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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended June 29, 2003

OR

For the transition period from ___________ to ______________

Commission file number: 333-43129

BIG 5 CORP.

Registrant’s telephone number, including area code: (310) 536-0611

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

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

     There were 1,000 shares of common stock with a par value of $0.01 per share outstanding at August 13, 2003.

     The registrant meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.

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BIG 5 CORP.

INDEX

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BIG 5 CORP.

Condensed Balance Sheets
(unaudited)
(dollars in thousands)

See accompanying notes to condensed consolidated financial statements.

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BIG 5 CORP.

Condensed Statements of Operations
(unaudited)
(dollars in thousands)

See accompanying notes to condensed financial statements.

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BIG 5 CORP.

Condensed Statements of Cash Flows
(unaudited)
(dollars in thousands)

See accompanying notes to condensed financial statements.

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BIG 5 CORP.

Notes to Unaudited Condensed Financial Statements

(1)

Basis of Presentation and Description of Business

     We operate 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 275 stores at June 29, 2003 in California, Washington, Arizona, Oregon, Texas, New Mexico, Nevada, Utah, Idaho and Colorado. We are wholly owned by Big 5 Sporting Goods Corporation, our parent company.

     In our opinion, the accompanying unaudited condensed financial statements contain all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to present fairly and in accordance with generally accepted accounting principles (GAAP) the financial position as of June 29, 2003 and December 29, 2002 and the results of operations and cash flows for the periods ended June 29, 2003 and June 30, 2002. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission; however, we believe that the disclosures are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2002.

(2)

Reclassifications

     Certain prior year balances in the accompanying condensed financial statements have been reclassified to conform to current year presentation.

(3)

Related Party Transactions

     In June 2002, our parent, Big 5 Sporting Goods Corporation, 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 July 2002, the 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 distributions from us from borrowings under our credit facility, our parent redeemed all of its outstanding senior discount notes and preferred stock, paid bonuses to executive officers and directors which were funded by a reduction in the redemption price

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otherwise applicable to our parent’s preferred stock and repurchased 0.5 million shares of its common stock from non-executive employees.

(4)

Vendor Payments

     In November 2002, EITF issued EITF Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.” EITF Issue No. 02-16 addresses the timing of recognition and classification of consideration received from vendors, including rebates or allowances. EITF Issue No. 02-16 presumes that cash consideration received from a vendor represents a reduction of the prices of the vendor’s products or services and should, therefore, be characterized as a reduction in cost of sales unless (i) it is a payment for assets or services delivered to the vendor, in which case the cash consideration should be characterized as revenue, or (ii) it is a reimbursement of costs incurred to sell the vendor’s products, in which case the cash consideration should be characterized as a reduction of that cost. EITF No. 02-16 became effective for us in the first quarter of 2003, and had no impact on our financial statements, as we have historically accounted for vendor payments in accordance with the provisions of this standard.

(5)

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, if any. We recognized $1.5 million and ($0.2) million in premium (discount) and related unamortized financing fees in the 26 weeks ended June 29, 2003 and June 30, 2002, respectively. The $1.5 million charge in the first 26 weeks of 2003 resulted from a $1.1 million premium related to the redemption of $20.0 million face value of our senior notes and the related carrying value of applicable deferred financing costs which totaled $0.4 million in the first quarter of 2003. The $0.2 million gain in the first 26 weeks of 2002 resulted from the repurchase of $0.5 million face value of our senior notes in the first quarter of 2002.

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 writedowns, inventory shrinkage, inbound freight, distribution and warehousing, payroll for our buying personnel and store and allocated 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 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.

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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 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.

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RESULTS OF OPERATIONS

     The results of the interim periods are not necessarily indicative of results for the entire fiscal year.

13 Weeks Ended June 29, 2003 Compared to 13 Weeks Ended June 30, 2002

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

     1.     Net Sales. Net sales increased by $7.4 million, or 4.6%, to $170.1 million in the 13 weeks ended June 29, 2003 from $162.7 million in the same period last year. This growth reflected an increase of $1.5 million in same store sales and an increase of $6.2 million in new store sales, which reflected the opening of 15 new stores since March 31, 2002. The remaining variance was attributable to net sales from closed stores. Same store sales increased 0.9% in the 13 weeks ended June 29, 2003 versus the same period last year, representing the thirtieth consecutive quarterly increase in same store sales over comparable prior periods. This 0.9% increase in same store sales was primarily attributable to higher sales in our apparel and hardgoods categories which were partially offset by a slight decrease in our footwear category. Store count at June 29, 2003 was 275 versus 261 at June 30, 2002. We opened no new stores in the 13 weeks ended June 29, 2003 and we opened one new store in the 13 weeks ended June 30, 2002. We expect to open approximately 16 to 18 new stores during the remainder of fiscal 2003.

     2.     Gross Profit. Gross profit increased by $3.0 million, or 5.0%, to $62.6 million in the 13 weeks ended June 29, 2003 from $59.6 million in the same period last year. Gross profit margin was 36.8% in the 13 weeks ended June 29, 2003 compared to 36.7% in the same period last year. We were able to achieve higher gross profit margins primarily due to improved product selling margin comparisons. These increases were partially offset by

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higher occupancy and distribution center costs when measured as a percentage of sales resulting from a smaller than expected growth in net sales.

     3.     Selling and Administrative. Selling and administrative expenses increased by $3.3 million, or 7.5%, to $46.5 million in the 13 weeks ended June 29, 2003 from $43.3 million in the same period last year. The increase was primarily due to a $2.0 million increase in store related expenses primarily resulting from supporting our store growth and increased employee health benefit costs. Other factors impacting the increase were higher advertising expenses of $0.7 million which resulted from supporting our store growth and the timing of the Easter holiday between periods. When measured as a percentage of net sales, selling and administrative expenses were 27.3% for the 13 weeks ended June 29, 2003 compared to 26.6% for the same period last year.

     4.     Depreciation and Amortization. Depreciation and amortization expense remained flat at $2.5 million for the 13 weeks ended June 29, 2003 and the same period last year.

     5.     Interest Expense, Net. Interest expense, net decreased by $0.4 million, or 12.4%, to $2.9 million in the 13 weeks ended June 29, 2003 from $3.3 million in the same period last year. This decrease reflected lower average interest rates on our credit facility in the 13 weeks ended June 29, 2003 versus the 13 weeks ended June 30, 2002 and lower average interest costs associated with the use of borrowings from our credit facility to redeem $20.0 million of our senior notes during the first quarter of 2003.

     6.     Income Taxes. Provision for income taxes was $4.4 million for the 13 weeks ended June 29, 2003 and $4.3 million for the 13 weeks ended June 30, 2002. Our effective income tax rate was 41% for both periods. Income taxes are based upon the estimated effective tax rate for the entire fiscal year applied to pre-tax income for the year. The effective rate is subject to ongoing evaluation by management.

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26 Weeks Ended June 29, 2003 Compared to 26 Weeks Ended June 30, 2002

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