		30,296
2008		27,883
Thereafter		100,096

F-14

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(7)	Accrued Expenses

Accrued expenses consist of the following:


	December 29,		December 28,
	2002		2003

Payroll and related expenses	$	13,757	$	20,793
Advertising		5,047		4,815
Sales tax		7,810		8,831
Income tax		1,086		3,834
Other		22,008		16,444

	$	49,708	$	54,717


(8)	Income Taxes

Total income tax expense (benefit) consists of the following:


		Current		Deferred			Total

2003:
	Federal	$	14,452	$	(154	)	$	14,297
	State		3,106		184			3,290

		$	17,558	$	30		$	17,587

2002:
	Federal	$	7,514	$	4,188		$	11,702
	State		1,749		(138	)		1,611

		$	9,263	$	4,050		$	13,313

2001:
	Federal	$	7,698	$	711		$	8,409
	State		1,776		95			1,871

		$	9,474	$	806		$	10,280

The provision for income taxes differs from the amounts computed by applying the federal statutory tax rate of 35% to earnings before income taxes, as follows:


	Year ended		Year ended		Year ended
	December 30,		December 29,		December 28,
	2001		2002		2003

Tax expense at statutory rate	$	8,836	$	11,338	$	15,357
State taxes, net of federal benefit		1,223		1,475		2,131
Other		221		500		99

	$	10,280	$	13,313	$	17,587

F-15

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred tax assets and liabilities consist of the following tax-effected temporary differences:


			December 29,		December 28,
			2002		2003

Deferred assets:
	Self-insurance reserves		$	2,341	$	2,593
	Employee benefits			2,384		2,819
	State taxes			611		1,087
	Accrued expenses			4,638		4,556
	Tax credits			791		680
	Other			410		291

		Deferred tax assets	$	11,175	$	12,026
Deferred liabilities — basis difference in fixed assets			$	1,517	$	2,398

		Net deferred tax assets	$	9,658	$	9,628

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections of future taxable income over the periods during which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry-forward period are reduced.


(9)	Employee Benefit Plans

The Company has a 401(k) plan covering eligible employees. Employee contributions may be supplemented by Company contributions. The Company contributed $1.8 million for the fiscal year ended December 30, 2001, $2.0 million for the fiscal year ended December 29, 2002 and $2.0 million for the fiscal year ended December 28, 2003 in employer matching and profit sharing contributions.

The Company has an employment agreement with Robert W. Miller, chairman emeritus, that stipulates upon his retirement he will receive $350 thousand per year for the remainder of his life. Upon his death, his spouse will continue to receive this benefit for the remainder of her life. The Company has recorded a liability of $0.6 million and $1.2 million as of December 29, 2002 and December 28, 2003, respectively, based on actuarial valuation estimates related to the employment agreement with the executive. The actuarial assumptions used included a discount rate of 6.50% as well as the use of a mortality table as of December 28, 2003.


(10)	Related Party Transactions

Green Equity Investors, L.P. and Grand Avenue Associates, L.P., both affiliates of Leonard Green & Partners, L.P., purchased an aggregate of 350,000 shares of the Company’s common stock at the initial public offering price of $13.00 per share. Green Equity Investors, L.P. owned more than 27% of our outstanding common stock until it sold substantially all of its shares in a secondary public offering in November 2003.

F-16

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Prior to September 1992, Big 5 Corp. was a wholly owned subsidiary of Thrifty Corporation (“Thrifty”), which was in turn a wholly owned subsidiary of Pacific Enterprises (“PE”). In December 1996, Thrifty was acquired by Rite Aid Corp. (“Rite Aid”).

As a result of the Company’s prior relationship with Thrifty and its affiliates, the Company continues to maintain certain relationships with Rite Aid, PE and PE’s successor company, Sempra Energy. These relationships include continuing indemnification obligations of PE to the Company for certain environmental matters; agreements between the Company and PE with respect to various tax matters and obligations under ERISA, including the allocation of various tax obligations relating to the inclusion of the Company and each member of the affiliated group of which the Company was a subsidiary in certain consolidated and/or unitary tax returns of PE, and subleases described as follows. Green Equity Investors III, L.P., an affiliate of Leonard Green & Partners, L.P., holds convertible preferred stock in Rite Aid, which, if converted, would represent approximately 12.2% of Rite Aid’s outstanding stock.

The Company leases certain property and equipment from Rite Aid, which leases this property and equipment from an outside party. Charges related to these leases totaled $0.2 million for the fiscal years ended December 30, 2001, December 29, 2002 and December 28, 2003.

The Company had a Management Services Agreement with Leonard Green & Associates, L.P., an affiliate of Leonard Green & Partners, L.P., which was due to expire in May 2005, under which $0.3 million, plus expenses, was paid annually for financial advisory and investment banking services. The agreement was terminated in conjunction with the initial public offering in fiscal 2002 for a fee of $0.9 million. During each of the fiscal years ended December 30, 2001 and December 29, 2002 the Company paid $0.3 million and $1.0 million to this advisor group, respectively.

On July 2, 2002, the Company used a portion of the net proceeds from its initial public offering to redeem all of the Company’s outstanding shares of Series A 13.45% senior exchangeable preferred stock, par value $0.01 per share, (Preferred Stock). Green Equity Investors, L.P. and its affiliates owned 309,071 of the 350,000 outstanding shares of preferred stock and received approximately $60.6 million upon redemption of such shares.

The Company has an employment agreement with Robert W. Miller which provides that he will serve as Chairman Emeritus of the Board of Directors for a term of three years from any given date, such that there will always be a minimum of at least three years remaining under his employment agreement. The employment agreement provides for Robert W. Miller to receive an annual base salary of $350,000, as well as specified perquisites. If Robert W. Miller’s employment is terminated by either Robert W. Miller or the Company for any reason, the employment agreement provides that the Company will pay Robert W. Miller his annual base salary and provide specified benefits for the remainder of his life. The employment agreement also provides that in the event Robert W. Miller is survived by his wife, the Company will pay his wife his annual base salary and provide her specified benefits for the remainder of her life. Robert W. Miller is the co-founder of the Company and the father of Steven G. Miller, Chairman of the Board, Chief Executive Officer and a director of the Company, and Michael D. Miller, a director of the Company.


(11)	Contingencies

On August 9, 2001, the Company received a copy of a complaint filed in the California Superior Court in Los Angeles alleging violations of the California Labor Code and the Business and Professions Code. This complaint was brought as a purported class action with two subclasses comprised of our California store managers and our California first assistant store managers. The plaintiffs alleged that the Company improperly classified its store managers and first assistant store managers as exempt employees not entitled to overtime pay for work in excess of forty hours per week. On February 8, 2002 the Company filed a joint settlement which was approved by the court on August 1, 2002. The settlement constitutes a full and complete settlement

F-17

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and release of all claims related to the lawsuit. Under the terms of the settlement, the Company agreed to pay $32.46 per week of active employment as store manager from August 8, 1997 through December 31, 2001, the covered period, and $25.50 per week of active employment as first assistant store manager during the covered period to each class member who submits a valid and timely claim form. The Company also agreed to pay attorneys’ fees, plus costs and expenses, in the amount of $0.7 million, as well as up to $0.04 million for the cost of the settlement administrator. In addition, the Company agreed to pay the class representatives an additional aggregate amount of $0.03 million for their service as named plaintiffs. The Company recorded a charge of approximately $2.5 million in the fourth quarter of fiscal 2001 to provide for expected payments to the class members as well as legal and other fees associated with the settlement. All payments under the settlement agreement were made as of December 29, 2002.

The Company is also involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.


(12)	Business Concentrations

The Company operates traditional sporting goods retail stores located principally in the Western states of the United States. The Company is subject to regional risks such as the local economies, weather conditions and natural disasters and government regulations. If the region were to suffer an economic downturn or if other adverse regional events were to occur that affect the retail industry, there could be a significant adverse effect on management’s estimates and an adverse impact on the Company’s performance.


(13)	Quarterly Financial Data (unaudited)



	Year Ended December 29, 2002

	First		Second		Third			Fourth
	Quarter		Quarter		Quarter			Quarter		Total


	(In thousands, except per share data)
Net sales	$	157,133	$	162,703	$	170,913		$	176,720	$	667,469
Gross profit	$	55,007	$	59,633	$	59,107		$	63,864	$	237,611
Net income	$	3,530	$	4,129	$	2,596		$	8,827	$	19,082
Net income per share (diluted)	$	0.10	$	0.13	$	(0.06	)	$	0.39	$	0.57
Diluted shares		16,087		16,512		22,156			22,664		19,476



	Year Ended December 28, 2003

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter		Total


	(In thousands, except per share data)
Net sales	$	164,517	$	170,125	$	183,275	$	191,823	$	709,740
Gross profit	$	57,852	$	62,595	$	65,210	$	70,269	$	255,926
Net income	$	3,397	$	6,268	$	6,744	$	9,881	$	26,290
Net income per share (diluted)	$	0.15	$	0.28	$	0.30	$	0.43	$	1.16
Diluted shares		22,664		22,730		22,781		22,832		22,753


(14)	Redeemable Preferred Stock

In November 1997, the Company authorized and issued 350,000 shares of Series A 13.45% senior exchangeable preferred stock with a liquidation preference of $100.00 per share as of the date of issue. The preferred stock had a liquidation preference over the common stock equal to the initial liquidation value of the preferred stock plus accrued and unpaid dividends thereon. On July 2, 2002, the Company used a portion of

F-18

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the net proceeds from its initial public offering to redeem all of the Company’s outstanding shares of preferred stock.

The preferred stock earned cumulative dividends at the rate of 13.45% per annum. Dividends could, at the option of the Company, be paid in cash or by adding to the liquidation preference of preferred stock an amount equal to the dividends then accrued and payable. The preferred stock was subject to mandatory redemption on November 13, 2009 at 100% of the liquidation preference plus accrued and unpaid dividends. Prior to November 13, 2002, the Company could redeem the preferred stock following an initial public offering of common stock at 110% of the liquidation preference, less an amount (calculated as a percentage) sufficient to reduce the aggregate redemption price by an amount sufficient to permit the Company to pay bonuses to the Company’s directors and executive officers who sold shares of the Company’s common stock in the initial public offering in an amount equal to the underwriting commission and discounts that they would pay, as well as to repurchase 0.5 million shares from the Company’s other non-executive employees relating to such offering at the offering price to the public rather than the net price to the Company after deducting underwriting commissions and discounts, plus accrued and unpaid dividends.


(15)	Stock Options, Restricted Stock and Warrant

1997 Management Equity Plan

The 1997 Plan provides for the sale of shares or granting of incentive stock options or non-qualified stock options to officers, directors and selected key employees of the Company to purchase shares of the Company’s common stock. The 1997 Plan is administered by the board of directors of the Company and the granting of awards under the 1997 Plan is discretionary with respect to the individuals to whom and the times at which awards are made, the number of options awarded or shares sold, and the vesting and exercise period of such awards. The options and stock granted under the 1997 Plan must have an exercise or sale price that is no less than 85% of the fair value of the Company’s common stock at the time the stock option or stock is granted or sold. The aggregate number of common shares that may be allocated to awards under the 1997 Plan is 4,536,000 shares. No more than 810,000 of these shares shall be subject to stock options outstanding at any time. Options granted or restricted stock sold under the 1997 Plan vest ratably over five years from the date the options are granted or the restricted stock is issued and have an exercise period not to exceed 120 months from the date the stock options are granted or the restricted stock is issued. The 1997 Plan does not allow for the transfer of options or stock purchase rights. As of December 30, 2001 and December 29, 2002, no options had been granted under the 1997 Plan and 3,744,702 shares of restricted common stock had been sold under the 1997 Plan. The Company does not intend to make additional grants under the 1997 Plan. At December 28, 2003, all shares granted under the 1997 Plan were fully vested.

Warrant

In connection with the issuance of the senior discount notes in 1997, the Company issued a warrant to purchase 486,000 shares of common stock. The warrant was exercisable at any time with an exercise price of $.00123 per share and would have expired on November 30, 2008. The fair value of the warrant at the time of issuance was $0.3 million, determined by cash purchases of common stock by third parties on the same date. The warrant was exercised in the first quarter of fiscal 2003.

2002 Stock Incentive Plan

In June 2002, the Company adopted the 2002 Stock Incentive Plan (“2002 Plan”). The 2002 Plan provides for the grant of incentive stock options and non-qualified stock options to the Company’s employees, directors, and specified consultants. Under the 2002 Plan, the Company may grant options to purchase up to 3,645,000 shares of common stock. Options granted under the 2002 Plan vest ratably over various terms with a

F-19

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

maximum life of ten years. At December 28, 2003, options to purchase 383,400 shares of common stock had been granted and remain outstanding under the 2002 Plan.

Stock option activity for all plans during the periods presented is as follows:


					Weighted
					Average
		No. of Shares			Exercise Price

Balance at December 30, 2001			—			—
	Granted		61,000		$	12.91
	Exercised		—			—
	Forfeited		—			—

Balance at December 29, 2002			61,000			12.91
	Granted		339,800			10.32
	Exercised		—			—
	Forfeited		(17,400	)		10.69

Balance at December 28, 2003			383,400		$	10.72

The following is a summary of stock options outstanding and exercisable at December 28, 2003:



	Outstanding						Exercisable

			Weighted		Weighted				Weighted
			Average		Average				Average
	Number of		Years		Exercise		Number of		Exercise
Range of Exercise Prices	Options		Remaining		Price		Options		Price

$10.50		2,000		8.5	$	10.50		14,150	$	10.50
13.00		56,600		8.5		13.00		500		13.00
10.32		324,800		9.1	$	10.32		6,250		10.32


(16)	Earnings Per Share

The following table sets forth the computation of basic and diluted net income per common share:


		Year ended		Year ended		Year ended
		December 30,		December 29,		December 28,
		2001		2002		2003

Net income		$	14,965	$	19,082	$	26,290
Less: Preferred stock dividends			7,284		7,999		—

	Net income available to common stockholders	$	7,681	$	11,083	$	26,290

Basic earnings per share		$	0.54	$	0.60	$	1.16

Diluted earnings per share		$	0.48	$	0.57	$	1.16

Weighted average shares of common stock outstanding:
	Basic		14,247		18,358		22,651
	Dilutive effect of common stock equivalents arising from stock options		—		—		87
	Dilutive effect of unvested restricted stock		1,357		632		—
	Dilutive effect of outstanding warrant		486		486		15

	Diluted		16,090		19,476		22,753

F-20

BIG 5 SPORTING GOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(17)	Goodwill

In accordance with SFAS No. 142, goodwill amortization was discontinued as of December 31, 2001. There was no cumulative effect of a change in accounting principle upon adoption, as there was deemed to be no impairment in the carrying value of goodwill or other identifiable intangibles. The following adjusts reported net income and earnings per share to exclude goodwill amortization:



	Year Ended

	December 30,		December 29,		December 28,
	2001		2002		2003


	(In thousands, except earnings per share data)
Reported net income	$	14,965	$	19,082	$	26,290
Goodwill amortization, net of tax		146		—		—

Adjusted net income		15,111		19,082		26,290
Less: Preferred stock dividends		7,284		7,999		—

Adjusted net income available to common stockholders	$	7,827	$	11,083	$	26,290

Reported basic earnings per share	$	0.54	$	0.60	$	1.16
Goodwill amortization, net of tax		0.01		—		—

Adjusted basic earnings per share	$	0.55	$	0.60	$	1.16

Reported diluted earnings per share	$	0.48	$	0.57	$	1.16
Goodwill amortization, net of tax		0.01		—		—

Adjusted diluted earnings per share	$	0.49	$	0.57	$	1.16

F-21

BIG 5 SPORTING GOODS CORPORATION

Schedule II — Valuation and Qualifying Accounts


						Deductions:
		Balance at		Additions:		Accounts			Balance
		Beginning		Charges to		Receivable			at End
		of Year		Operations		Write Offs			of Year


		(Dollars in thousands)
December 31, 2000
	Allowance for doubtful receivables		607		129		(65	)		671
December 29, 2002
	Allowance for doubtful receivables		671		120		(62	)		729
December 28, 2003
	Allowance for doubtful receivables		729		170		(380	)		520

II-1

EXHIBIT 10.28 FIRST AMENDMENT TO AMENDED AND RESTATED FINANCING AGREEMENT This FIRST AMENDMENT TO AMENDED AND RESTATED FINANCING AGREEMENT (this "AMENDMENT"), dated as of October 31, 2003, is entered into by and between BIG 5 CORP. (the "COMPANY"), the lenders under the Financing Agreement (as defined below) (the "LENDERS"), and THE CIT GROUP/BUSINESS CREDIT, INC., as Agent for the Lenders (in such capacity, the "AGENT"). RECITALS A. Company, Agent and Lenders previously entered into that certain Amended and Restated Financing Agreement dated as of March 20, 2003 (the "FINANCING AGREEMENT"), pursuant to which Lenders provide loans and other financial accommodations to Company from time to time. B. Company, Agent and Lenders wish to amend certain terms of the Financing Agreement. C. Company, Agent and Lenders are willing to agree to such amendments to the Financing Agreement on the terms and subject to the conditions set forth below. AGREEMENT NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements set forth below and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: 1. Definitions. Capitalized terms used herein and not otherwise defined herein, shall have the respective meanings set forth in the Financing Agreement. 2. Amendment. Section 6.10(H) of the Financing Agreement is hereby amended and restated in its entirety to read as follows: "(H) Repurchase, acquire, prepay, or redeem any Senior Notes, except that (i) during the period commencing December 1, 2003 through December 15, 2003, the Company may repurchase, acquire, prepay or redeem Senior Notes for an amount not to exceed $36,500,000 in the aggregate for all such repurchases, acquisitions, prepayments or redemptions so long as (x) no Default or Event of Default is then in existence or will be in existence after giving effect to such repurchase, acquisition, prepayment, or redemption, and (y) after giving effect to such repurchase, acquisition, prepayment, or redemption, the Company shall have not less than $25,000,000 in Company Liquidity and (ii) at any time after December 15, 2003, the Company may repurchase, acquire, prepay, or redeem Senior Notes so long as (x) no Default or Event of Default is then in existence

or will be in existence after giving effect to such repurchase, acquisition, prepayment, or redemption, and (y) after giving effect to such repurchase, acquisition, prepayment, or redemption, the Company shall have not less than $40,000,000 in Company Liquidity. 3. Conditions to Effectiveness. The foregoing amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of all such conditions being referred to as the "AMENDMENT EFFECTIVE DATE"); (a) Agent shall have received this Amendment, duly executed and delivered by the Company, the Agent and the Required Lenders. (b) Each of the representations and warranties set forth in this Amendment shall be true and correct as of the Amendment Effective Date. 4. Representations and Warranties. In order to induce Agent and Lenders to enter into this Amendment and to amend the Financing Agreement in the manner provided in this Amendment, Company represents and warrants to Agent and Lenders as of the Amendment Effective Date as follows: (a) Power and Authority. Company has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Financing Agreement as amended by this Amendment. (b) Authorization of Agreements. The execution and delivery of this Amendment by Company and the performance by Company of the Financing Agreement, as amended hereby, have been duly authorized by all necessary action, and this Amendment has been duly executed and delivered by Company. (c) Representations and Warranties in the Financing Agreement. Company confirms that as of the Amendment Effective Date, the representations and warranties contained in Section 6 of the Financing Agreement are (before and after giving effect to this Amendment) true and correct in all material respects (except to the extent any such representation and warranty is expressly stated to have been made as of a specific date, in which case it shall be true and correct as of such specific date) and that no Default or Event of Default has occurred and is continuing. 5. Miscellaneous. (a) Reference to and Effect on the Existing Financing Agreement. (i) Except as specifically amended by this Amendment and the documents executed and delivered in connection herewith, the Financing Agreement shall remain in full force and effect and is hereby ratified and confirmed. 2

(ii) The execution and delivery of this Amendment and performance of the Financing Agreement shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Agent and any Lender under, the Financing Agreement or any agreement or document executed in connection therewith. (iii) Upon the conditions precedent set forth herein being satisfied, this Amendment shall be construed as one with the existing Financing Agreement, and the existing Financing Agreement shall, where the context requires, be read and construed throughout so as to incorporate this Amendment. (b) Headings. Section and subsection headings in this Amendment are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. (c) Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (d) Governing Law. This Amendment shall be governed by and construed according to the laws of the State of California. 3

IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first above written. BIG 5 CORP. By: /s/ CHARLES P. KIRK -------------------------------- Name: Charles P. Kirk ------------------------------ Title: SR. VICE PRESIDENT & CFO ----------------------------- THE CIT GROUP/BUSINESS CREDIT, INC. (as Agent and a Lender) By: /s/ ADRIAN AVALOS -------------------------------- Name: Adrian Avalos ------------------------------ Title: Vice President ----------------------------- FLEET CAPITAL CORPORATION (as Lender) By: /s/ MATTHEW R. VAN STEENHUYBE -------------------------------- Name: MATTHEW R. VAN STEENHUYBE ------------------------------ Title: SENIOR VICE PRESIDENT ----------------------------- PNC BANK, NATIONAL ASSOCIATION (as Lender) By: -------------------------------- Name: ------------------------------ Title: ----------------------------- BANK OF AMERICA, N.A. (as Lender) By: /s/ STEPHEN KING -------------------------------- Name: Stephen King ------------------------------ Title: Vice President ----------------------------- 4

TRANSAMERICA BUSINESS CAPITAL CORPORATION (as Lender) By: /s/ ARI KAPLAN -------------------------------- Name: Ari Kaplan ------------------------------ Title: Vice President ----------------------------- 5

EXHIBIT 10.29 JOINDER AGREEMENT THIS JOINDER AGREEMENT ("AGREEMENT") dated as of January 28,2004 is made and entered into by and among Big 5 Corp., a Delaware corporation ("EXISTING BORROWER"), and New Borrower (defined below), on the one hand, and the financial institutions identified as "Lenders" on the signature pages hereof (such lenders, together with their respective successors and assigns, are collectively "LENDERS"), and The CIT Group/Business Credit, Inc., a New York corporation (in its capacity as agent for Lenders, "AGENT"), on the other hand. Initially capitalized terms used herein and not defined herein shall have the meanings assigned to them in the Financing Agreement (defined below). RECITALS: A. Existing Borrower, Agent and Lenders have previously entered into that certain Amended and Restated Financing Agreement, dated as of March 20, 2003 (the "FINANCING AGREEMENT"; the Financing Agreement and the documents, instruments and agreements executed in connection therewith are collectively "FINANCING DOCUMENTS"), pursuant to which, subject to the terms and conditions set forth therein, Lenders acting through Agent have made certain credit facilities available to Existing Borrower; B. Existing Borrower has previously formed a new Subsidiary, Big 5 Services Corp., a Virginia corporation ("NEW BORROWER"), which will own and operate Existing Borrower's gift card services business. In connection therewith, Existing Borrower has transferred certain assets and liabilities related to the gift cards services business to, and entered into certain intercompany agreements with, New Borrower in order to effectuate the transfer of the gift card operations (such transactions are collectively referred to as the "RESTRUCTURE"); C. In connection with the Restructure, Existing Borrower has requested that Agent and Lenders permit New Borrower to be added and joined as an additional borrower and obligor under the Financing Documents and, subject to the terms and conditions set forth herein, Agent and Lenders have agreed to permit such addition; and D. Existing Borrower, New Borrower, Lenders and Agent desire to enter into this Agreement in order to provide for the joinder of New Borrower as a co-borrower and co-obligor under the Financing Documents. AGREEMENT: NOW, THEREFORE, In consideration of the foregoing premises, the mutual covenants and conditions herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Joinder. New Borrower hereby agrees as follows in favor of Agent and Lenders: (a) Effective as of the date hereof, New Borrower hereby agrees to become a borrower and obligor under, and to bind itself to, the Financing Agreement and each other Financing Document to which Existing Borrower is bound as of the date hereof, and, in such capacity, to 1

jointly and severally assume and bind itself to all debts, liabilities and obligations of Existing Borrower thereunder (including, without limitation, all Obligations). (b) In furtherance but without limitation of the foregoing, as security for the prompt payment in full of all Obligations, New Borrower hereby pledges and grants to Agent on behalf of Lenders a continuing general lien upon, and security interest in, all of its Collateral. To facilitate the foregoing grant of a security interest, New Borrower agrees to execute (and, if required by Agent, acknowledge) and deliver to Agent such instruments and agreements as Agent may reasonably require in connection herewith, including, without limitation, UCC-1 financing statements, collateral assignments, legal opinions, resolutions, incumbency certificates, good standing certificates, qualifications to do business and other, related documents, instruments, certificates or agreements as Agent may reasonably request to give effect to this joinder of New Borrower as a borrower and obligor under the Financing Documents. (c) To induce Agent and Lenders to accept New Borrower as a borrower and obligor under the Financing Documents, New Borrower hereby agrees to and makes each and every representation and warranty made in the Financing Agreement and the other Financing Documents in respect of Existing Borrower generally, as fully and completely as if New Borrower were an original party thereto (except to the extent that such representations and warranties relate solely to an earlier date). 2. Conditions to the Effectiveness of this Agreement. This Agreement shall not become effective unless and until Agent shall have received each of the documents and other items listed on Schedule 1 attached hereto, each to be in form and substance reasonably satisfactory to Agent and its counsel, and, as applicable, duly executed and delivered by the party or parties thereto. 3. Intercompany Transactions and Stand-Alone Covenants. The parties hereto acknowledge and agree that the intent and purpose of this Agreement is (i) to permit New Borrower to have access to the borrowing capacity of Existing Borrower under the Financing Agreement; (ii) to secure the payment and performance of the Obligations arising under the Financing Documents with all of New Borrower's Collateral; and (iii) to permit New Borrower and Existing Borrower to enter into or engage in transactions, relationships and agreements with each other that might otherwise be restricted by the terms and provisions of the Financing Documents. It is not the purpose and intent of this Agreement that New Borrower be required or obligated to maintain or comply with, on a stand-alone basis, any particular financial covenants (i.e., Existing Borrower and New Borrower, for purposes of the Financing Documents only, shall be deemed to be one entity). This Agreement and the Financing Documents shall be construed in light of these intents and purposes. In furtherance of this, (a) Provisions of the Financing Documents which limit, condition or restrict in any manner the ability of Existing Borrower and New Borrower to engage in any activity, including, but not limited to the negative covenants provided for in Section 6.10 or 6.15 of the Financing Agreement, shall not be deemed to limit, condition or restrict in any manner any transactions, agreements or relationships solely as between Existing Borrower and New Borrower, including, but not limited to, the incurrence of Indebtedness, the payment of dividends or the making of distributions, and the making of advances, loans or investments; (b) Any provision of the Financing Documents which, prior to the execution and delivery of this Agreement, required Existing Borrower, either alone or on a consolidated basis with 2

its Subsidiaries, to maintain certain financial covenants (e.g., Section 6.9 of the Financing Agreement) or to provide financial statements to the Agent or the Lenders (e.g., Section 6.8 of the Financing Agreement), shall not be construed to apply to New Borrower as a stand-alone entity, so long as New Borrower is and continues to be a part of the consolidated group which includes Existing Borrower; (c) Any provision of the Financing Documents which refers to the "Company and its Subsidiaries" shall not be construed to apply to New Borrower other than as a Subsidiary of Existing Borrower; and (d) New Borrower shall be entitled to obtain borrowings under the Financing Agreement at any time that Existing Borrower would otherwise be able to obtain such borrowings. 4. Miscellaneous. (a) Effect of Agreement. Except as specifically set forth to the contrary in Section 3 hereof, all references to the "Company" in the Financing Agreement and the other Financing Documents shall be deemed to include New Borrower with the same force and effect as if New Borrower were an original signatory thereto. The Financing Agreement and Financing Documents shall be read in conjunction with this Agreement. This Agreement shall be considered a Financing Document. (b) Reaffirmation of Representations and Warranties. Existing Borrower hereby ratifies and reaffirms all of the representations and warranties set forth in the Financing Agreement and the other Financing Documents, except to the extent that such representations and warranties relate to an earlier date. (c) Ratification. Existing Borrower hereby restates, ratifies and reaffirms each and every term and condition set forth in the Financing Agreement and the Financing Documents effective as of the date hereof. In connection with the foregoing, nothing set forth in this Agreement shall be deemed to be a waiver, consent, or modification of any other term or condition of the Financing Documents with respect to Existing Borrower's duties and obligations hereunder. (d) Estoppel. To induce Agent and Lenders to enter into this Agreement, Existing Borrower hereby acknowledges and agrees that, as of the date hereof, no Default or Event of Default has occurred and is continuing and, in addition, there exists no right of offset, defense, counterclaim or objection in favor of Existing Borrower in respect to any Obligations. (e) Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California and all applicable federal laws of the United States of America. (f) Reaffirmation of Guarantor. By its execution below, Guarantor hereby confirms that its guaranty executed and delivered in connection with the Financing Agreement remains in full force and effect. (g) Costs and Expenses. Existing Borrower agrees to pay on demand all reasonable costs and out-of-pocket expenses of Agent in connection with the preparation, execution, delivery and enforcement of this Agreement and all other agreements and instruments executed in 3

connection herewith, including, without limitation, the reasonable fees and out-of-pocket expenses of the Agent's counsel and the cost of any searches respecting New Borrower or its assets. (h) Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, including by facsimile signature, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Agreement. This Agreement shall become effective upon the execution of a counterpart of this Agreement by each of the parties hereto. [the remainder of this page left blank intentionally; signatures to follow] 4

IN WITNESS WHEREOF, the parties hereto have caused this Joinder Agreement to be executed and delivered by their proper and duly authorized officers as of the date set forth above. AGENT: THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation By: /s/ Adrian Avalos ------------------------------- Name: Adrian Avalos Title: Vice President S-1 Joinder Agreement

EXISTING BORROWER: BIG 5 CORP., a Delaware corporation By: /s/ Charles P. Kirk ---------------------------- Name: Charles P. Kirk Title: Senior Vice President and Chief Financial Officer NEW BORROWER: BIG 5 SERVICES CORP., a Virginia corporation By: /s/ Charles P. Kirk -------------------- Name: Charles P. Kirk Title: Senior Vice President and Chief Financial Officer GUARANTOR: BIG 5 SPORTING GOODS CORPORATION, a Delaware corporation By: /s/ Charles P. Kirk ------------------------ Name: Charles P. Kirk Title: Senior Vice President and Chief Financial Officer LENDERS: THE CIT GROUP/BUSINESS CREDIT, INC. By: /s/ Adrian Avalos -------------------------------- Name: Adrian Avalos Title: Vice President S-2 Joinder Agreement

FLEET CAPITAL CORPORATION By: /s/ MATTHEW R. VAN STEENHUYSE ------------------------------- Name: MATTHEW R. VAN STEENHUYSE Title: SENIOR VICE PRESIDENT BANK OF AMERICA, N.A. By /s/ Stephen King -------------------------- Name: Stephen King Title: Vice President TRANSAMERICA BUSINESS CAPITAL CORPORATION By: [ILLEGIBLE] --------------------------------- Name: [ILLEGIBLE] Title: [ILLEGIBLE] PNC BANK, NATIONAL ASSOCIATION By: /s/ Mark A. Tito ------------------------------ Name: Mark A. Tito Title: Vice President S-3 Joinder Agreement

SCHEDULE 1 - - That certain Co-Obligor Agreement, dated as of January 28, 2004, by and between Existing Borrower and New Borrower; - - UCC-1 Financing Statements) duly prepared and delivered by New Borrower; - - Certificate of the Secretary of New Borrower certifying to the following: (1) a copy of resolutions of the board of directors of New Borrower authorizing the execution, delivery and performance of this Agreement, the Co-Obligor Agreement, the other Financing Documents, and the transactions contemplated thereby, and such other documents relating thereto as the Agent reasonably may request; (2) a certified copy of the articles of incorporation of New Borrower; (3) a certified copy of the by-laws of New Borrower; and (4) signature and incumbency certificates of New Borrower's officers who are authorized to execute this Agreement and the other Financing Documents to which New Borrower is to be a party; - - Certificate of Good Standing from New Borrower's jurisdiction of organization and the secretary of state of each jurisdiction in which New Borrower is qualified to do business, each dated a recent date prior to the date of this Agreement; - - Such opinions of counsel for New Borrower as the Agent shall reasonably request, such opinion to be in a form, scope, and substance reasonably satisfactory to Agent and its counsel; and - - New Borrower and Existing Borrower shall execute and deliver to the Agent for the benefit of the Lenders any and all other loan and security documents reasonably necessary to consummate the lending arrangement contemplated between the New Borrower and Existing Borrower, on the one hand, and the Lenders, on the other hand, including, without limitation, control agreements over any and all of New Borrower's deposit or security accounts. Schedule 1 Joinder Agreement

EXHIBIT 10.30 CO-OBLIGOR AGREEMENT This CO-OBLIGOR AGREEMENT (this "AGREEMENT"), dated as of January 28, 2004, is executed by Big 5 Corp., a Delaware corporation ("BIG 5"), and Big 5 Services Corp., a Virginia corporation ("SERVICES") (Big 5 and Services are sometimes collectively, jointly and severally, referred to herein as "BORROWERS" and individually as a "BORROWER"), in favor of and delivered to The CIT Group/Business Credit, Inc., a New York corporation, as agent ("AGENT") for Lenders (as defined below). WHEREAS, Big 5, on the one hand, and the financial institutions from time to time party thereto as lenders (collectively, "LENDERS") and Agent, as agent for Lenders, on the other hand, have previously entered into that certain Amended and Restated Financing Agreement, dated as of March 20, 2003 (the "AGREEMENT"; the Agreement, together with the Joinder Agreement (defined below) and any and all other agreements, instruments and documents executed in connection therewith, and as all of the foregoing may be amended, restated, supplemented or modified from time to time in accordance with their terms, are collectively referred to herein as the "LOAN DOCUMENTS"); WHEREAS, Borrowers, Agent and Lenders are, concurrently herewith, entering into that certain Joinder Agreement (the "JOINDER AGREEMENT"), pursuant to which, Services shall be joined and added as a co-borrower and co-obligor under the Agreement and Loan Documents; WHEREAS, each Borrower is interested in the financial success of the other Borrower and each Borrower will directly and materially benefit from the financial accommodations which the Lenders will extend to all Borrowers pursuant to the Loan Documents; WHEREAS, in order to induce the Agent and Lenders to enter into the Joinder Agreement and to continue to extend the financial accommodations to Borrowers, and in consideration thereof, Borrowers have agreed to execute and deliver this Agreement to Agent, for the benefit of Lenders, which Agreement shall be a Loan Document. NOW THEREFORE, in light of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Each Borrower agrees that it is jointly and severally, directly and primarily liable to Agent and Lenders for payment in full of all amounts owing to Agent and Lenders under the Loan Documents, whether for principal, interest or otherwise (collectively, the "OBLIGATIONS") and that such liability is independent of the duties, obligations, and liabilities of the other Borrower. Agent and Lenders may bring a separate action or actions on each, any, or all of the Obligations against any Borrower, whether action is brought against the other Borrower or whether the other Borrower is joined in such action. In the event that any Borrower fails to make any payment of any Obligations on or before the due date thereof, the other Borrower immediately shall cause such payment to be made or each of such Obligations to be performed, kept, observed, or fulfilled. 1

2. The Loan Documents are a primary and original obligation of each Borrower, are not the creation of a surety relationship, and are an absolute, unconditional, and continuing promise of payment and performance which shall remain in full force and effect without respect to future changes in conditions, including any change of law or any invalidity or irregularity with respect to the Loan Documents. Each Borrower agrees that its liability under the Loan Documents shall be immediate and shall not be contingent upon the exercise or enforcement by Agent of whatever remedies it may have against the other Borrower, or the enforcement of any lien or realization upon any security Agent may at any time possess. Each Borrower consents and agrees that neither Agent nor any Lender shall be under an obligation to marshal any assets of any Borrower against or in payment of any or all of the Obligations. 3. Each Borrower acknowledges that it is presently informed as to the financial condition of the other Borrower and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Borrower hereby covenants that it will continue to keep informed as to the financial condition of the other Borrower, the status of the other Borrower and of all circumstances which bear upon the risk of nonpayment. Absent a written request from any Borrower to Agent for information, such Borrower hereby waives any and all rights it may have to require Agent or Lenders to disclose to such Borrower any information which Agent or Lenders may now or hereafter acquire concerning the condition or circumstances of the other Borrower. 4. The liability of each Borrower under the Loan Documents includes Obligations arising under successive transactions continuing, compromising, extending, increasing, modifying, releasing, or renewing the Obligations, changing the interest rate, payment terms, or other terms and conditions thereof, or creating new or additional Obligations after prior Obligations have been satisfied in whole or in part. To the maximum extent permitted by law, each Borrower hereby waives any right to revoke its liability under the Loan Documents as to future indebtedness, and in connection therewith, each Borrower hereby waives any rights it may have under Section 2815 of the California Civil Code. If such a revocation is effective notwithstanding the foregoing waiver, each Borrower acknowledges and agrees that (a) no such revocation shall be effective until written notice thereof has been received by Agent, (b) no such revocation shall apply to any Obligations in existence on such date (including, any subsequent continuation, extension, or renewal thereof, or change in the interest rate, payment terms, or other terms and conditions thereof), (c) no such revocation shall apply to any Obligations made or created after such date to the extent made or created pursuant to a legally binding commitment of Agent or Lenders in existence on the date of such revocation, (d) no payment by such Borrower or from any other source prior to the date of such revocation shall reduce the maximum obligation of the other Borrower hereunder, and (e) any payment by such Borrower or from any source other than such Borrower, subsequent to the date of such revocation, shall first be applied to that portion of the Obligations as to which the revocation is effective and which are not, therefore, guaranteed hereunder, and to the extent so applied shall not reduce the maximum obligation of each Borrower hereunder. 5. (a) Each Borrower absolutely, unconditionally, knowingly, and expressly waives: (i) (1) notice of acceptance hereof; (2) notice of any loans or other financial accommodations made or extended under the Loan Documents or the creation or existence of any Obligations; (3) notice of 2

the amount of the Obligations, subject, however, to each Borrower's right to make inquiry of Agent to ascertain the amount of the Obligations at any reasonable time; (4) notice of any adverse change in the financial condition of the other Borrower or of any other fact that might increase such Borrower's risk hereunder; (5) notice of presentment for payment, demand, protest, and notice thereof as to any instruments among the Loan Documents; (6) notice of any Default or Event of Default under the Loan Documents; and (7) all other notices (except if such notice is specifically required to be given to Borrowers hereunder or under the Loan Documents) and demands to which such Borrower might otherwise be entitled. (ii) its right, under Sections 2845 or 2850 of the California Civil Code, or otherwise, to require Agent or Lenders to institute suit against, or to exhaust any rights and remedies which Agent or any Lender has or may have against, the other Borrower or any third party, or against any collateral for the Obligations provided by the other Borrower, or any third party. In this regard, each Borrower agrees that it is bound to the payment of all Obligations, whether now existing or hereafter accruing, as fully as if such Obligations were directly owing to Agent or Lenders by such Borrower. Each Borrower further waives any defense arising by reason of any disability or other defense (other than the defense that the Obligations shall have been fully and finally performed and indefeasibly paid) of the other Borrower or by reason of the cessation from any cause whatsoever of the liability of the other Borrower in respect thereof. (iii) (1) any rights to assert against Agent or Lenders any defense (legal or equitable), set-off, counterclaim, or claim which such Borrower may now or at any time hereafter have against the other Borrower or any other party liable to Agent or Lenders; (2) any defense, set-off, counterclaim, or claim, of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity, or enforceability of the Obligations or any security there for; (3) any defense such Borrower has to performance hereunder, and any right such Borrower has to be exonerated, provided by Sections 2819, 2822, or 2825 of the California Civil Code, or otherwise, arising by reason of: the impairment or suspension of Agent's or Lender's rights or remedies against the other Borrower; the alteration by Agent and Lenders of the Obligations; any discharge of the other Borrower's obligations to Agent and Lenders by operation of law as a result of Agent's or Lenders' intervention or omission; or the acceptance by Agent or Lenders of anything in partial satisfaction of the Obligations; (4) the benefit of any statute of limitations affecting such Borrower's liability hereunder or the enforcement thereof, and any act which shall defer or delay the operation of any statute of limitations applicable to the Obligations shall similarly operate to defer or delay the operation of such statute of limitations applicable to such Borrower's liability hereunder. 3

(b) Each Borrower absolutely, unconditionally, knowingly, and expressly waives any defense arising by reason of or deriving from (i) any claim or defense based upon an election of remedies by Agent and Lenders including any defense based upon an election of remedies by Agent or Lenders under the provisions of Sections 580a, 580b, 580d, and 726 of the California Code of Civil Procedure or any similar law of California or any other jurisdiction; or (ii) any election by Agent and Lenders under Bankruptcy Code Section 1111(b) to limit the amount of, or any collateral securing, its claim against the Borrowers. Pursuant to California Civil Code Section 2856(b),(c) and (d): Each Borrower waives all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed such Borrower's rights of subrogation and reimbursement against the other Borrower by the operation of Section 580(d) of the California Code of Civil Procedure or otherwise. Each Borrower waives all rights and defenses that such Borrower may have because the Obligations are secured by real property. This means, among other things: (i) Agent and Lenders may collect from such Borrower without first foreclosing on any real or personal property collateral pledged by the other Borrower. (ii) If Agent or Lenders foreclose on any real property collateral pledged by the other Borrower: (A) The amount of the Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price. (B) Agent may collect from such Borrower even if Agent, by foreclosing on the real property collateral, has destroyed any right such Borrower may have to collect from such other Borrower. This is an unconditional and irrevocable waiver of any rights and defenses each Borrower may have because the Obligations are secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure. If any of the Obligations at any time are secured by a mortgage or deed of trust upon real property, Agent may elect, in its sole discretion, upon a default with respect to the Obligations, to foreclose such mortgage or deed of trust judicially or nonjudicially in any manner permitted by law, before or after enforcing the Loan Documents, without diminishing or affecting the liability of any Borrower hereunder except to the extent the Obligations are repaid with the proceeds of such foreclosure. Each Borrower understands that (a) by virtue of the operation of California's 4

antideficiency law applicable to nonjudicial foreclosures, an election by Agent nonjudicially to foreclose such a mortgage or deed of trust probably would have the effect of impairing or destroying rights of subrogation, reimbursement, contribution, or indemnity of such Borrower against the other Borrower or other guarantors or sureties, and (b) absent the waiver given by such Borrower, such an election would prevent Agent from enforcing the Loan Documents against such Borrower. Understanding the foregoing, and understanding that such Borrower is hereby relinquishing a defense to the enforceability of the Loan Documents, such Borrower hereby waives any right to assert against Agent any defense to the enforcement of the Loan Documents, whether denominated "estoppel" or otherwise, based on or arising from an election by Agent nonjudicially to foreclose any such mortgage or deed of trust. Each Borrower understands that the effect of the foregoing waiver may be that each Borrower may have liability hereunder for amounts with respect to which such Borrower may be left without rights of subrogation, reimbursement, contribution, or indemnity against the other Borrower or other guarantors or sureties. Each Borrower also agrees that the "fair market value" provisions of Section 580a of the California Code of Civil Procedure shall have no applicability with respect to the determination of such Borrower's liability under the Loan Documents. (c) Each Borrower hereby absolutely, unconditionally, knowingly, and expressly waives: (i) any right of subrogation such Borrower has or may have as against the other Borrower with respect to the Obligations; (ii) any right to proceed against the other Borrower or any other person or entity, now or hereafter, for contribution, indemnity, reimbursement, or any other suretyship rights and claims, whether direct or indirect, liquidated or contingent, whether arising under express or implied contract or by operation of law, which such Borrower may now have or hereafter have as against the other Borrower with respect to the Obligations; and (iii) any right to proceed or seek recourse against or with respect to any property or asset of the other Borrower. (D) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, EACH BORROWER HEREBY ABSOLUTELY, KNOWINGLY, UNCONDITIONALLY, AND EXPRESSLY WAIVES AND AGREES NOT TO ASSERT ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE SECTIONS 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2825, 2839, 2845, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580A, 580B, 580C, 580D, AND 726, AND CHAPTER 2 OF TITLE 14 OF DIVISION 3 OF THE CALIFORNIA CIVIL CODE. 6. Each Borrower consents and agrees that, without notice to or by such Borrower, and without affecting or impairing the liability of such Borrower hereunder, Agent and Lenders may, by action or inaction: (a) compromise, settle, extend the duration or the time for the payment of, or discharge the performance of, or may refuse to or otherwise not enforce the Loan Documents, or any part thereof, with respect to the other Borrower; (b) release the other Borrower or grant other indulgences to the other Borrower in respect thereof; 5

(c) amend or modify in any manner and at any time (or from time to time) any of the Loan Documents; or (d) release or substitute any other guarantor, if any, of the Obligations, or enforce, exchange, release, or waive any security for the Obligations or any other guaranty of the Obligations, or any portion thereof. 7. Agent, on behalf of Lenders, shall have the right to seek recourse against each Borrower to the fullest extent provided for herein, and no election by Agent to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of Agent's right to proceed in any other form of action or proceeding or against other parties unless Agent has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing, no action or proceeding by Agent or Lenders under the Loan Documents shall serve to diminish the liability of any Borrower under this Agreement except to the extent that Agent finally and unconditionally shall have realized indefeasible payment by such action or proceeding. 8. The Obligations shall not be considered indefeasibly paid for purposes of this Agreement unless and until all payments to Agent are no longer subject to any right on the part of any person, including any Borrower, any Borrower as a debtor in possession, or any trustee (whether appointed pursuant to 11 U.S.C., or otherwise) of any Borrowers' assets to invalidate or set aside such payments or to seek to recoup the amount of such payments or any portion thereof, or to declare same to be fraudulent or preferential. Upon such full and final performance and indefeasible payment of the Obligations, Agent shall have no obligation whatsoever to transfer or assign its interest in the Loan Documents to any Borrower. In the event that, for any reason, any portion of such payments to Agent is set aside or restored, whether voluntarily or involuntarily, after the making thereof, then the obligation intended to be satisfied thereby shall be revived and continued in full force and effect as if said payment or payments had not been made, and each Borrower shall be liable for the full amount Agent is required to repay plus any and all costs and expenses (including reasonable attorneys' fees and attorneys' fees incurred pursuant to 11 U.S.C.) paid by Agent in connection therewith. 9. At the request of Borrowers to facilitate and expedite the administration and accounting processes and procedures of their borrowings under the Agreement, Agent has agreed, in lieu of maintaining separate loan accounts on Agent's books in the name of each of the Borrowers, that Agent may maintain a single loan account under the name of all of the Borrowers (the "LOAN ACCOUNT"). Loans made under the Agreement shall be made jointly and severally to Borrowers and shall be charged to the Loan Account, together with all interest and other charges as permitted under and pursuant to this Agreement. The Loan Account shall be credited with all repayments of Obligations received by Agent, on behalf of Borrowers, from any Borrower pursuant to the terms of the Agreement. 10. Agent shall render to Big 5, on behalf of Borrowers, one statement of the Loan Account, which shall be deemed to be an account stated as to each Borrower and which will be deemed correct and accepted by each Borrower unless Agent receives a written statement of exceptions from any Borrower within thirty (30) days after such statement has been rendered by Agent. Each Borrower hereby expressly agrees and acknowledges that Agent shall have no obligation to account separately to such Borrower. 6

11. Requests for advances under the Agreement may be made by any Borrower, pursuant to the terms thereof. Each Borrower expressly agrees and acknowledges that Agent shall have no responsibility to inquire into the correctness of the apportionment or allocation of or any disposition by any Borrower of (a) any advances or loans under the Agreement, or (b) any of the expenses and other items charged to the Loan Account pursuant to the Agreement. All such advances and loans and such expenses and other items shall be made for the collective, joint, and several account of Borrowers and shall be charged to the Loan Account. 12. Each Borrower agrees and acknowledges that the administration of the Agreement on a combined basis, as set forth in this Agreement, is being done as an accommodation to Borrowers and at their request, and that Agent shall incur no liability to any Borrower as a result thereof. To induce Agent to do so, and in consideration thereof, each Borrower hereby agrees to indemnify and hold Agent harmless from and against any and all liability, expense, loss, damage, claim of damage, or injury, made against Agent by any Borrower or by any other person or entity, arising from or incurred by reason of such administration of the Agreement. 13. Each Borrower represents and warrants to Agent that the collective administration of the loans is being undertaken by Agent pursuant to this Agreement because Borrowers, while separate and distinct legal entities, are integrated in their operation and administration and require financing on a basis permitting the availability of credit from time to time to each Borrower. Each Borrower will derive benefit, directly and indirectly, from such collective administration and credit availability because the successful operation of each Borrower is enhanced by the continued successful performance of the integrated group. 14. This Agreement shall append and shall be a Loan Document; and this Agreement shall be governed by and construed in accordance with the laws of the State of California and all applicable federal laws of the United States of America. The Loan Documents shall be read in conjunction with this Agreement. [the remainder of this page left blank intentionally; signatures to follow] 7

IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date first above written. BIG 5 CORP., a Delaware corporation By /s/ Charles P. Kirk ------------------------------ Name: Charles P. Kirk Title: Senior Vice President and Chief Financial Officer BIG 5 SERVICES CORP., a Virginia corporation By /s/ Charles P. Kirk ---------------------------- Name: Charles P. Kirk Title: Senior Vice President and Chief Financial Officer S-1

Exhibit 14.1 BIG 5 SPORTING GOODS CORPORATION CODE OF BUSINESS CONDUCT AND ETHICS (adopted February 10, 2004) ARTICLE I STATEMENT OF PURPOSE Big 5 Sporting Goods Corporation (together with its subsidiaries, the "Company") depends on the judgment and high personal standards of its directors, officers and employees in order to conduct its business with integrity and in full compliance with the law. The Company has established this Code of Business Conduct and Ethics (this "Code of Ethics") that applies to all directors, officers, and employees of the Company (individually, an "Employee," and, collectively, the "Employees"). The purpose of this Code of Ethics is to deter wrongdoing and to promote: - Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; - Full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and other public communications made by the Company; - Compliance with applicable governmental laws, rules and regulations; - The prompt internal reporting to an appropriate person or committee of violations of this Code of Ethics; and - Accountability for adherence to this Code of Ethics. As a representative of the Company, each Employee has personal responsibility for both the integrity and the consequences of his or her actions. No policy can cover every possible situation, and whenever a question arises about the propriety of certain actions, the Employee should seek advice and counsel from his or her supervisor or department vice president or any other officer of the Company. Employees are encouraged to contact any of the foregoing persons regarding questions about this Code of Ethics. ARTICLE II ADMINISTRATION The Audit Committee (the "Audit Committee") of the Board of Directors of the Company shall administer this Code of Ethics. However, it is the individual responsibility of each Employee to comply with this Code of Ethics.

ARTICLE III COMPLIANCE WITH LAWS 1. It is the policy of the Company to comply with all applicable laws, rules and regulations. Each Employee's actions shall be, to the best of his or her knowledge, in accordance with all such laws, rules and regulations, and each Employee is expected to be familiar with the laws, rules and regulations that impact and control his or her specific duties. 2. No Employee may ask or pressure another Employee to break any law, rule or regulation. 3. Employees are required to understand and comply with the Company's insider trading policies that govern Employees' trading in securities of the Company. ARTICLE IV COMPLIANCE WITH COMPANY POLICIES 1. Employees who are involved in preparing reports and other documents filed with the Securities and Exchange Commission and other public communications of the Company shall observe the Company's policies and procedures with respect to such filings and communications, including, without limitation, policies and procedures with respect to (a) internal controls and (b) disclosure controls and procedures. All Employees shall cooperate fully in any matters relating to the gathering of information and the preparation of such filings and communications in order to promote full, fair, accurate, timely, and understandable disclosures in such filings and communications. 2. Employees shall observe the Company's other policies and procedures, including, without limitation, policies and procedures with respect to the prohibition against discrimination or harassment. ARTICLE V CONFLICTS OF INTEREST 1. Employees shall take all practicable steps to avoid conflicts of interest. A "conflict of interest" occurs when an individual's private interest interferes - or even appears to interfere - in any way with the interests of the Company as a whole. A conflict situation can arise when an Employee takes actions or has interests that may make it difficult to perform his or her Company work objectively and effectively. Conflicts of interest also arise when an Employee, or a member of his or her family, receives improper personal benefits as a result of his or her position in the Company. Loans to, or guarantees of obligations of, such persons are of special concern. -2-

2. In questionable situations, Employees should direct requests for determination of whether or not a conflict of interest exists to his or her supervisor or department vice president or to any other officer of the Company. 3. If a situation that creates a conflict of interest arises, the Employee involved and any Employee who is aware of such conflict of interest must promptly report it (a) if the person involved is a director or an executive officer of the Company to the Chair of the Audit Committee, or (b) if the person involved is someone other than a director or an executive officer of the Company, to the Employee's supervisor or department vice president or to any other officer of the Company. 4. The person to whom the conflict of interest is reported, or his or her designee, shall monitor the situation creating the conflict of interest. To the fullest extent practicable, the Employee with the conflict of interest shall be removed from any decision-making on behalf of the Company related to the situation creating the conflict of interest. In no event shall the Employee with the conflict of interest be permitted to receive any improper personal benefit from such situation. ARTICLE VI CORPORATE OPPORTUNITIES 1. Employees shall not appropriate any business opportunity that is discovered through the use of the Company's property or information or their position with the Company. 2. Employees shall not use their position with the Company or the Company's property or information for personal gain or the personal gain of members of their families. 3. Employees shall not compete with the Company. 4. Employees owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises. ARTICLE VII FAIR DEALING 1. Each Employee should maintain a high degree of integrity in his or her business dealings on behalf of the Company. The Company expects that each Employee shall in the performance of his or her duties: (a) Deal fairly with the Company's customers, suppliers, competitors and employees in accordance with prevailing standards of business conduct; and (b) Not take unfair advantage of the Company's customers, suppliers, competitors or employees through manipulation, concealment, abuse of privileged -3-

information, misrepresentation of material facts or any other unfair-dealing practice. 2. In pursuing business opportunities, Employees shall not offer improper favored treatment designed to gain a competitive edge. This includes offering customers, contractors, potential customers or contractors, or their family members, gifts or entertainment that exceed prevailing standards of business conduct in the retail sporting goods industry as an inducement for business transactions with the Company. 3. Employees shall make procurement decisions exclusively on the basis of the Company's best interests, considering such factors as quality, service, price, financial responsibility and maintenance of reliable sources of supplies. It is improper for an Employee to seek or receive favored treatment from a potential or actual supplier or contractor in the form of gifts or entertainment to the Employee or any of the Employee's family members that exceed prevailing standards of business conduct in the retail sporting goods industry. 4. Employees shall not offer, give, provide, or accept any gift or entertainment in connection with the Employee's relationship or employment with the Company that is a cash gift, that can be construed as a bribe, kickback or payoff or that violates any applicable laws, rules or regulations. ARTICLE VIII PROTECTION OF COMPANY ASSETS 1. Employees shall, to the fullest extent practicable, protect the Company's assets and ensure their efficient use. 2. Employees shall use the Company's assets only for the Company's legitimate business purposes. 3. No Company assets, including employee work time, may be contributed to any political candidate, party or campaign. ARTICLE IX HEALTH AND SAFETY 1. Employees shall comply with all applicable laws, rules and regulations and applicable policies and procedures to maintain a safe workplace. 2. Employees shall not possess, store or use any weapons or unlawful drugs at any Company facility or worksite. 3. Employees shall not possess, consume or store alcoholic beverages at any Company facility or worksite, except in connection with specific occasions or events approved in advance by an executive officer of the Company. -4-

ARTICLE X BUSINESS INFORMATION AND RECORDS 1. All Company books, accounts, records and financial reports must be maintained accurately, with complete documentation and in accordance with all relevant accounting, internal control and documentation retention requirements. No entries will be made, and no reports will be issued, that intentionally conceal or disguise the true nature of the transaction. All funds and accounts established by the Company must be accurately described in relevant books and records. No undisclosed, unrecorded or "off-book" funds or assets may be established or maintained for any purposes. 2. Expense reports shall accurately reflect expenses incurred in the course of doing business and shall comply with the Company's expense reimbursement policy. 3. Employees shall record and charge their time accurately and to the proper accounts. Supervisors are responsible for ensuring that employees' time is charged properly. ARTICLE XI CONFIDENTIALITY Each Employee shall maintain the confidentiality of the Company's confidential and proprietary information in accordance with the Company's confidentiality policies and any confidentiality agreements entered into by or with the Company. The same requirements apply to protecting confidential information entrusted to the Company by a third party. ARTICLE XII REPORTING AND CONSEQUENCES OF VIOLATIONS 1. The Company expects each of its Employees (a) to comply with all provisions of this Code of Ethics, (b) to use his or her own high standards and reasoned judgment, and (c) to seek the advice and counsel of his or her supervisor or department vice president or any other officer of the Company in ambiguous situations, when the Employee has any question about the appropriate course of action, and to clarify issues not covered by these standards. The management of the Company is charged with creating and maintaining an environment that promotes proper business conduct and allows employees to feel free to question or report in good faith suspected improprieties without fear of retribution. 2. An Employee (a) shall report any violations of this Code of Ethics by the Company's directors or executive officers to the Chair of the Audit Committee and (b) shall report any violations of this Code of Ethics by other Employees who are not directors or executive officers of the Company to his or her supervisor or department vice president or to any other officer of the Company. Employees shall not deliberately -5-

provide false information concerning violations of laws, rules, regulations or this Code of Ethics. An Employee who deliberately fails to report a violation of which he or she is aware, or who deliberately provides false information, may be subject to disciplinary action. 3. An Employee may report concerns regarding questionable accounting or auditing matters anonymously by contacting the Chair of the Audit Committee on an anonymous basis. If the Employee wants the submission to be anonymous, the Employee should not leave or provide his or her name or other personal identifying information. The Employee should provide as much information as possible, including all relevant facts and circumstances that he or she believes should be considered in evaluating the situation. If the Employee requests, the Company will maintain the confidentiality of the submission to the extent reasonably practicable. However, the Company may be required to disclose the submission in response to legal proceedings, subpoenas, civil or criminal investigative demands, or similar processes. In addition, the Company may be required to disclose publicly the matters pertaining to the violation or to take corrective actions and to disclose publicly those corrective actions. In order to make a thorough investigation, it also may be necessary to make inquiries or otherwise engage in conduct that may make it possible to discern the source of the information even though the submission was made anonymously. 4. The Company shall not discharge, demote, suspend, threaten, harass or in any other manner discriminate against any Employee in the terms or conditions of employment because of any lawful act done by such Employee to (a) assist in an investigation, (b) provide information or (c) cause information to be provided, in the case of (a), (b) and (c), regarding any conduct that such Employee reasonably believes constitutes a violation of this Code of Ethics or any applicable law, rule or regulation of any governmental entity, including, without limitation, any lawful act (X) to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of Federal mail fraud statutes, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by (i) a Federal regulatory or law enforcement agency, (ii) any member of Congress or any committee of Congress or (iii) a person with supervisory authority over the employee (or such other person working for the Company who has the authority to investigate, discover, or terminate misconduct); or (Y) to file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with knowledge of the Company) relating to an alleged violation. 5. The provisions of this Code of Ethics may be waived for directors or executive officers only by the Company's Board of Directors. The Company shall promptly disclose any such waiver, and the reasons therefor, in accordance with, and to the extent required by, the rules and regulations of the Securities and Exchange Commission and any applicable standards of The Nasdaq National Market. The provisions of this Code of Ethics may be waived for Employees who are not directors or executive officers by the Company's Chief Executive Officer, or his or her designee, or -6-

by the Company's Board of Directors. The Company may not waive the provisions of Section 5 of this Article XII. 6. Any violation of this Code of Ethics by an officer or employee of the Company shall subject such officer or employee to disciplinary action, including, without limitation, suspension, demotion or discharge. Any violation of this Code of Ethics by a director of the Company may constitute cause for disciplinary action, including, without limitation, a request by the Company for the resignation of such director. This Code of Ethics may be amended by the Company's Board of Directors. Any such amendment shall be promptly disclosed by the Company in accordance with, and to the extent required by, the rules and regulations of the Securities and Exchange Commission and any applicable standards of The Nasdaq National Market. -7-

COMPLIANCE CERTIFICATION I have read and understand the Company's Code of Business Conduct and Ethics. I agree that I will comply with the Code of Business Conduct and Ethics. If I am an officer or employee of the Company, I agree that violations of the Code of Ethics will constitute cause for disciplinary action, including, without limitation, suspension, demotion or discharge. I certify that I am not currently in violation of the Code of Ethics. Dated: ________ __, 200_. ---------------------- Name

EXHIBIT 23.1 Independent Auditors' Consent The Board of Directors Big 5 Sporting Goods Corporation: We consent to the incorporation by reference in the registration statement (No. 333-104898) on Form S-8 of Big 5 Sporting Goods Corporation of our report dated February 11, 2004, with respect to the consolidated balance sheets of Big 5 Sporting Goods Corporation and subsidiary as of December 28, 2003 and December 29, 2002, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 28, 2003 and the related financial statement schedules, which report appears in the December 28, 2003, annual report on Form 10-K of Big 5 Sporting Goods Corporation. Our report refers to the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." KPMG LLP Los Angeles, California February 11, 2004

EXHIBIT 31.1 CERTIFICATIONS I, Steven G. Miller, President and Chief Executive Officer, certify that: 1. I have reviewed this Annual Report on Form 10-K of Big 5 Sporting Goods Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financing reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 12, 2004 /s/ Steven G. Miller ----------------------------- Steven G. Miller President and Chief Executive Officer

EXHIBIT 31.2 CERTIFICATIONS I, Charles P. Kirk, Senior Vice President and Chief Financial Officer, certify that: 1. I have reviewed this Annual Report on Form 10-K of Big 5 Sporting Goods Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financing reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 12, 2004 /s/ Charles P. Kirk ----------------------- Charles P. Kirk Senior Vice President and Chief Financial Officer

EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Big 5 Sporting Goods Corporation (the "Company") on Form 10-K for the period ending December 28, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steven G. Miller, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Steven G. Miller Steven G. Miller President and Chief Executive Officer March 12, 2004 A signed original of this written statement required by Section 906 has been provided to Big 5 Sporting Goods Corporation and will be retained by Big 5 Sporting Goods Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Big 5 Sporting Goods Corporation (the "Company") on Form 10-K for the period ending December 28, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles P. Kirk, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (3) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (4) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Charles P. Kirk Charles P. Kirk Senior Vice President and Chief Financial Officer March 12, 2004 A signed original of this written statement required by Section 906 has been provided to Big 5 Sporting Goods Corporation and will be retained by Big 5 Sporting Goods Corporation and furnished to the Securities and Exchange Commission or its staff upon request.