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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549




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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

|           |  |                                                                                   
|---------- |  | ----------------------------------------------------------------------------------
|(Mark One) |  |                                                                                   
|x          |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934

For the fiscal year ended December 29, 2002

OR

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

For the transition period from        to

Commission File Number: 333-43129

BIG 5 CORP.

(Exact name of registrant as specified in its charter)


|                                                      |  |  |  |  |  |                                        
|----------------------------------------------------- |  |  |  |  |  | ---------------------------------------
|Delaware                                              |  |  |  |  |  | 98-1854273                             
|                                                     
|(State of Incorporation)                              |  |  |  |  |  | (I.R.S. Employer Identification Number)
|                                                      |  |  |  |  |  |                                        
|2525 East El Segundo Boulevard
El Segundo, California |  |  |  |  |  | 90245                                  
|                                                     
|(Address of Principal Executive Offices)              |  |  |  |  |  | (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:None

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





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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. [X]

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

The registrants voting stock is wholly owned by Big 5 Sporting Goods
Corporation, a Delaware corporation, and is not publicly traded.

There were 1,000 shares of common stock with a par value of $0.01 per
share outstanding at March 31, 2003.

DOCUMENTS INCORPORATED BY REFERENCE:
None.

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

2



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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 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                      
|               | 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    
|CERTIFICATIONS
|Exhibit 3.1   
|Exhibit 3.2   
|Exhibit 99.1  
|Exhibit 99.2  



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PART I




ITEM 1: BUSINESS

General

We are the leading sporting goods retailer in the western United States,
operating 275 stores in 10 states under the Big 5 Sporting Goods name at
December 29, 2002. We provide a full-line product offering of over 25,000
stock keeping units 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 that over the past 48 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.

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 29, 2002, we have
realized 28 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 2002, we
generated net sales of $667.5 million and operating income of $55.8 million.
For the past five fiscal years ended December 29, 2002, our net sales and
operating income increased at compounded annual growth rates of 8.5% and 16.2%,
respectively. We believe our success can be attributed to one of the most
experienced management teams in the sporting goods industry, a value-based
execution-driven operating philosophy, a controlled growth strategy and a
proven business model.

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 of our
parents preferred stock and repurchased 0.5 million shares of its common stock
from non-executive employees.

We were incorporated in Delaware on October 27, 1997 and are a wholly
owned subsidiary of Big 5 Sporting Goods Corporation.

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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 72 stores, an average of 14 new stores annually,
of which 74% were outside of California. The following table illustrates the
results of our expansion program during the periods indicated:

|     |  |            |   |         |  |       |    |           |  |        |    |               |  |        |    |                  |  |  |    |   |  |  |     | 
|---- |  | ---------- | - | ------- |  | ----- | -- | --------- |  | ------ | -- | ------------- |  | ------ | -- | ---------------- |  |  | -- | - |  |  | --- | 
|     |  |            |   |         |  | Other |    |           |  |        |    | Stores        |  | Stores |    | Number of Stores
|Year |  | California |   | Markets |  | Total |    | Relocated |  | Closed |    | at Period End
|     |  |            |   |         |  |       |    |           |  |        |    |              
|1998 |  |            | 3 |         |  |       | 9  |           |  |        | 12 |               |  |        | (1 | )                |  |  |   |   |  |  | 221 | 
|1999 |  |            | 3 |         |  |       | 12 |           |  |        | 15 |               |  |        | (1 | )                |  |  | (1 | ) |  |  | 234 | 
|2000 |  |            | 5 |         |  |       | 10 |           |  |        | 15 |               |  |        |   |                  |  |  |   |   |  |  | 249 | 
|2001 |  |            | 3 |         |  |       | 12 |           |  |        | 15 |               |  |        | (4 | )                |  |  |   |   |  |  | 260 | 
|2002 |  |            | 6 |         |  |       | 9  |           |  |        | 15 |               |  |        |   |                  |  |  |   |   |  |  | 275 | 

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 format differentiates us from
superstores that typically average over 35,000 square feet compared to our
average of 11,000 square feet per store, 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 in which
our stores become profitable. Our store format requires investments of
approximately $400,000 in fixtures and equipment and approximately $400,000 in
net working capital with limited pre-opening and real estate expenses due to
our leased locations 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 35% in its
first full fiscal year of operation.

Our in-house store development personnel, who have opened an average of 13
stores during each of the past 10 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 15 new stores in fiscal 2002 and expect to open 16 to 20
new stores in fiscal 2003.

Management Experience

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

|                                      |  |           |     |                  |  |  |    | 
|------------------------------------- |  | --------- | --- | ---------------- |  |  | -- | 
|                                      |  | Number of |     | Average Number  
|                                      |  | Employees |     | of Years With Us
|                                      |  |           |     |                 
|Senior
Management                     |  |           | 7   |                  |  |  | 29 | 
|Vice
Presidents                       |  |           | 8   |                  |  |  | 22 | 
|Buyers                                |  |           | 14  |                  |  |  | 18 | 
|Store District /
Division
Supervisors |  |           | 31  |                  |  |  | 18 | 
|Store
Managers                        |  |           | 275 |                  |  |  | 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 over
25,000 stock keeping units in a product mix that includes athletic shoes,

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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
|           |                             |                  |      |            
|           |                             |                  |      | 1999        |       | 2000 |      | 2001 |       | 2002
|           |                             |                  |      |             |       |      |      |      |       |     
|Soft Goods |                             |                  |      |             |       |      |      |      |       |      |      |      |       |   |      |     
|           | Athletic and sport
apparel  |                  |      | 15.6        | %     |      |      | 16.2 | %     |      |      | 16.5 | %     |   |      | 15.9 | %    
|           | Athletic and sport
footwear |                  |      | 31.3        |       |      |      | 29.8 |       |      |      | 30.3 |       |   |      | 30.8 |      
|           |                             |                  |      |             |       |      |      |      |       |      |      |      |       |   |      |     
|           |                             | Total soft
goods |      |             | 46.9  |      |      |      | 46.0  |      |      |      | 46.8  |   |      |      | 46.7  |  
|Hard goods |                             |                  | 53.1 |             |       |      | 54.0 |      |       |      | 53.2 |      |       |   | 53.3 |     
|           |                             |                  |      |             |       |      |      |      |       |      |      |      |       |   |      |     
|           |                             | 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      |  | Wilson    
|Coleman       |  | Head                |  | Nike           |  | Russell Athletic |  | Winchester
|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, which
is licensed from a third party.

Through our 48 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 14 buyers, who average 18 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.

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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 48 years. In
fiscal 2002, no single vendor represented greater than 5.5% 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 completed the roll-out of this new point-of-sales
system to each of our stores during the first half of 2001. 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 32 leased and two owned
tractors, and 12 leased and 68 owned trailers, 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 18 to 24 months at a cost of approximately $10 million.

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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 and Kmart and department stores such as JC Penney and Sears. 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 The Sports Authority, Sport Chalet and Gart Sports Company.
The Sports Authority and Gart Sports Company recently announced that they have
entered into a merger agreement and that the merger is expected to close in the
third calendar quarter of 2003.

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 26 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 February 23, 2003, we had approximately 6,327 full and part-time
employees. The Steel, Paper House, Chemical Drivers & Helpers, Local Union
578, affiliated with the International Brotherhood of Teamsters, currently
represents 472 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 22 years. We
believe we provide

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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 name as a service mark in connection with our business
operations and have registered this name as a federal service mark. This
service mark is due for renewal in 2005. We have also registered Court
Casuals, Golden Bear, Pacifica and Rugged Exposure as federal trademarks under
which we sell a variety of merchandise. The renewal dates for these trademark
registrations range from 2004 to 2008.




ITEM 2: PROPERTIES

Properties

We lease all but one of our 275 store sites. Most of our long-term leases
contain fixed-price renewal options and the average lease expiration term of
our existing leases, taking into account renewal options, is approximately 20
years. Of the 274 store leases we have, only 13 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 11,000 square feet. Our typical store is
located in either free-standing street locations or multi-store shopping
centers. Our numerous convenient locations and store format encourage frequent
customer visits. In fiscal 2002, we processed approximately 20.8 million sales
transactions and our average transaction size was approximately $32.

Our store format has resulted in productivity levels that we believe are
among the highest of any full-time sporting goods retailer, with net sales per
gross square foot of approximately $227 for fiscal 2002. 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 one year have generated
positive store-level operating profit in each of the past five fiscal years.
In addition, we have never needed to close a
store due to poor performance. The following table details our store locations
as of March 31, 2003.

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|            |                     |                  |      |           |  |                  |     |                     |     |  |       |      |      |  |  |  |  | 
|----------- | ------------------- | ---------------- | ---- | --------- |  | ---------------- | --- | ------------------- | --- |  | ----- | ---- | ---- |  |  |  |  | 
|            |                     |                  |      | Year      |  | Number           |     | Percentage of Total
|Regions     |                     | Entered          |      | of Stores |  | Number of Stores
|            |                     |                  |      |           |  |                 
|California: |                     |                  |      |           |  |                  |     |                     |     |  |       |      |      |  |  | 
|            | Southern California |                  |      | 1955      |  |                  |     | 89                  |     |  |       | 32.4 | %    |  |  |  | 
|            | Northern California |                  |      | 1971      |  |                  |     | 76                  |     |  |       | 27.6 |      |  |  |  | 
|            |                     |                  |      |           |  |                  |     |                     |     |  |       |      |      |  |  | 
|            |                     | Total California |      |           |  |                  |     |                     | 165 |  |       |      | 60.0 |  |  |  |  | 
|Washington  |                     |                  | 1984 |           |  |                  | 33  |                     |     |  | 12.0  |      |      |  |  | 
|Arizona     |                     |                  | 1993 |           |  |                  | 18  |                     |     |  | 6.6   |      |      |  |  | 
|Oregon      |                     |                  | 1995 |           |  |                  | 16  |                     |     |  | 5.8   |      |      |  |  | 
|Texas       |                     |                  | 1995 |           |  |                  | 10  |                     |     |  | 3.6   |      |      |  |  | 
|New Mexico  |                     |                  | 1995 |           |  |                  | 9   |                     |     |  | 3.3   |      |      |  |  | 
|Nevada      |                     |                  | 1978 |           |  |                  | 8   |                     |     |  | 2.9   |      |      |  |  | 
|Utah        |                     |                  | 1998 |           |  |                  | 8   |                     |     |  | 2.9   |      |      |  |  | 
|Idaho       |                     |                  | 1993 |           |  |                  | 6   |                     |     |  | 2.2   |      |      |  |  | 
|Colorado    |                     |                  | 2001 |           |  |                  | 2   |                     |     |  | 0.7   |      |      |  |  | 
|            |                     |                  |      |           |  |                  |     |                     |     |  |       |      |      |  |  | 
|Total       |                     |                  |      |           |  |                  | 275 |                     |     |  | 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

The information required by this Item is omitted pursuant to General
Instruction I 1(a) and (b).

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##### Table of Contents






PART II




ITEM 5: MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

We are a wholly owned subsidiary of Big 5 Sporting Goods Corporation. Our
parents common stock, $0.01 par value per share, has traded on the Nasdaq
National Market under the symbol BGFV since June 25, 2002.

The agreement governing our credit facility and the indenture governing
our senior notes impose restrictions on our ability to declare or pay dividends
on our common stock, other than to enable our parent to pay operating and
overhead expenses and certain other limited types of expenses. For example,
our ability to pay dividends or make other distributions depends upon, among
other things, our level of indebtedness at the time of the proposed dividend or
distribution, whether we are in default under our financing agreements and the
amount of dividends or distributions made in the past. Our ability to pay
dividends or make other distributions also will 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.

We do not have any securities authorized for issuance under equity
compensation plans.




ITEM 6: SELECTED 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 January 3, 1999, January 2, 2000, December 31, 2000, December 30,
2001 and December 29, 2002 are derived from our audited financial statements,
which financial statements have been audited by KPMG, LLP, independent
auditors. The financial statements as of December 30, 2001 and December 29,
2002 and for each of the years ended December 31, 2000, December 30, 2001 and
December 29, 2002 and the report thereon are included elsewhere in this report.
The information presented below under the captions Store Data and Other
Financial Data is unaudited. You should read the following tables in
conjunction with the 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)
|                                                                                     |                               |                               |                
|                                                                                     |                               |                               | 1998            |         | 1999 |   | 2000    |         | 2001 |   | 2002   
|                                                                                     |                               |                               |                 |         |      |   |         |         |      |   |        
|                                                                                     |                               | (dollar amounts in thousands)
|Statement of Operations Data:                                                        |                               |                               |                 |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |        
|Net sales                                                                            |                               | $                             | 491,430         |         |      | $ | 514,324 |         |      | $ | 571,476 |         |  | $ | 622,481 |         |  | $ | 667,469 |        
|Cost of goods sold, buying and
occupancy                                             |                               |                               | 330,243         |         |      |   | 341,852 |         |      |   | 377,040 |         |  |   | 407,679 |         |  |   | 429,858 |        
|                                                                                     |                               |                               |                 |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |        
|                                                                                     | Gross profit                  |                               |                 | 161,187 |      |   |         | 172,472 |      |   |         | 194,436 |  |   |         | 214,802 |  |   |         | 237,611 | 
|Operating expenses:                                                                  |                               |                               |                 |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |        
|                                                                                     | Selling and administrative    |                               |                 | 121,643 |      |   |         | 130,833 |      |   |         | 144,323 |  |   |         | 159,667 |  |   |         | 171,801 | 
|                                                                                     | Litigation settlement         |                               |                 |        |      |   |         |        |      |   |         |        |  |   |         | 2,515   |  |   |         |        | 
|                                                                                     | Depreciation and amortization |                               |                 | 8,890   |      |   |         | 9,479   |      |   |         | 9,340   |  |   |         | 10,031  |  |   |         | 9,966   | 
|                                                                                     |                               |                               |                 |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |        
|Total operating expenses                                                             |                               |                               | 130,533         |         |      |   | 140,312 |         |      |   | 153,663 |         |  |   | 172,213 |         |  |   | 181,767 |        
|                                                                                     |                               |                               |                 |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |        
|Operating income                                                                     |                               |                               | 30,654          |         |      |   | 32,160  |         |      |   | 40,773  |         |  |   | 42,589  |         |  |   | 55,844  |        
|Interest expense, net                                                                |                               |                               | 19,285          |         |      |   | 17,461  |         |      |   | 17,035  |         |  |   | 15,541  |         |  |   | 13,720  |        
|                                                                                     |                               |                               |                 |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |        
|Income before income taxes
and extraordinary gain (loss)                             |                               |                               | 11,369          |         |      |   | 14,699  |         |      |   | 23,738  |         |  |   | 27,048  |         |  |   | 42,124  |        
|Income taxes                                                                         |                               |                               | 4,604           |         |      |   | 5,829   |         |      |   | 9,438   |         |  |   | 10,922  |         |  |   | 16,512  |        
|                                                                                     |                               |                               |                 |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |        
|Income before extraordinary gain (loss)                                              |                               |                               | 6,765           |         |      |   | 8,870   |         |      |   | 14,300  |         |  |   | 16,126  |         |  |   | 25,612  |        
|Extraordinary gain (loss) from early
extinguishment of debt, net of
income taxes (2) |                               |                               |                |         |      |   | (396    | )       |      |   | 87      |         |  |   |        |         |  |   | 5       |        
|                                                                                     |                               |                               |                 |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |        
|Net income                                                                           |                               | $                             | 6,765           |         |      | $ | 8,474   |         |      | $ | 14,387  |         |  | $ | 16,126  |         |  | $ | 25,617  |        
|                                                                                     |                               |                               |                 |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |        

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|                                    |  |                 |         |      |  |                               |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|----------------------------------- |  | --------------- | ------- | ---- |  | ----------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                    |  | Fiscal Year (1)
|                                    |  |                
|                                    |  | 1998            |         | 1999 |  | 2000                          |         | 2001 |  | 2002
|                                    |  |                 |         |      |  |                               |         |      |  |     
|                                    |  |                 |         |      |  | (dollar amounts in thousands) |         |      |  |     
|Store Data:                         |  |                 |         |      |  |                               |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Same store sales increase (3)       |  |                 | 5.2     | %    |  |                               | 2.0     | %    |  |      | 6.6     | % |  |   | 4.9     | % |  |   | 4.0     | %
|Net sales per gross square foot (4) |  | $               | 206     |      |  | $                             | 203     |      |  | $    | 217     |   |  | $ | 224     |   |  | $ | 227     |  
|End of period stores                |  |                 | 221     |      |  |                               | 234     |      |  |      | 249     |   |  |   | 260     |   |  |   | 275     |  
|Average net sales per store (5)     |  | $               | 2,313   |      |  | $                             | 2,285   |      |  | $    | 2,405   |   |  | $ | 2,448   |   |  | $ | 2,541   |  
|Other Financial Data:               |  |                 |         |      |  |                               |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Gross margin                        |  |                 | 32.8    | %    |  |                               | 33.5    | %    |  |      | 34.0    | % |  |   | 34.5    | % |  |   | 35.6    | %
|Capital expenditures                |  | $               | 8,500   |      |  | $                             | 13,075  |      |  | $    | 11,602  |   |  | $ | 10,510  |   |  | $ | 10,207  |  
|Inventory turns (6)                 |  |                 | 2.1     |      |  |                               | 2.1     |      |  |      | 2.2     |   |  |   | 2.4     |   |  |   | 2.5     |  
|Balance Sheet Data:                 |  |                 |         |      |  |                               |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Cash and cash equivalents           |  |                 |        |      |  | $                             | 5,091   |      |  | $    | 3,753   |   |  | $ | 7,865   |   |  | $ | 8,560   |  
|Working capital (7)                 |  | $               | 67,625  |      |  | $                             | 72,081  |      |  | $    | 70,503  |   |  | $ | 67,035  |   |  | $ | 62,907  |  
|Total assets (8)                    |  | $               | 225,225 |      |  | $                             | 238,437 |      |  | $    | 257,125 |   |  | $ | 257,940 |   |  | $ | 271,192 |  
|Total debt                          |  | $               | 151,352 |      |  | $                             | 151,309 |      |  | $    | 141,089 |   |  | $ | 128,806 |   |  | $ | 125,131 |  
|Stockholders
equity (deficit) (8)  |  | $               | (29,826 | )    |  | $                             | (19,994 | )    |  | $    | (5,607  | ) |  | $ | 3,831   |   |  | $ | 7,911   |  

(Notes to table on previous page and this page)



---

|(1) |  | Our fiscal year is the 52 or 53-week year reporting period ending on the
Sunday closest to the calendar year end. Fiscal 1998 consisted of 53
weeks as compared to 52 weeks for each of fiscal years 1999, 2000, 2001
and 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | See Managements Discussion and Analysis of Financial condition and
Results of Operations  Impact of New Accounting Pronouncements SFAS No.
145.                                                                           
|   
|(3) |  | Same store sales data for a fiscal year 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.                                                                                                                                                         
|   
|(8) |  | Total assets and
stockholders equity (deficit) have been restated for the
fiscal years 1998, 1999, 2000 and 2001 as a result of matters discussed in note 14 to the financial statements.                                     




ITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Throughout this section, our fiscal years ended December 31, 2000,
December 30, 2001 and December 29, 2002 are referred to as 2000, 2001 and 2002,
respectively. The following discussion and analysis of our financial condition
and results of operations for fiscal 2000, fiscal 2001 and fiscal 2002 should
be read in conjunction with the 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 described in or implied by the
forward-looking statements contained herein.

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Overview

We are the leading sporting goods retailer in the western United States,
operating 275 stores in 10 states under the name Big 5 Sporting Goods. We
provide a full-line product offering of over 25,000 stock keeping units 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 48 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 48 year history, we have emphasized controlled growth. The
following table summarizes our store count for the periods presented:

|                            |  |             |     |      |  |      |     |   |  |  |     | 
|--------------------------- |  | ----------- | --- | ---- |  | ---- | --- | - |  |  | --- | 
|                            |  | Fiscal Year
|                            |  |            
|                            |  | 2000        |     | 2001 |  | 2002
|                            |  |             |     |      |  |     
|Big 5 Sporting Goods stores |  |             |     |      |  |      |     |   |  |  |     | 
|Beginning of
period         |  |             | 234 |      |  |      | 249 |   |  |  | 260 | 
|New stores
(1)              |  |             | 15  |      |  |      | 15  |   |  |  | 15  | 
|Stores
relocated            |  |             |    |      |  |      | (4  | ) |  |  |    | 
|Stores
closed               |  |             |    |      |  |      |    |   |  |  |    | 
|                            |  |             |     |      |  |      |     |   |  |  |     | 
|End of
Period               |  |             | 249 |      |  |      | 260 |   |  |  | 275 | 
|                            |  |             |     |      |  |      |     |   |  |  |     | 



---

|(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.

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##### Table of Contents



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 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
|                              |                                  |  |            
|                              |                                  |  | 2000        |      | 2001 |  | 2002 
|                              |                                  |  |             |      |      |  |      
|Statement of Operations Data: |                                  |  |             |      |      |  |       |      |  |  |       |     
|Net sales                     |                                  |  | 100.0       | %    |      |  | 100.0 | %    |  |  | 100.0 | %   
|Costs of sales                |                                  |  | 66.0        |      |      |  | 65.5  |      |  |  | 64.4  |     
|                              |                                  |  |             |      |      |  |       |      |  |  |       |     
|                              | Gross profit                     |  |             | 34.0 |      |  |       | 34.5 |  |  |       | 35.6 | 
|Selling and administrative    |                                  |  | 25.3        |      |      |  | 25.7  |      |  |  | 25.7  |     
|Litigation settlement         |                                  |  |            |      |      |  | 0.4   |      |  |  |      |     
|Depreciation and amortization |                                  |  | 1.6         |      |      |  | 1.6   |      |  |  | 1.5   |     
|                              |                                  |  |             |      |      |  |       |      |  |  |       |     
|                              | Operating income                 |  |             | 7.1  |      |  |       | 6.8  |  |  |       | 8.4  | 
|Interest expense, net         |                                  |  | 2.9         |      |      |  | 2.5   |      |  |  | 2.1   |     
|                              |                                  |  |             |      |      |  |       |      |  |  |       |     
|                              | Income before income tax expense |  |             | 4.2  |      |  |       | 4.3  |  |  |       | 6.3  | 
|Income tax expense            |                                  |  | 1.7         |      |      |  | 1.7   |      |  |  | 2.5   |     
|Extraordinary gain (loss)     |                                  |  |            |      |      |  |      |      |  |  |      |     
|                              |                                  |  |             |      |      |  |       |      |  |  |       |     
|                              | Net income                       |  |             | 2.5  |      |  |       | 2.6  |  |  |       | 3.8  | 
|                              |                                  |  |             |      |      |  |       |      |  |  |       |     

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

13



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##### Table of Contents



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, representing the twenty-eighth consecutive
quarter of positive quarterly same store sales results.

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 $12.1 million, or 7.6%, to $171.8 million in fiscal 2002 from $159.7 million
in fiscal 2001. The increase was primarily due to a $8.9 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. When measured as a
percentage of net sales, selling and administrative expenses were 25.7% in
fiscal 2002 and in fiscal 2001.

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.

Interest Expense, net.Interest expense, net decreased by $1.8 million, or
11.7%, to $13.7 million in fiscal 2002 from $15.5 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. Our debt
balances consist of borrowings under our revolving credit facility and our
senior notes.

Income Taxes.Provision for income taxes was $16.5 million for fiscal 2002
and $10.9 million for fiscal 2001. Our effective income tax rate was 39.0% for
fiscal 2002 and for fiscal 2001. 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.

Extraordinary Gain from Early Extinguishment of Debt.We incurred an
extraordinary gain of $0.005 million, net of taxes, for fiscal 2002, in
connection with the repurchase of $1.0 million of our senior notes. There was
no extraordinary gain or loss for fiscal 2001. See discussion of Impact of
New Accounting Pronouncements below.

Fiscal 2001 Compared to Fiscal 2000

Net Sales.Net sales increased by $51.0 million, or 8.9%, to $622.5
million in fiscal 2001 from $571.5 million in fiscal 2000. This growth
reflected an increase of $27.1 million in same store sales and an increase of
$29.0 million in new store sales, which reflected the opening of 15 new stores
during each of fiscal 2001 and fiscal 2000. The remaining variance was
attributable to net sales from closed stores. Same store sales increased 4.9%
for fiscal 2001 versus fiscal 2000. The increase in same store sales was
primarily attributable to higher sales in the majority of our merchandise
categories other than the skate category, which includes scooters. Sales
during the last half of fiscal 2000 benefited significantly from the sale of
scooters. We did not realize comparable scooter sales in fiscal 2001 and do
not expect to do so in the future. Excluding scooter sales, net sales
increased 10.2% and same store sales increased 6.2% for fiscal 2001. Store
count at the end of fiscal 2001 was 260 versus 249 at the end of fiscal 2000 as
we opened 15 new stores, of which four were replacement stores. We achieved
positive same store sales of 3.9% during the fourth quarter of fiscal 2001,
representing the twenty-fourth consecutive quarter of positive quarterly same
store sales results. Excluding scooter sales, same store sales increased 7.3%
for the fourth quarter in fiscal 2001.

14



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Gross Profit.Gross profit increased by $20.4 million, or 10.5%, to
$214.8 million in fiscal 2001 from $194.4 million in fiscal 2000. Gross profit
margin was 34.5% in fiscal 2001 compared to 34.0% in fiscal 2000. We were able
to achieve higher gross profit margins primarily due to improved selling
margins in the majority of our product categories as well as increased same
store sales, which caused store occupancy costs as a percentage of sales to
decrease.

Selling and Administrative.Selling and administrative expenses increased
by $15.4 million, or 10.6%, to $159.7 million in fiscal 2001 from $144.3
million in fiscal 2000. The increase was due primarily to increased personnel
and related costs associated with supporting increased sales and new store
openings. When measured as a percentage of net sales, selling and
administrative expenses were 25.7% in fiscal 2001 compared to 25.3% in fiscal
2000. Approximately 0.1% of the increase in selling and administrative expense
when measured as a percentage of sales resulted from one-time expenses related
to added store labor hours allocated to implement our new point-of-sale
systems. The remaining 0.3% of the 0.4% increase consisted of 0.1% each from
increased store labor due an increase in the minimum wage and regional hiring
pressures during much of the year, higher payroll related benefit costs, and
increased expenses related to electric utility rate increases primarily in our
California markets.

Litigation Settlement. On December 14, 2001, we reached a preliminary
settlement of a class action lawsuit that alleged that we improperly classified
our California store managers and first assistant store managers as exempt
employees not entitled to overtime pay for work in excess of forty hours per
week. We accrued $2.5 million to cover estimated payments to class members as
well as legal and other fees associated with the preliminary settlement of this
complaint.

Depreciation and Amortization. Depreciation and amortization expense
increased by $0.7 million, or 7.4%, to $10.0 million in fiscal 2001 from $9.3
million in fiscal 2000. The increase was primarily due to added depreciation
and amortization related to expenditures for the growth in our store base in
fiscal 2001, as well as depreciation and amortization related to expenditures
for our new point-of-sale register systems.

Interest Expense, net.Interest expense, net decreased by $1.5 million, or
8.8%, to $15.5 million in fiscal 2001 from $17.0 million in fiscal 2000. This
decrease reflected lower average daily debt balances in fiscal 2001 and lower
average interest rates on our revolving credit facility in fiscal 2001 versus
fiscal 2000. Our debt balances consist of borrowings under our revolving
credit facility and our senior notes.

Income Taxes.Provision for income taxes was $10.9 million for fiscal 2001
and $9.4 million for fiscal 2000. Our effective income tax rate was 41.0% for
fiscal 2001 and for fiscal 2000. 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.

Extraordinary Gain from Early Extinguishment of Debt.There was no
extraordinary gain or loss for fiscal 2001. We incurred an extraordinary gain
of $0.1 million, net of taxes, for fiscal 2000, in connection with the
repurchase of $7.8 million face value of our senior notes.

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 2002 and 2001 was $35.6
million and $31.5 million, respectively. The change between periods primarily
reflected higher operating income before extraordinary gain (loss) in 2002.

Capital expenditures for 2002 and 2001 were $10.2 million and $10.5
million, respectively. We expect capital expenditures for fiscal 2003 will range
from $11.0 to $12.0 million, primarily to fund the opening of approximately 16
to 20 new stores, store improvements and remodelings, warehouse and
headquarters improvements and computer hardware and software expenditures. Our
store format requires a low investment in furniture and equipment
(approximately $400,000), working capital (approximately $400,000, net of
amount

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financed by vendors through trade payables, which is typically
one-third) and real estate (leased built-to-suit locations).

Net cash used in financing activities in 2002 and 2001 was $18.4 million
and $10.2 million, respectively. As of December 29, 2002, we had 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 senior notes outstanding.
These balances compare to borrowings of $25.0 million and letter of credit
commitments of $3.4 million outstanding under our credit facility and $103.8
million of our senior notes outstanding as of December 30, 2001.
In February 2002, our parent repurchased $2.8 million face value
of its senior discount notes with distributions from us from
borrowings under our credit facility. In July 2002, we distributed approximately
$19.0 million to our parent, funded by a draw under our line of credit,
which funds were used by our parent, along with net proceeds from our parents
initial public offering and subsequent exercise of the underwriters
over-allotment option to redeem in full our parents senior discount notes for
$27.5 million, redeem in full our parents redeemable
preferred stock for $67.9 million, repurchase common stock from our non-executive employees for $6.9
million and pay special bonuses to our executive officers and directors for
$1.9 million. During 2002, we repurchased $1.0 million face value of our
senior notes. During fiscal 2001, our parent repurchased
$12.5 million face value of its senior discount notes with distributions from us from borrowings under our
credit facility.
We had cash of $7.9 million and $8.6 million at
December 29, 2002 and December 30, 2001, respectively.
Subsequent to fiscal 2002, in the first quarter of 2003, we redeemed
$20.0 million face value of our senior notes.

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 29, 2002,
excluding periodic interest payments, include the following:

|                            |       |   |                        |         |        |  |        |        |       |  |         |        |  |  |        |        |  |   |         |         | 
|--------------------------- | ----- | - | ---------------------- | ------- | ------ |  | ------ | ------ | ----- |  | ------- | ------ |  |  | ------ | ------ |  | - | ------- | ------- | 
|                            |       |   | Payments Due by Period
|                            |       |   |                       
|                            |       |   |                        |         |        |  | 2-3    |        | 4-5   |  | After
5
|                            |       |   | Total                  |         | 1 Year |  | Years  |        | Years |  | Years  
|                            |       |   |                        |         |        |  |        |        |       |  |        
|                            |       |   | (in thousands)        
|Long-term debt              |       | $ | 102,852                |         |        |  |       |        |       |  |        |        |  |  |       |        |  | $ | 102,852 |        
|Operating lease commitments |       |   | 267,257                |         |        |  | 36,855 |        |       |  | 69,844  |        |  |  | 54,710 |        |  |   | 105,848 |        
|Revolving credit facility   |       |   | 22,280                 |         |        |  |       |        |       |  | 22,280  |        |  |  |       |        |  |   |        |        
|Letters of credit           |       |   | 4,278                  |         |        |  | 4,278  |        |       |  |        |        |  |  |       |        |  |   |        |        
|                            |       |   |                        |         |        |  |        |        |       |  |         |        |  |  |        |        |  |   |         |        
|                            | Total |   | $                      | 396,667 |        |  | $      | 41,133 |       |  | $       | 92,124 |  |  | $      | 54,710 |  |   | $       | 208,700 | 
|                            |       |   |                        |         |        |  |        |        |       |  |         |        |  |  |        |        |  |   |         |        

Long-term debt consists of our senior notes that mature on November 13,
2007. We expect to repay our senior notes by the maturity date using a
combination of drawings under our existing or replacement credit facility,
expansion of our credit facility or replacement of the credit facility and the
issuance of debt or equity securities.

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 five-year, non-amortizing $125 million revolving credit facility, which
was amended and restated to a three-year non-amortizing $140 million revolving
credit facility subsequent to year-end. 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 anniversary date on March 20,
2006. We may terminate the amended and restated 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
amended and restated credit facility will continue on an annual basis from
anniversary date to anniversary date beginning on March 21, 2006. The amended
and restated credit facility bears interest at various rates based on our
performance, with a floor of LIBOR plus 1.50% or the Chase Manhattan prime
lending rate and a ceiling of LIBOR plus 2.50% or the Chase Manhattan prime
lending rate plus 0.75% and is secured by trade accounts receivable, merchandise
inventory and general intangible assets (including trademarks and trade names)
of ours. At December 29, 2002, loans under the amended and restated credit
facility bear interest at a rate of LIBOR (1.30% at December 29, 2002) plus
1.50% or the Chase Manhattan prime lending rate (4.25% at December 29, 2002). An
annual fee of 0.325%, payable monthly, is assessed on the unused portion of the
amended and restated credit facility. On December 29, 2002, we had $22.3 million
in LIBOR and prime lending rate borrowings and letters of credit of $4.3 million
outstanding. Our maximum eligible borrowing available under the amended and
restated 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 amended and restated credit facility amounted to $91.6
million at December 29, 2002 and $58.3 million at March 20, 2003.

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If we fail to make any required payment under our credit facility or the
indenture governing our 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 2002, we generated 26.5% of our net sales and 33.1% 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 August 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 143, Accounting for Asset Retirement Obligations(SFAS No. 143).
This new pronouncement establishes financial accounting and reporting standards
for obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. The provisions of SFAS No. 143
apply to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and/or the normal
operation of a long-lived asset, except for certain obligations of lessees.
SFAS No. 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2002. Management has not determined what impact, if
any, this standard will have on our financial statements.

In April 2002, the FASB issued Statement No. 145, Rescission of SFAS
Statements No. 4, 44, and 64, Amendment of SFAS Statement No. 13, and Technical
Corrections(SFAS No. 145). SFAS No. 145 requires that the extinguishment of
debt not be considered an extraordinary item under 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), unless the debt extinguishment meets
certain criteria set forth in 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 rescinds SFAS Nos. 4, 44
and 64, amends SFAS Statement No. 13 and makes certain technical corrections to
other standards. SFAS No. 145 is effective for fiscal years beginning after
May 15, 2002, although the voluntary early adoption is encouraged related
to the provisions effecting SFAS No. 4, Reporting Gains and Losses From
Extinguishment of Debt, which previously required gains and losses arising from
debt extinguishments to be classified as an extraordinary item in the statement
of operations. Upon adoption, enterprises must reclassify prior period items
that do not meet the extraordinary item classification criteria in APB No. 30.
The adoption of SFAS No. 145 is not expected to have a material impact on our
financial condition or results of operations, although it will result in a
reclassification of our extraordinary items.

In July 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities(SFAS No. 146), which addresses
financial accounting and reporting for costs associated with exit or disposal
activities. SFAS No. 146 will rescind EITF Issue No. 94-3, Liability
Recognition for Certain

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Employee Termination Benefits and Other Costs to Exit
an Activity (Including Certain Costs Incurred in a Restructuring)(Issue No.
94-3). The principal difference between SFAS No.146 and Issue No. 94-3
relates to the recognition of a liability for a cost associated with an exit or
disposal activity. SFAS No.146 requires that a liability be recognized for
these costs only when the liability is incurred. In contrast, under Issue No.
94-3, a liability for an exit cost is recognized when the company commits to an
exit plan. SFAS No. 146 also establishes fair value as the objective for
initial measurement of liabilities related to exit or disposal activities.
Thus, SFAS No. 146 affirms the FASBs view that fair value is the most relevant
and faithful representation of the economics of a transaction. SFAS No. 146 is
effective for exit or disposal activities initiated after December 31, 2002,
although voluntary early application of SFAS No. 146 is being encouraged.
Issue No. 94-3 continues to apply to exit activities initiated under an exit
plan that met the criteria of Issue No. 94-3 before the entity began applying
SFAS No. 146. The adoption of SFAS No. 146 is not expected to have a material
impact on our financial condition or results of operations.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others(FIN No. 45), which addresses the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees. FIN No. 45 requires the
recognition of a liability by a guarantor at the inception of certain
guarantees. FIN No. 45 also requires the guarantor to recognize a liability
for the non-contingent component of the guarantee, which is the obligation to
be 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. We have 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. However, because we are not
currently a guarantor, the adoption of FIN No. 45 is not expected to have a
material impact on our financial condition or results of operations.

In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based CompensationTransition and DisclosureAn Amendment of FASB
Statement No. 123(SFAS No. 148). SFAS No. 148 amends Statement No. 123,
Accounting for Stock-Based Compensation(SFAS No. 123), to provide alternative
methods of transition for enterprises that elect to adopt the SFAS No. 123 fair
value method of accounting for stock-based employee compensation. SFAS No. 148
permits two additional transition methods for entities that adopt the SFAS No.
123 fair value methods, both of which avoid the ramp-up effect arising from
prospective application of the fair value method under the existing transition
provisions of SFAS No. 123. The SFAS No. 123 prospective method of transition
for changes to the fair value method will no longer be permitted for fiscal
periods beginning after December 15, 2003. SFAS No. 148 also amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The new disclosure requirements of SFAS No. 148 are effective for
fiscal years ended after December 15, 2002, although earlier application is
being encouraged. We have adopted the disclosure provisions of SFAS No. 148, which did not have a material
effect on our financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities(FIN No. 46). This interpretation clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements (ARB No. 51), and requires companies to evaluate variable interest
entities for specific characteristics to determine whether additional
consolidation and disclosure requirements apply. This interpretation is
immediately applicable for variable interest entities created after January 31,
2003 and applies to fiscal periods beginning after June 15, 2003 for variable
interest entities acquired prior to February 1, 2003. We do not expect that
the adoption of this interpretation will have any impact on our financial
position or results of operations.

EITF Issue No. 02-16, "Accounting by a Reseller for Cash Consideration
Received from a Vendor," provides that cash consideration received from a
vendor is presumed to be 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 it is a payment for assets or
 services delivered to the vendor, in which case
 the cash consideration should be characterized
 as revenue, or unless 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 becomes effective for us in the first quarter of 2003.
 We are currently analyzing the effect that adoption
 of EITF No. 02-16 will have on our financial statements.

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,

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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 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

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 March 27, 2003, the
aggregate principal amount of our outstanding indebtedness was approximately
$132.1 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.

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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, the increasing cost of electricity 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, earthquakes or electricity blackouts could harm
our operations. 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 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 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;
| | - |  | ----------------------------------------------------

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| |  |  | 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.

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 5.5% of our total purchases during the
twelve months ended December 29, 2002, our dependence on principal suppliers
involves risk. Our 20 largest vendors collectively accounted for 35.2% of our
total purchases during the twelve months ended December 29, 2002. 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. In addition, because of limited
capacity at the current distribution center, we will need to build a
replacement distribution center in the next 18 to 24 months. Any disruption
to, or delay in, this process could harm our future operations.

Because two equity owners of a
substantial stockholder of our parent are members of the board
of directors of one of our competitors, there may be conflicts of interest.

Green Equity Investors, L.P., an affiliate of Leonard Green & Partners,
L.P., holds a significant equity interest in our parent and also holds an equity
interest in Gart Sports Company, one of our competitors. John G. Danhakl, an
executive officer and equity owner of Leonard Green & Partners, L.P., currently
serves on our parent's board of directors. Jonathan Sokoloff and Jonathan Seiffer,
equity owners of Leonard Green & Partners, L.P. and former
members of our parent's board
of directors, currently serve on Gart Sports Company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.

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

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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.

We experience seasonal fluctuations in our net sales and operating
results. In fiscal 2002, we generated 26.5% of our net sales and 33.1% 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.

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, 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 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 and Gart Sports Company, recently
announced that they have entered into a merger agreement and that the merger is
expected to close in the third calendar quarter of 2003. 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

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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.

The terrorist attacks of September 11, 2001 have had a negative impact on
various regions of the United States and on a wide range of industries. The
terrorist attacks, the United States war on terrorism and war in Iraq and/or
North Korea, may have an unpredictable effect on general economic conditions
and may harm our future results of operations. In the future, fears of
recession, war and additional acts of terrorism may continue to impact the U.S.
economy and could negatively impact our business.




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 2003 as compared to
the rate at December 29, 2002, our interest expense for 2003 would increase
$0.23 million based on the outstanding balance of our revolving credit facility
at December 29, 2002. 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
Financial Statements beginning on page F-1.




ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

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PART III




ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Executive Officers and Directors

Our executive officers and directors and their ages and positions are as
follows:

|                   |  |     |    |           |  |                                                                               
|------------------ |  | --- | -- | --------- |  | ------------------------------------------------------------------------------
|Name               |  | Age |    | Positions
|                   |  |     |    |          
|Steven G. Miller   |  |     | 51 |           |  | Chairman of the Board, President & Chief Executive Officer                    
|Charles P. Kirk    |  |     | 47 |           |  | Director, Senior Vice President, Chief Financial Officer & Assistant Secretary
|Gary S. Meade      |  |     | 56 |           |  | Director, Senior Vice President, General Counsel & Secretary                  
|Richard A. Johnson |  |     | 57 |           |  | Senior Vice President, Store Operations                                       
|Thomas J. Schlauch |  |     | 58 |           |  | Senior Vice President, Buying                                                 
|Jeffrey L. Fraley  |  |     | 46 |           |  | Senior Vice President, Human Resources                                        

Steven G. Millerhas served as Chairman of our board, Chief Executive
Officer and President since June 2002, 2000 and 1992, respectively, and has
served as a director since 1992. In addition, Steven G. Miller served as our
Chief Operating Officer from 1992 to 2000. Steven G. Miller also serves as
Chairman, Chief Executive Officer and President of our parent. Steven G.
Miller is Robert W. Millers son.

Charles P. Kirkhas served as a director since June 2002. Mr. Kirk has
served as our Senior Vice President and Chief Financial Officer since 1992.
Mr. Kirk was appointed Assistant Secretary in 2002. Mr. Kirk also serves as
Senior Vice President and Chief Financial Officer of our parent. Prior to
joining us, Mr. Kirk served as Thrifty Corporations Director of Planning and
Vice President of Planning and Treasury from October 1990 to 1992.

Gary S. Meadehas served as a director since June 2002. Mr. Meade has
served as our Senior Vice President since July 2001 and our General Counsel and
Secretary since 1997. Mr. Meade also serves as Senior Vice President, General
Counsel and Secretary of our parent. Mr. Meade also served as our Vice
President from 1997 to 2001. Prior to joining us, Mr. Meade was Thrifty
Corporations Vice President, General Counsel and Secretary from 1992 to 1997
and Thrifty Corporations Vice President  Legal Affairs from 1979 to 1992.

Richard A. Johnsonhas served as our Senior Vice President, Store
Operations since 1992. Mr. Johnson also serves as Senior Vice President, Store
Operations of our parent. Prior to that, Mr. Johnson was our Vice President,
Store Operations from 1982 to 1992.

Thomas
J. Schlauchhas served as our Senior Vice President, Buying since 1992.
Mr. Schlauch also serves as Senior Vice President, Buying of our parent.
Prior to that, Mr. Schlauch served as Head of Buying from 1990 to 1992 and as
Vice President, Buying from 1982 to 1990.

Jeffrey
L. Fraleyhas served as our Senior Vice President, Human Resources
since July 2001. Mr. Fraley served as our Vice President, Human Resources from
1992 to July 2001.

In addition, Robert W. Miller, who is 79 years old, has served as Chairman
Emeritus of our parents board of directors since June 2002. Robert W. Miller
served as Chairman of our board of directors from 1992 to June 2002. Robert W.
Miller also served as a senior executive officer for many years, including as
President from 1973 to 1992 and Chief Executive Officer from 1973 to 2000.
Robert W. Miller co-founded our business in 1955. Mr. Robert W. Miller is Mr.
Steven G. Millers father.

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ITEM 11: EXECUTIVE COMPENSATION

Summary Compensation Table

The
following table shows compensation for our Chief Executive Officer,
each of our four other most highly compensated executive officers and Robert W.
Miller, chairman emeritus of our parents board of directors, for the past
three fiscal years.

|                                   |  |      |      |     |  |        |         |     |  |           |  |  |  |   |         | 
|---------------------------------- |  | ---- | ---- | --- |  | ------ | ------- | --- |  | --------- |  |  |  | - | ------- | 
|Annual Compensation               
|                                  
|Name and                           |  |      |      |     |  |        |         |     |  |           |  |  |  |  
|Principal                          |  |      |      |     |  | Salary |         |     |  | Bonus (1)
|Position                           |  | Year |      | ($) |  |        |         | ($)
|                                   |  |      |      |     |  |        |         |    
|Steven G. Miller,                  |  |      | 2002 |     |  | $      | 375,000 |     |  |           |  |  |  | $ | 585,000 | 
|Chairman of the Board, President & |  |      | 2001 |     |  |        | 325,000 |     |  |           |  |  |  |   | 485,000 | 
|Chief Executive Officer            |  |      | 2000 |     |  |        | 300,000 |     |  |           |  |  |  |   | 425,000 | 
|Thomas J. Schlauch,                |  |      | 2002 |     |  | $      | 211,000 |     |  |           |  |  |  | $ | 190,000 | 
|Senior Vice President,             |  |      | 2001 |     |  |        | 196,000 |     |  |           |  |  |  |   | 160,000 | 
|Buying                             |  |      | 2000 |     |  |        | 186,000 |     |  |           |  |  |  |   | 140,000 | 
|Richard A. Johnson,                |  |      | 2002 |     |  | $      | 185,000 |     |  |           |  |  |  | $ | 170,000 | 
|Senior Vice President,             |  |      | 2001 |     |  |        | 168,000 |     |  |           |  |  |  |   | 140,000 | 
|Store Operations                   |  |      | 2000 |     |  |        | 158,000 |     |  |           |  |  |  |   | 120,000 | 
|Charles P. Kirk,                   |  |      | 2002 |     |  | $      | 195,000 |     |  |           |  |  |  | $ | 160,000 | 
|Director, Senior Vice President    |  |      | 2001 |     |  |        | 178,000 |     |  |           |  |  |  |   | 125,000 | 
|& Chief Financial Officer          |  |      | 2000 |     |  |        | 168,000 |     |  |           |  |  |  |   | 105,000 | 
|Gary S. Meade,                     |  |      | 2002 |     |  | $      | 145,000 |     |  |           |  |  |  | $ | 75,000  | 
|Director, Senior Vice President,   |  |      | 2001 |     |  |        | 137,000 |     |  |           |  |  |  |   | 45,000  | 
|General Counsel & Secretary        |  |      | 2000 |     |  |        | 130,000 |     |  |           |  |  |  |   | 30,000  | 
|Robert W. Miller,                  |  |      | 2002 |     |  | $      | 350,000 |     |  |           |  |  |  | $ | 0       | 
|Chairman Emeritus of our Parents  |  |      | 2001 |     |  |        | 340,000 |     |  |           |  |  |  |   | 600,000 | 
|Board of Directors                 |  |      | 2000 |     |  |        | 330,000 |     |  |           |  |  |  |   | 540,000 | 



|(1) Amounts exclude one-time bonuses of $368,550, $73,710, $88,452, $88,452,
$20,271 and $1,051,054 paid in 2002 to Steven G. Miller, Thomas J.
Schlauch, Richard A. Johnson, Charles P. Kirk, Gary S. Meade and Robert W.
Miller, respectively, by our parent in connection with its initial public
offering.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employment Agreements

We have employment agreements with Steven G. Miller and Robert W. Miller.

Steven G. Miller. Mr. Steven G. Millers employment agreement provides for
Mr. Steven G. Miller to serve as Chairman of our board of directors, Chief
Executive Officer and President (and similar positions for our parent) for a
term of four years from any given date, such that there shall always be a
minimum of at least four years remaining under his employment agreement. The
employment agreement provides for Mr. Steven G. Miller to receive an annual
base salary of $375,000, subject to annual increase based on comparable
compensation packages provided to executives in similarly situated companies,
and to participate in a bonus plan based on standards to be established by the
compensation committee. Mr. Steven G. Miller is also entitled to specified
perquisites. In addition, as long as Mr. Steven G. Miller serves as an officer,
our parent will use its best efforts to ensure that he continues to serve on
our board of directors and on the board of directors of our parent.
Our obligations and the obligations of our parent under the
employment agreement are joint and several.

If Mr. Steven G. Millers employment is terminated due to his death, the
employment agreement provides for accelerated vesting of options that would
have been exercisable during half of the remaining scheduled term of the
employment agreement and the continuation of family medical benefits for the
remaining scheduled

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term of the employment agreement. If Mr. Steven G. Millers employment is terminated
due to his disability, the employment agreement provides that we will pay Mr.
Steven G. Miller his remaining base salary for half of the remaining scheduled
term of the employment agreement and an additional payment equal to two times
the greater of (i) his last annual cash bonus or (ii) the average annual cash
bonus paid during the last three fiscal years. In addition, the employment
agreement provides for accelerated vesting of options that would have been
exercisable during half of the remaining scheduled term of the employment
agreement and the continuation of specified benefits for such term.

If Mr. Steven G. Miller terminates the employment agreement for good
reason or for any reason within six months of a change in control, or if we
terminate the employment agreement without cause, the employment agreement
provides we will pay Mr. Steven G. Miller his remaining base salary during the
remaining scheduled term of the employment agreement and a additional payment
equal to three times the greater of (i) his last annual cash bonus or (ii) the
average annual cash bonus paid during the last three fiscal years. In addition,
the employment agreement provides for accelerated vesting of all of his options
and the continuation of specified benefits during the remaining scheduled term
of the employment agreement.

If Mr. Steven G. Miller terminates the employment agreement without good
reason or we terminate the employment agreement for cause, Mr. Steven G. Miller
is entitled to receive all accrued and unpaid salary and other compensation and
all accrued and unused vacation and sick pay.

Robert W. Miller. Mr. Robert W. Millers employment agreement provides for
Mr. Robert W. Miller to serve as Chairman Emeritus of our parents board of
directors for a term of three years from any given date, such that there shall
always be a minimum of at least three years remaining under his employment
agreement. In addition, as long as Mr. Robert G. Miller serves as Chairman
Emeritus, our parent will use its best efforts to ensure that he continues to
serve on our parents board of directors. The employment agreement provides for
Mr. Miller to receive an annual base salary of $350,000. Mr. Robert W. Miller
is also entitled to specified perquisites. Our obligations and the obligations of our parent under the
employment agreement are joint and several.

If Mr. Robert W. Millers employment is terminated by either Mr. Robert W.
Miller or us for any reason, the employment agreement provides that we will pay
Mr. 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 Mr. Robert W. Miller is survived by his wife, we will pay his wife his
annual base salary and provide her specified benefits for the remainder of her
life.

Director Compensation

Directors on our board do not receive any compensation.




ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

All of our outstanding capital stock is owned by our parent. Our parents
outstanding equity securities consist of common stock. A table reflecting
ownership of our parents common stock can be found in the Annual Report on
Form 10-K filed by our parent for the fiscal year ended December 29, 2002.

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ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Relationship with Pacific Enterprises, Thrifty Corporation and Rite Aid Corp.

Prior to September 1992, our predecessor was a wholly owned subsidiary of
Thrifty Corporation, which in turn was a wholly owned subsidiary of Pacific
Enterprises. In December 1996, Thrifty Corporation was acquired by Rite Aid
Corp.

As a result of our prior relationship with Thrifty Corporation and its
affiliates, we continue to maintain certain relationships with Rite Aid Corp.
and Sempra Energy, the successor to Pacific Enterprises. These relationships
include continuing indemnification obligations of Sempra Energy to us for
certain environmental matters and obligations under ERISA arising out of
Pacific Enterprises prior ownership of all of the capital stock of Thrifty
Corporation and our predecessor, including (1) indemnification for certain
environmental liability costs incurred by us resulting from a contravention of
applicable law relating to the prior and then existing use and ownership of the
properties and assets (including all real estate) previously owned by Pacific
Enterprises and (2) indemnification for certain liability costs incurred by us
resulting from a contravention by Pacific Enterprises of any applicable law
relating to benefit plans sponsored by Thrifty PayLess, Inc. or Thrifty
Corporation. The indemnification obligations of Sempra Energy relating to
environmental liabilities, which, pursuant to their terms are limited in scope
and aggregate maximum dollar amounts, will continue until September 25, 2012,
while the indemnification obligations relating to Sempra Energys obligations
under ERISA will continue until the expiration of all applicable statutes of
limitations. Green Equity Investors III, L.P., an affiliate of Leonard Green &
Partners, L.P. holds convertible preferred stock in Rite Aid Corp. that, if
converted, would represent approximately 11% of its outstanding stock.

Conflicts of Interest

Green Equity Investors, L.P., an affiliate of Leonard Green & Partners,
L.P., holds a significant equity interest in our parent and also holds an
equity interest in Gart Sports Company, one of our competitors. John G.
Danhakl, an executive officer and equity owner of Leonard Green & Partners,
L.P., currently serves on our parents board of directors. Jonathan Sokoloff
and Jonathan Seiffer, both partners of Leonard Green & Partners, L.P. and
former members of our parents board of directors, currently serve on Gart
Sports Companys board of directors. Mr. Danhakl may from time to time have
conflicts of interest with respect to certain matters affecting us. All of
these 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 intends 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.

Management Services Agreement

We and our parent entered into a management services agreement with
Leonard Green & Associates, L.P., an affiliate of Leonard Green & Partners,
L.P., on November 13, 1997. Pursuant to the management services agreement, we
agreed to pay an annual fee of $333,333 to Leonard Green & Associates, L.P. for
management, consulting and financial planning services. These services
included regular consulting services regarding the status of the financial
markets as they related to specialty retailers and advice on financing
alternatives, note repurchases and potential refinancings. We also agreed to
pay reasonable and customary fees to Leonard Green & Associates, L.P. for
services rendered in connection with any major financial transactions. In
addition to the fees we paid for these services, we also paid reasonable
out-of-pocket expenses incurred in connection with rendering such services.
Although the agreement did not provide either party the right to terminate
prior to the stated expiration date of May 31, 2005, whether as the result of a
change of control or otherwise, Leonard Green & Associates, L.P. and our parent
and we agreed to terminate the management services agreement, effective upon
the consummation of our parents initial public offering in June 2002. In
connection with this termination, we paid Leonard Green & Associates, L.P. a termination fee of $875,000,
which represents a discounted value of the payments that we would otherwise
have been required to make through the stated expiration date of the management
services agreement.

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Amended and Restated Stockholders Agreement

Our parent has an amended and restated stockholders agreement with Green
Equity Investors, L.P., Robert W. Miller and Steven G. Miller. Under the
amended and restated stockholders agreement, Green Equity Investors, L.P. may
designate one member, currently Mr. Danhakl, for nomination to our parents
board of directors so long as it beneficially owns at least 5% of our parents
outstanding shares of common stock. Robert W. Miller and Steven G. Miller have
agreed to vote all of their common stock in favor of electing Green Equity
Investors, L.P.s nominee. If Robert W. Miller or Steven G. Miller is
nominated for election to our parents board of directors, Green Equity
Investors, L.P. has agreed to vote all of its shares in favor of electing both
of them. The amended and restated stockholders agreement also modifies Green
Equity Investors, L.P. previously-granted registration rights. The amended and
restated stockholders agreement terminates when Green Equity Investors, L.P.
beneficially owns less than 5% of our parents outstanding common stock.

Redemption of Series A Preferred Stock

On July 2, 2002, our parent used a portion of the net proceeds from its
initial public offering to redeem all of its outstanding shares of 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.

Purchases of Common Stock in our Parents Initial Public Offering

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 our parents common stock at the initial public offering price of
$13.00 per share.




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. In March 2003, 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. 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 our March 2003 evaluation. We cannot
assure you, however, that our system of disclosure controls and procedures will
always achieve its stated goals under all future conditions.

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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 Financial Statements on page F-1 hereof.      
|
| | (2) |  | Financial Statement Schedule.                              
|
| |     |  | See Index to 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 Corp. (8)                                                                                                                                                                                                                              
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 3.2   |  |  | Amended and Restated Bylaws. (8)                                                                                                                                                                                                                                                                  
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 4.1   |  |  | Indenture dated as of November 13,
1997 between Big 5 Corp. and First Trust National
Association, as trustee. (1)                                                                                                                                                                                 
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 4.2   |  |  | Form of Big 5 Corp. 10.875% Series
B Senior Notes due 2007 (included in Exhibit 4.2). (1)                                                                                                                                                                                                         
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.1  |  |  | 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)                                                                                                                                   
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.2  |  |  | Form of Amended and Restated
Employment Agreement between Robert W. Miller and Big 5
Sporting Goods Corporation. (4)                                                                                                                                                                              
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.3  |  |  | Form of Amended and Restated
Employment Agreement between Steven G. Miller and Big 5
Sporting Goods Corporation (4)                                                                                                                                                                               
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.4  |  |  | 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)                                                                                                    
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.5  |  |  | 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)                                                                                         
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.6  |  |  | Financing Agreement dated March
8, 1996 between The CIT Group/ Business Credit, Inc.
and Big 5 Corp. (7)                                                                                                                                                                                          
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.7  |  |  | 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)                                                                                                                  
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.8  |  |  | 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)                                 
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.9  |  |  | 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)                                
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.10 |  |  | 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)
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.11 |  |  | Sixth Amendment to Financing
Agreement, dated February 27, 2002, by and among Big 5
Corp. and The CIT Group/ Business Credit, Inc.,
amending the                                                                                                                                                  

29



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##### Table of Contents



|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|--- |  | -------- | ----- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Exhibits |       | 
|    |  |          |       | 
|    |  |          |       |  |  | Financing Agreement, dated March 8, 1996, between Big 5
Corp. (successor to United Merchandising Corp.) and The
CIT Group/ Business Credit, Inc. (3)                                                                                                                                              
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.12 |  |  | 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)
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.13 |  |  | Form of Indemnification
Agreement. (4)                                                                                                                                                                                                                                                            
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.14 |  |  | Form of Termination Agreement by
and among Big 5 Sporting Goods Corporation, Big 5 Corp.
and Leonard Green & Associates, L.P. (4)                                                                                                                                                                 
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.15 |  |  | 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)                                    
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.16 |  |  | 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)                                   
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.17 |  |  | 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)                                        
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 10.18 |  |  | Amended and Restated Financing
Agreement dated March 20, 2003 between The CIT Group/Business
Credit, Inc., the Lenders and Big 5 Corp. (7)                                                                                                                                                        
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 99.1  |  |  | Certification of Chief Executive
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (8)                                                                                                                                            
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | 99.2  |  |  | Certification of Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (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 (File No. 000-49850) filed by
Big 5 Sporting Goods Corporation on March 31, 2003.                                                                                                                                                     
|    |  |          |       |  |  |                                                                                                                                                                                                                                                                                                   
|    |  |          | (8)   |  |  | Filed herewith.                                                                                                                                                                                                                                                                                   



| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------



| |      
| | -----
| | None.

30



---



##### Table of Contents






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 CORP.
a Delaware Corporation
|                      |  |                                    |  |                                                                                        
|Date : March 31, 2003 |  | By:                                |  | /S/Steven G. Miller                                                                    
|                      |  |                                    |  |                                                                                        
|                      |  |                                    |  | Steven G. MillerChairman of the Board of Directors,
President & Chief Executive Officer

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. MillerSteven G. Miller |  | Chairman of the Board of Directors,
   President & Chief Executive Officer
   (Principal Executive Officer)    |  | March 31, 2003
|                                   
|/S/Charles P. KirkCharles P. Kirk   |  | Director, Senior Vice President
   and Chief Financial Officer (Principal
   Financial and Accounting Officer) |  | March 31, 2003
|                                   
|/S/Gary S. MeadeGary S. Meade       |  | Director, Senior Vice President,
   General Counsel & Secretary                                                |  | March 31, 2003

31



---



##### Table of Contents






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
Corp.;                                                                                                                                                                                                                                                       
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not
contain any untrue statement of 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 annual
report;
|
| | 3. |  | Based on my knowledge, the financial statements, and
other financial information included in this annual 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 annual 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-14 and
15d-14) for the registrant and have:                                                                                                
|

| | a) |  | Designed such disclosure controls and procedures 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 annual report is being
prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | c) |  | Presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        
|

| | 5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, 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 in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls; and                                                                                                                                        
|

| | 6.                   |  | The registrants other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
| | -------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | Date: March 31, 2003

| |                                                                             
| | ----------------------------------------------------------------------------
| | /s/ Steven G. Miller

Steven G. Miller
President and Chief Executive Officer

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
Corp.;                                                                                                                                                                                                                                                       
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not
contain any untrue statement of 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 annual
report;

32



---



##### Table of Contents





| | 3. |  | Based on my knowledge, the financial statements, and
other financial information included in this annual 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 annual 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-14 and
15d-14) for the registrant and have:                                                                               
|

| | a) |  | Designed such disclosure controls and procedures 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 annual report is being
prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| | b) |  | Evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| | c) |  | Presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| | 5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, 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 in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls; and                                                                                                                                        
|

| | 6.                   |  | The registrants other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
| | -------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | Date: March 31, 2003

| |                                                                                       
| | --------------------------------------------------------------------------------------
| | /s/ Charles P. Kirk

Charles P. Kirk
Senior Vice President and Chief Financial Officer

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
TO SECTION 12 OF THE ACT.

We have not provided, and do not intend to provide, any annual report covering
our last fiscal year or any proxy statement, form of proxy or other proxy
soliciting materials to security holders.

33



---



##### Table of Contents



BIG 5 CORP.

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                                                         |  |  |     | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | 
|Index to Financial Statements                                                                                                                            |  |  | F-1 | 
|Managements Responsibility for Financial Statements                                                                                                     |  |  | F-2 | 
|Independent Auditors Report                                                                                                                             |  |  | F-3 | 
|Balance Sheets at December 30, 2001 (restated) and December 29, 2002                                                                                     |  |  | F-4 | 
|Statements of Operations for the fiscal years ended December 31, 2000, December 30, 2001 and December 29, 2002                                           |  |  | F-5 | 
|Statements of Stockholders Equity (Deficit) for the fiscal years ended December 31,
2000 (restated), December 30, 2001 (restated) and December 29, 2002 |  |  | F-6 | 
|Statements of Cash Flows for the fiscal years ended December
31, 2000, December 30,
2001 and December 29,
2002                                           |  |  | F-7 | 
|Notes to Financial Statements                                                                                                                            |  |  | F-8 | 

|                              |                                                                                                    |  |  |  |  |  |          |  | 
|----------------------------- | -------------------------------------------------------------------------------------------------- |  |  |  |  |  | -------- |  | 
|                              |                                                                                                    |  |  |  |  |  | Schedule
|                              |                                                                                                    |  |  |  |  |  |         
|Financial Statement Schedule: |                                                                                                    |  |  |  |  |  |          | 
|                              | Valuation and Qualifying Accounts as of December 31, 2000,
December 30, 2001 and December 29, 2002 |  |  |  |  |  | II-1    

F-1



---



##### Table of Contents



MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS

We are responsible for the preparation of our financial statements and
related information appearing in this Annual Report. We believe that the
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 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.

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

El Segundo, California
March 31, 2003

F-2



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholder
Big 5 Corp.:

We have audited the financial statements of Big 5 Corp. as listed in the
accompanying index. In connection with our audits of the financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These financial statements and the financial statement
schedule are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements and the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Big 5 Corp. as of December 30,
2001 and December 29, 2002 and the results of their operations and their cash
flows for each of the fiscal years ended December 31, 2000, December 30, 2001
and December 29, 2002 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
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

As discussed in note 14 to the financial statements, effective
December 31, 2001, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets.

As discussed in note 15 to the financial statements, the Company
has restated its balance sheet as of December 30, 2001 and its statements of
stockholders equity (deficit) for each of the years ended
December 31, 2000 and December 30, 2001.

KPMG LLP

Los Angeles, California
February 11, 2003

F-3



---



##### Table of Contents



BIG 5 CORP.
Balance Sheets
(dollars in thousands)

|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                  |         |  |  | 
|---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- | ---------------- | ------- | ---------------- | ------- |  |  | 
|                                                                                         |                                                                                                                                       |                                            |         |         |         | December 30 2001 |         | December 29 2002
|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|                                                                                         |                                                                                                                                       |                                            |         |         |         | As restated      |         |                  |         | 
|                                                                                         |                                                                                                                                       |                                            |         |         |         | (note 15)        |         |                  |         | 
|Assets                                                                                   |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|Current assets:                                                                          |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|                                                                                         | Cash                                                                                                                                  |                                            | $       | 7,865   |         |                  |         | 8,560            |        
|                                                                                         | Trade and other receivables, net of allowance
for doubtful accounts of $671 and $729,
respectively                                    |                                            |         | 8,229   |         |                  |         | 9,057            |        
|                                                                                         | Merchandise inventories                                                                                                               |                                            |         | 163,680 |         |                  |         | 169,529          |        
|                                                                                         | Prepaid expenses                                                                                                                      |                                            |         | 1,469   |         |                  |         | 2,385            |        
|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|                                                                                         |                                                                                                                                       | Total current assets                       |         |         | 181,243 |                  |         |                  | 189,531 | 
|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|Property and equipment:                                                                  |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|                                                                                         | Land                                                                                                                                  |                                            |         | 186     |         |                  |         | 186              |        
|                                                                                         | Buildings and improvements                                                                                                            |                                            |         | 31,903  |         |                  |         | 36,861           |        
|                                                                                         | Furniture and equipment                                                                                                               |                                            |         | 51,007  |         |                  |         | 55,930           |        
|                                                                                         | Less accumulated depreciation and amortization                                                                                        |                                            |         | (40,446 | )       |                  |         | (47,873          | )      
|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|                                                                                         |                                                                                                                                       | Net property and equipment                 |         |         | 42,650  |                  |         |                  | 45,104  | 
|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|Deferred income taxes, net                                                               |                                                                                                                                       |                                            | 8,795   |         |         |                  | 10,349  |                 
|Leasehold interest, net of accumulated
amortization of $21,134 and $23,053, respectively |                                                                                                                                       |                                            | 7,600   |         |         |                  | 5,811   |                 
|Other assets, at cost, less accumulated
amortization of $4,323 and $4,974, respectively  |                                                                                                                                       |                                            | 13,219  |         |         |                  | 2,557   |                 
|Due from parent                                                                          |                                                                                                                                       |                                            |        |         |         |                  | 13,408  |                 
|Goodwill                                                                                 |                                                                                                                                       |                                            | 4,433   |         |         |                  | 4,433   |                 
|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|                                                                                         |                                                                                                                                       | Total assets                               |         | $       | 257,940 |                  |         |                  | 271,193 | 
|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|Liabilities and Stockholders Equity                                                     |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|Current liabilities:                                                                     |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|                                                                                         | Accounts payable                                                                                                                      |                                            | $       | 62,308  |         |                  |         | 67,938           |        
|                                                                                         | Accrued expenses                                                                                                                      |                                            |         | 51,900  |         |                  |         | 58,688           |        
|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|                                                                                         |                                                                                                                                       | Total current liabilities                  |         |         | 114,208 |                  |         |                  | 126,626 | 
|Deferred rent                                                                            |                                                                                                                                       |                                            | 11,095  |         |         |                  | 11,525  |                 
|Long-term debt                                                                           |                                                                                                                                       |                                            | 128,806 |         |         |                  | 125,131 |                 
|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|                                                                                         |                                                                                                                                       | Total liabilities                          |         |         | 254,109 |                  |         |                  | 263,282 | 
|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|Commitments and contingencies
Stockholders equity:                                      |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|                                                                                         | Common stock, $.01 par value. Authorized 3,000 shares;
issued and outstanding 1,000 shares at December 30, 2001
and December 29, 2002 |                                            |         |        |         |                  |         |                 |        
|                                                                                         | Additional paid-in capital                                                                                                            |                                            |         | 40,639  |         |                  |         | 40,639           |        
|                                                                                         | Accumulated deficit                                                                                                                   |                                            |         | (36,808 | )       |                  |         | (32,728          | )      
|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|                                                                                         |                                                                                                                                       | Net stockholders equity                   |         |         | 3,831   |                  |         |                  | 7,911   | 
|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                 
|                                                                                         |                                                                                                                                       | Total liabilities and stockholders equity |         | $       | 257,940 |                  |         |                  | 271,193 | 
|                                                                                         |                                                                                                                                       |                                            |         |         |         |                  |         |                 

See accompanying notes to financial statements.

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##### Table of Contents



BIG 5 CORP.

Statements of Operations

(dollars in thousands)

|                                                                                |                                 |                                                          |         |              |         |              |         |              |         |  |         |         |         | 
|------------------------------------------------------------------------------- | ------------------------------- | -------------------------------------------------------- | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------- |  | ------- | ------- | ------- | 
|                                                                                |                                 |                                                          |         | Year ended   |         | Year ended   |         | Year ended  
|                                                                                |                                 |                                                          |         | December 31, |         | December 30, |         | December 29,
|                                                                                |                                 |                                                          |         | 2000         |         | 2001         |         | 2002        
|                                                                                |                                 |                                                          |         |              |         |              |         |             
|Net sales                                                                       |                                 | $                                                        | 571,476 |              |         |              | 622,481 |              |         |  | 667,469 |        
|Cost of goods sold, buying and occupancy                                        |                                 |                                                          | 377,040 |              |         |              | 407,679 |              |         |  | 429,858 |        
|                                                                                |                                 |                                                          |         |              |         |              |         |              |         |  |         |        
|                                                                                |                                 | Gross profit                                             |         |              | 194,436 |              |         |              | 214,802 |  |         |         | 237,611 | 
|                                                                                |                                 |                                                          |         |              |         |              |         |              |         |  |         |        
|Operating expenses:                                                             |                                 |                                                          |         |              |         |              |         |              |         |  |         |        
|                                                                                | Selling and administrative      |                                                          |         | 144,323      |         |              |         | 159,667      |         |  |         | 171,801 |        
|                                                                                | Litigation settlement (note 11) |                                                          |         |             |         |              |         | 2,515        |         |  |         |        |        
|                                                                                | Depreciation and amortization   |                                                          |         | 9,340        |         |              |         | 10,031       |         |  |         | 9,966   |        
|                                                                                |                                 |                                                          |         |              |         |              |         |              |         |  |         |        
|                                                                                |                                 | Total operating expenses                                 |         |              | 153,663 |              |         |              | 172,213 |  |         |         | 181,767 | 
|                                                                                |                                 |                                                          |         |              |         |              |         |              |         |  |         |        
|                                                                                |                                 | Operating income                                         |         |              | 40,773  |              |         |              | 42,589  |  |         |         | 55,844  | 
|Interest expense                                                                |                                 |                                                          | 17,035  |              |         |              | 15,541  |              |         |  | 13,720  |        
|                                                                                |                                 |                                                          |         |              |         |              |         |              |         |  |         |        
|                                                                                |                                 | Income before income taxes and
extraordinary gain (loss) |         |              | 23,738  |              |         |              | 27,048  |  |         |         | 42,124  | 
|Income taxes                                                                    |                                 |                                                          | 9,438   |              |         |              | 10,922  |              |         |  | 16,512  |        
|                                                                                |                                 |                                                          |         |              |         |              |         |              |         |  |         |        
|                                                                                |                                 | Income before extraordinary gain (loss)                  |         |              | 14,300  |              |         |              | 16,126  |  |         |         | 25,612  | 
|Extraordinary gain from early extinguishment of
debt, net of income tax expense |                                 |                                                          | 87      |              |         |              |        |              |         |  | 5       |        
|                                                                                |                                 |                                                          |         |              |         |              |         |              |         |  |         |        
|                                                                                |                                 | Net income                                               |         | $            | 14,387  |              |         |              | 16,126  |  |         |         | 25,617  | 
|                                                                                |                                 |                                                          |         |              |         |              |         |              |         |  |         |        

See accompanying notes to financial statements.

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##### Table of Contents



BIG 5 CORP.
Statements of Stockholders Equity (Deficit)
Years ended and December 31, 2000, December 30, 2001 and December 29, 2002
(dollars in thousands)

|                                                        |  |            |        |             |  |                  |         |     |  |  |         |  
|------------------------------------------------------- |  | ---------- | ------ | ----------- |  | ---------------- | ------- | --- |  |  | ------- | -
|                                                        |  | Additional |        |             |  |                  |         | Net
|                                                        |  | paid-in    |        | Accumulated |  | Stockholders   
|                                                        |  | capital    |        | Deficit     |  | Equity (Deficit)
|                                                        |  |            |        |             |  |                 
|Balance at January 2, 2000, as restated (note 15)       |  | $          | 40,639 |             |  |                  | (60,633 | )   |  |  | (19,994 | )
|Net income for the year ended December 31, 2000         |  |            |       |             |  |                  | 14,387  |     |  |  | 14,387  |  
|                                                        |  |            |        |             |  |                  |         |     |  |  |         |  
|Balance at December 31, 2000, as restated (note 15)     |  | $          | 40,639 |             |  |                  | (46,246 | )   |  |  | (5,607  | )
|Net income for the year ended December 30, 2001         |  |            |       |             |  |                  | 16,126  |     |  |  | 16,126  |  
|Dividends  forgiveness of Parent Senior Discount
Notes |  |            |       |             |  |                  | (6,688  | )   |  |  | (6,688  | )
|                                                        |  |            |        |             |  |                  |         |     |  |  |         |  
|Balance at December 30, 2001, as restated (note 15)     |  | $          | 40,639 |             |  |                  | (36,808 | )   |  |  | 3,831   |  
|Net income for the year ended December 29, 2002         |  |            |       |             |  |                  | 25,617  |     |  |  | 25,617  |  
|Dividend                                                |  |            |       |             |  |                  | (19,000 | )   |  |  | (19,000 | )
|Dividends  forgiveness of Parent Senior Discount
Notes |  |            |       |             |  |                  | (2,535  | )   |  |  | (2,535  | )
|                                                        |  |            |        |             |  |                  |         |     |  |  |         |  
|Balance at December 29, 2002                            |  | $          | 40,639 |             |  |                  | (32,728 | )   |  |  | 7,911   |  
|                                                        |  |            |        |             |  |                  |         |     |  |  |         |  

See accompanying notes to financial statements.

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##### Table of Contents



BIG 5 CORP.
Statements of Cash Flows
(dollars in thousands)

|                                                   |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |         |        |        |         |  
|-------------------------------------------------- | --------------------------------------------------------------------------------- | -------------- | ----------------- | ------------------------------------------------------ | - | ------------ | ------- | ---------- | - | ------------ | ------- | ------- | ------ | ------ | ------- | -
|                                                   |                                                                                   |                |                   |                                                        |   | Year ended   |         | Year ended |   | Year ended  
|                                                   |                                                                                   |                |                   |                                                        |   | December 31, |         | December   |   | December 29,
|                                                   |                                                                                   |                |                   |                                                        |   | 2000         |         | 30, 2001   |   | 2002        
|                                                   |                                                                                   |                |                   |                                                        |   |              |         |            |   |             
|Cash flows from operating activities:              |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |        
|                                                   | Net income                                                                        |                | $                 | 14,387                                                 |   |              |         | 16,126     |   |              |         | 25,617  |       
|                                                   | Adjustments to reconcile net income to net cash provided
by operating activities: |                |                   |                                                        |   |              |         |            |   |              |         |         |       
|                                                   |                                                                                   |                |                   | Depreciation and amortization                          |   |              | 9,340   |            |   |              | 10,031  |         |        |        | 9,966   |  
|                                                   |                                                                                   |                |                   | Amortization of deferred finance charges and
discounts |   |              | (39     | )          |   |              | (157    | )       |        |        | 699     |  
|                                                   |                                                                                   |                |                   | Deferred tax provision (benefit)                       |   |              | (637    | )          |   |              | 1,021   |         |        |        | (1,554  | )
|                                                   |                                                                                   |                |                   | Loss on disposal of equipment and leasehold interest   |   |              | 278     |            |   |              | 43      |         |        |        | 6       |  
|                                                   |                                                                                   |                |                   | Extraordinary gain from early extinguishments
of debt  |   |              | (148    | )          |   |              |        |         |        |        | (8      | )
|                                                   |                                                                                   |                |                   | Changes in assets and liabilities:                     |   |              |         |            |   |              |         |         |        |        |         |  
|                                                   |                                                                                   |                |                   | Merchandise inventories                                |   |              | (13,698 | )          |   |              | 5,301   |         |        |        | (5,849  | )
|                                                   |                                                                                   |                |                   | Trade and other accounts receivable, net               |   |              | (498    | )          |   |              | (800    | )       |        |        | (828    | )
|                                                   |                                                                                   |                |                   | Prepaid expenses and other assets                      |   |              | (2,994  | )          |   |              | (1,336  | )       |        |        | (566    | )
|                                                   |                                                                                   |                |                   | Accounts payable                                       |   |              | 6,538   |            |   |              | (4,204  | )       |        |        | 1,329   |  
|                                                   |                                                                                   |                |                   | Income taxes                                           |   |              |         |            |   |              |         |         |        |        | 5,026   |  
|                                                   |                                                                                   |                |                   | Legal settlement                                       |   |              |        |            |   |              |        |         |        |        | (2,465  | )
|                                                   |                                                                                   |                |                   | Accrued expenses                                       |   |              | 7,326   |            |   |              | 5,495   |         |        |        | 4,227   |  
|                                                   |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |        
|                                                   |                                                                                   |                |                   | Net cash provided by operating activities              |   |              | 19,855  |            |   |              | 31,520  |         |        |        | 35,600  |  
|                                                   |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |        
|Cash flows from investing activities:              |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |        
|                                                   | Purchases of property and equipment                                               |                |                   | (11,602                                                | ) |              |         | (10,510    | ) |              |         | (10,207 | )     
|                                                   | Purchase of parent senior discount notes                                          |                |                   |                                                       |   |              |         | (6,688     | ) |              |         | (2,535  | )     
|                                                   |                                                                                   | Loan to parent |                   |                                                        |  |              |         |            |  |              |         |         | (3,747 | )     
|                                                   |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |         |       
|                                                   |                                                                                   |                |                   | Net cash used in investing activities                  |   |              | (11,602 | )          |   |              | (17,198 | )       |        |        | (16,489 | )
|                                                   |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |        
|Cash flows from financing activities:              |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |        
|                                                   | Net borrowings (repayments) under revolving credit
         facilities, and other |                |                   | (2,252                                                 | ) |              |         | (10,210    | ) |              |         | 1,579   |       
|                                                   | Dividend to parent                                                                |                |                   |                                                       |   |              |         |           |   |              |         | (19,000 | )     
|                                                   | Repurchase of debt                                                                |                |                   | (7,339                                                 | ) |              |         |           |   |              |         | (995    | )     
|                                                   |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |        
|                                                   |                                                                                   |                |                   | Net cash used in financing activities                  |   |              | (9,591  | )          |   |              | (10,210 | )       |        |        | (18,416 | )
|                                                   |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |        
|                                                   |                                                                                   |                |                   | Net increase (decrease) in cash and cash
equivalents   |   |              | (1,338  | )          |   |              | 4,112   |         |        |        | 695     |  
|Cash and cash equivalents at beginning of year     |                                                                                   |                | 5,091             |                                                        |   |              | 3,753   |            |   |              | 7,865   |        
|                                                   |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |        
|Cash and cash equivalents at end of year           |                                                                                   | $              | 3,753             |                                                        |   |              | 7,865   |            |   |              | 8,560   |        
|                                                   |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |        
|Non-cash financing activities:                     |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |        
|                                                   |                                                                                   |                |                   | Dividend - forgiveness of Parent Senior                |   |              |         |            |   |              |         |         |        |        |         |  
|                                                   |                                                                                   |                |                   | Discount Notes                                         |   | $            |        |            |   |              | 6,688   |         |        |        | 2,535   |  
|                                                   |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |         |       
|Supplemental disclosures of cash flow information: |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |        
|                                                   |                                                                                   |                | Interest paid     |                                                        | $ | 17,013       |         |            |   | 14,690       |         |         |        | 13,066 |        
|                                                   |                                                                                   |                | Income taxes paid |                                                        |   | 8,143        |         |            |   | 13,820       |         |         |        | 11,850 |        
|                                                   |                                                                                   |                |                   |                                                        |   |              |         |            |   |              |         |         |       

See accompanying notes to financial
statements.

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##### Table of Contents



BIG 5 CORP.
Notes to Financial Statements
December 30, 2001 and December 29, 2002
(dollars in thousands)



|(1) |  | Basis of Presentation and Description of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The accompanying financial statements as of December 30, 2001 and December
29, 2002 and for the years ended December 30, 2000, December 30, 2001 and
December 29, 2002 represent the financial position and results of
operations of Big 5 Corp. The Company is a wholly owned subsidiary of Big
5 Sporting Goods Corporation (formerly Big 5 Holdings 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 275 stores at December 29, 2002 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s parent 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 parent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 distribution
from the Company from borrowings under its credit facility, the parent
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
$1.9 million which were funded by a reduction in the redemption
price of the parent's preferred stock and repurchased 0.5 million shares of the parent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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | 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
31, 2000, December 30, 2001 and December 30, 2001 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



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##### Table of Contents





| |  | 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 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 the current year the Company
adopted SFAS No. 142, Goodwill and Other Intangible Assets(SFAS No. 142).
SFAS No. 142 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
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 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.
|
| |  | 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, and
at least annually. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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##### Table of Contents





| |  | 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 $4,987 and $5,863 at
December 30, 2001 and December 29, 2002, 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 $33,498 for the year ended
December 31, 2000, $35,981 for the year ended December 30, 2001, and
$37,084 for the year ended December 29, 2002. 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 received
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 $5,007, $5,437, and $5,953 for the years ended
December 31, 2000, December 30, 2001 and December 29, 2002, 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 established if deemed necessary.                                                                                                                                                                                                                                   
|
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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|(4) |  | Long-Term Debt                           
|--- |  | -----------------------------------------
|   
|    |  | Long-term debt consists of the following:

|                                                                                                               |                      |   |                   |         |                   |  |         |         | 
|-------------------------------------------------------------------------------------------------------------- | -------------------- | - | ----------------- | ------- | ----------------- |  | ------- | ------- | 
|                                                                                                               |                      |   | December 30, 2001 |         | December 29, 2002
|                                                                                                               |                      |   |                   |         |                  
|Revolving credit facility                                                                                      |                      | $ | 25,000            |         |                   |  | 22,280  |        
|10.875% Senior Notes, net of
unamortized discount, $103.2
million face amount at December
29, 2002
due in 2007 |                      |   | 103,806           |         |                   |  | 102,851 |        
|                                                                                                               |                      |   |                   |         |                   |  |         |        
|                                                                                                               | Total long-term debt |   | $                 | 128,806 |                   |  |         | 125,131 | 
|                                                                                                               |                      |   |                   |         |                   |  |         |        



| |  | In 1997, the Company issued $131,000 face amount, 10.875% Senior Notes due
2007 (Senior Notes), less discount of $591 based on an imputed interest
rate of 10.95%. The 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 Senior Notes prior to their
maturity in 2007. The 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 Senior Notes are unsecured obligations that rank
senior in right of payment to all existing and future indebtedness that is
subordinated to the Senior Notes and rank pari passuin right of payment
with all current and future unsubordinated indebtedness, subject to
restrictions due to the securitization of certain assets. During the year
ended December 31, 2000 the Company repurchased $7,750 face value of Senior
Notes for a repurchase price of $7,339 and an additional $1,000 face value
of Senior Notes during the year ended December 29, 2002 for a repurchase
price of $995. Subsequent to fiscal 2002, in the first quarter of 2003, the
Company redeemed an additional $20,000 face value of Senior Notes for a
redemption price of $21,095.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | If redeemed during the 12-month period beginning November 15 the redemption
prices of the Senior Notes before accrued and unpaid interest are as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|                    |  |            |         |  
|------------------- |  | ---------- | ------- | -
|Year                |  | Percentage
|                    |  |           
|2002                |  |            | 105.475 | %
|2003                |  |            | 103.650 |  
|2004                |  |            | 101.825 |  
|2005 and thereafter |  |            | 100.000 |  
|                    |  |            |         |  



| |  | The Company had a five-year, non-amortizing $125,000 revolving credit
facility which was amended and restated to a three-year non-amortizing
$140,000 revolving credit facility subsequent to year-end (the CIT Credit
Facility). The CIT 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. The Company may
terminate the CIT 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
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|    |  | termination fee. Unless it is terminated, the CIT Credit
Facility will continue on an annual basis from anniversary date to anniversary date beginning on March 21, 2006. The CIT
Credit Facility bears interest at various rates based on the Companys
performance, with a floor of LIBOR plus 1.50% or the Chase Manhattan prime
lending rate and a ceiling of LIBOR plus 2.50% or the Chase Manhattan prime
lending rate plus 0.75% and is secured by trade accounts receivable,
merchandise inventory and general intangible assets (including trademarks
and trade names) of the Company. At December 29, 2002, loans under the CIT
Credit Facility bear interest at a rate of LIBOR (1.30% at December 29,
2002) plus 1.50% or the Chase Manhattan prime lending rate (4.25% at
December 29, 2002). An annual fee of 0.325%, payable monthly, is assessed
on the unused portion of the CIT Credit Facility. On December 29, 2002, the
Company had $22,280 in LIBOR and prime lending rate borrowings and letters
of credit of $4,278 outstanding. The Companys maximum eligible borrowing
available under the CIT 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 CIT Credit Facility
amounted to $91,610 at December 29, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | 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 29, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(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 Senior Notes at December 29, 2002
approximated $108,483 based upon recent market prices.
The carrying amount of the revolving CIT
Credit Facility reflects the fair value based on current rates available to
the Company for debt with the same remaining maturities. It is not
practical to estimate the fair value of amounts due from parent due to the
related party nature of this instrument.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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| |  | Rental expense for operating leases consisted of the following:
| |  | ---------------------------------------------------------------

|                     |                |   |              |        |              |  |              |        |  |  |        |        | 
|-------------------- | -------------- | - | ------------ | ------ | ------------ |  | ------------ | ------ |  |  | ------ | ------ | 
|                     |                |   | Year ended   |        | Year ended   |  | Year ended  
|                     |                |   | December 30, |        | December 30, |  | December 29,
|                     |                |   | 2000         |        | 2001         |  | 2002        
|                     |                |   |              |        |              |  |             
|Cash rental payments |                | $ | 29,667       |        |              |  | 31,602       |        |  |  | 33,693 |       
|Non-cash rentals     |                |   | 375          |        |              |  | 258          |        |  |  | 195    |       
|Contingent rentals   |                |   | 1,592        |        |              |  | 1,710        |        |  |  | 1,730  |       
|                     |                |   |              |        |              |  |              |        |  |  |        |       
|                     | Rental expense |   | $            | 31,634 |              |  |              | 33,570 |  |  |        | 35,618 | 
|                     |                |   |              |        |              |  |              |        |  |  |        |       



| |  | Future minimum lease payments (cash rentals) under noncancelable operating
leases (with initial or remaining lease terms in excess of one year) as of
December 29, 2002 are:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|             |  |   |         | 
|------------ |  | - | ------- | 
|Year ending: |  |   |         | 
|2003         |  | $ | 36,855  | 
|2004         |  |   | 36,566  | 
|2005         |  |   | 33,278  | 
|2006         |  |   | 28,697  | 
|2007         |  |   | 26,013  | 
|Thereafter   |  |   | 105,848 | 



|(7) |  | Accrued Expenses                          
|--- |  | ------------------------------------------
|   
|    |  | Accrued expenses consist of the following:

|                             |  |              |        |              |  |  |        | 
|---------------------------- |  | ------------ | ------ | ------------ |  |  | ------ | 
|                             |  | December 30, |        | December 29,
|                             |  | 2001         |        | 2002        
|                             |  |              |        |             
|Payroll and related expenses |  | $            | 13,051 |              |  |  | 13,757 | 
|Advertising                  |  |              | 5,768  |              |  |  | 5,047  | 
|Sales tax                    |  |              | 7,285  |              |  |  | 7,810  | 
|Income tax                   |  |              | 5,287  |              |  |  | 10,407 | 
|Litigation Settlement        |  |              | 2,515  |              |  |  |       | 
|Other                        |  |              | 17,994 |              |  |  | 21,667 | 
|                             |  |              |        |              |  |  |        | 
|                             |  | $            | 51,900 |              |  |  | 58,688 | 
|                             |  |              |        |              |  |  |        | 

F-13



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|(8) |  | Income Taxes                                                 
|--- |  | -------------------------------------------------------------
|   
|    |  | Total income tax expense (benefit) consists of the following:

|                                            |                          |   |                   |       |                   |  |                   |        |  |  |        |        | 
|------------------------------------------- | ------------------------ | - | ----------------- | ----- | ----------------- |  | ----------------- | ------ |  |  | ------ | ------ | 
|                                            |                          |   | December
30, 2000 |       | December
30, 2001 |  | December
29, 2002
|                                            |                          |   |                   |       |                   |  |                  
|Income tax before
extraordinary gain (loss) |                          | $ | 9,438             |       |                   |  | 10,922            |        |  |  | 16,512 |       
|Tax effect of extraordinary
gain (loss)     |                          |   | 61                |       |                   |  |                  |        |  |  | 3      |       
|                                            |                          |   |                   |       |                   |  |                   |        |  |  |        |       
|                                            | Total income tax expense |   | $                 | 9,499 |                   |  |                   | 10,922 |  |  |        | 16,515 | 
|                                            |                          |   |                   |       |                   |  |                   |        |  |  |        |       

|      |         |   |         |        |          |  |        |      |   |  |        |        | 
|----- | ------- | - | ------- | ------ | -------- |  | ------ | ---- | - |  | ------ | ------ | 
|      |         |   | Current |        | Deferred |  | Total 
|      |         |   |         |        |          |  |       
|2002: |         |   |         |        |          |  |        |      |   |  |        |       
|      | Federal |   | $       | 14,743 |          |  |        | (798 | ) |  |        | 13,945 | 
|      | State   |   |         | 3,322  |          |  |        | (755 | ) |  |        | 2,567  | 
|      |         |   |         |        |          |  |        |      |   |  |        |       
|      |         | $ | 18,065  |        |          |  | (1,553 | )    |   |  | 16,512 |       
|      |         |   |         |        |          |  |        |      |   |  |        |       
|2001: |         |   |         |        |          |  |        |      |   |  |        |       
|      | Federal |   | $       | 8,049  |          |  |        | 897  |   |  |        | 8,946  | 
|      | State   |   |         | 1,852  |          |  |        | 124  |   |  |        | 1,976  | 
|      |         |   |         |        |          |  |        |      |   |  |        |       
|      |         | $ | 9,901   |        |          |  | 1,021  |      |   |  | 10,922 |       
|      |         |   |         |        |          |  |        |      |   |  |        |       
|2000: |         |   |         |        |          |  |        |      |   |  |        |       
|      | Federal |   | $       | 8,268  |          |  |        | (583 | ) |  |        | 7,685  | 
|      | State   |   |         | 1,807  |          |  |        | (54  | ) |  |        | 1,753  | 
|      |         |   |         |        |          |  |        |      |   |  |        |       
|      |         | $ | 10,075  |        |          |  | (637   | )    |   |  | 9,438  |       
|      |         |   |         |        |          |  |        |      |   |  |        |       



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

|                                    |  |              |       |              |  |              |        |  |  |  |        |  
|----------------------------------- |  | ------------ | ----- | ------------ |  | ------------ | ------ |  |  |  | ------ | -
|                                    |  | Year ended   |       | Year ended   |  | Year ended  
|                                    |  | December 31, |       | December 30, |  | December
29,
|                                    |  | 2000         |       | 2001         |  | 2002        
|                                    |  |              |       |              |  |             
|Tax expense at statutory rate       |  | $            | 8,307 |              |  |              | 9,467  |  |  |  | 14,750 |  
|State taxes, net of federal benefit |  |              | 1,131 |              |  |              | 1,310  |  |  |  | 2,077  |  
|Other                               |  |              | 127   |              |  |              | 145    |  |  |  | (315   | )
|                                    |  |              |       |              |  |              |        |  |  |  |        |  
|                                    |  | $            | 9,438 |              |  |              | 10,922 |  |  |  | 16,512 |  
|                                    |  |              |       |              |  |              |        |  |  |  |        |  

F-14



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##### Table of Contents





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

|                                                        |                                                |                         |       |              |       |              |       |       |        | 
|------------------------------------------------------- | ---------------------------------------------- | ----------------------- | ----- | ------------ | ----- | ------------ | ----- | ----- | ------ | 
|                                                        |                                                |                         |       | December 30, |       | December 29,
|                                                        |                                                |                         |       | 2001         |       | 2002        
|                                                        |                                                |                         |       |              |       |             
|                                                        |                                                |                         |       | As restated  |       |              |       |      
|                                                        |                                                |                         |       | (note 15)    |       |              |       |      
|Deferred assets:                                        |                                                |                         |       |              |       |              |       |      
|                                                        | Self-insurance reserves                        |                         | $     | 1,987        |       |              |       | 2,341 |       
|                                                        | Employee benefits                              |                         |       | 1,946        |       |              |       | 2,193 |       
|                                                        | State taxes                                    |                         |       | 648          |       |              |       | 1,161 |       
|                                                        | Noncash rentals                                |                         |       | 4,459        |       |              |       | 4,637 |       
|                                                        | Amortization of tangible and intangible assets |                         |       | 194          |       |              |       | 192   |       
|                                                        | Tax Credits                                    |                         |       | 92           |       |              |       | 791   |       
|                                                        | Other                                          |                         |       | 661          |       |              |       | 551   |       
|                                                        |                                                |                         |       |              |       |              |       |       |       
|                                                        |                                                | Deferred tax assets     |       | $            | 9,987 |              |       |       | 11,866 | 
|Deferred liabilities  basis difference in fixed assets |                                                | $                       | 1,192 |              |       |              | 1,517 |      
|                                                        |                                                |                         |       |              |       |              |       |       |       
|                                                        |                                                | Net deferred tax assets |       | $            | 8,795 |              |       |       | 10,349 | 
|                                                        |                                                |                         |       |              |       |              |       |      



|     |  | 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 to cover all eligible employees. All
employees contributions may be supplemented by Company contributions. The
Company contributed $1,650 for the year ended December 31, 2000, $1,830 for
the year ended December 30, 2001 and $2,000 for the year ended December 29,
2002 in employer matching and profit sharing contributions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|     |  | The Company has no other significant post-retirement or post-employment
benefits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(10) |  | Related Party Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|     |  | Prior to September 1992, the
Company  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 and PE. 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,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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|     |  | 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. An affiliate of a stockholder of the Company holds
convertible preferred stock in Rite Aid, which, if converted, would
represent approximately 11% 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 $203 for the year ended December 31, 2000, $212 for
the year ended December 30, 2001 and $236 for the year ended December 29,
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|     |  | The Company had a Management Services Agreement with an investment advisor
group that is an affiliate of a stockholder of the parent which was due to
expire in May 2005, under which $333, plus expenses, was paid annually for
financial advisory and investment banking services. The agreement was
terminated in conjunction with the initial public offering for a fee of
$875. During each of the years ended December 31, 2000, December 30, 2001,
and December 29, 2002 the Company, on behalf of the parent, paid $340,
$340, and $1,044 to this advisor group, respectively. An individual of the
investor advisory group is a member of the parents board of directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(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 join
settlement which was approved by the court on August 1, 2002. The
settlement constitutes a full and complete settlement 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 $690, as well as up to $40 for the
cost of the settlement administrator. In addition, the Company agreed to
pay the class representatives an additional aggregate amount of $28.5 for
their service as named plaintiffs. The Company recorded a charge of
approximately $2,500 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 have been made at 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, there could be a significant adverse effect on managements
estimates and an adverse impact on the Companys performance. The retail
industry                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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|     |  | is impacted by the general economy. Changes in the marketplace
may significantly affect managements estimates and the Companys
performance.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|    
|(13) |  | Quarterly Financial Data (unaudited)                                                                                                         

|             |  |                              |         |         |  |         |         |         |  |       |         |  |  |  |         |  |  |  |         | 
|------------ |  | ---------------------------- | ------- | ------- |  | ------- | ------- | ------- |  | ----- | ------- |  |  |  | ------- |  |  |  | ------- | 
|             |  | Year Ended December 30, 2001
|             |  |                              |         |         |  |         |         |         |  |      
|             |  | First                        |         | Second  |  | Third   |         | Fourth  |  |      
|             |  | Quarter                      |         | Quarter |  | Quarter |         | Quarter |  | Total
|             |  |                              |         |         |  |         |         |         |  |      
|Net sales    |  | $                            | 143,179 |         |  |         | 151,456 |         |  |       | 158,085 |  |  |  | 169,761 |  |  |  | 622,481 | 
|Gross profit |  | $                            | 47,837  |         |  |         | 53,609  |         |  |       | 52,956  |  |  |  | 60,400  |  |  |  | 214,802 | 
|Net income   |  | $                            | 1,754   |         |  |         | 3,905   |         |  |       | 3,577   |  |  |  | 6,890   |  |  |  | 16,126  | 

|             |  |                              |         |         |  |         |         |         |  |       |         |  |  |  |         |  |  |  |         | 
|------------ |  | ---------------------------- | ------- | ------- |  | ------- | ------- | ------- |  | ----- | ------- |  |  |  | ------- |  |  |  | ------- | 
|             |  | Year
Ended December 29, 2002
|             |  |                              |         |         |  |         |         |         |  |      
|             |  | First                        |         | Second  |  | Third   |         | Fourth  |  |      
|             |  | Quarter                      |         | Quarter |  | Quarter |         | Quarter |  | Total
|             |  |                              |         |         |  |         |         |         |  |      
|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   |  | $                            | 4,277   |         |  |         | 6,238   |         |  |       | 5,474   |  |  |  | 9,628   |  |  |  | 25,617  | 



|(14) |  | 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 31,   |        | December 30, |  | December 29, |       
|                                  |  |                | 2000   |              |  |              | 2001   |  |  |   | 2002   |  | 
|                                  |  |                |        |              |  |              |       
|                                  |  | (in thousands) |       
|Reported net income               |  | $              | 14,387 |              |  | $            | 16,126 |  |  | $ | 25,617 |  | 
|Goodwill amortization, net of tax |  |                | 149    |              |  |              | 146    |  |  |   |       |  | 
|                                  |  |                |        |              |  |              |        |  |  |   |        |  | 
|Adjusted net income               |  | $              | 14,536 |              |  | $            | 16,272 |  |  | $ | 25,617 |  | 
|                                  |  |                |        |              |  |              |        |  |  |   |        |  | 



|(15) |  | Prior Period Adjustment and Restatement                                                                                                                                                                                                                                                                                                                                  
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | During fiscal 2002, the Companys management determined that
there was an error in the calculation of deferred rent liability for
store leases which impacted periods prior to 2000. To correct this error, the Company measured the accumulated deficit at January 2, 2000 by $1,949 and has
increased the deferred rent liability by $3,304 as of
December 30, 2001 and

F-17



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| |  | recognized a
corresponding deferred tax asset of $1,355 as of that date. This
change had an immaterial impact on
the previously stated net income for the 2000, 2001 and 2002 fiscal years
and on net cash flows from operating, investing or financing activities.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following accounts are adjusted as a result of the restatement:                                                                                                                                                                                                

|                                    |                            |  |               |         |             |  |  |         |  
|----------------------------------- | -------------------------- |  | ------------- | ------- | ----------- |  |  | ------- | -
|                                    |                            |  | As previously |         |             |  | 
|                                    |                            |  | reported      |         | As restated
|                                    |                            |  |               |         |            
|Balance sheet at December 30, 2001: |                            |  |               |         |             |  |  |        
|                                    | Deferred income taxes      |  | $             | 7,440   |             |  |  | 8,795   |  
|                                    | Total assets               |  | $             | 256,585 |             |  |  | 257,940 |  
|                                    | Deferred rent              |  | $             | 7,791   |             |  |  | 11,096  |  
|                                    | Total liabilities          |  | $             | 250,805 |             |  |  | 254,109 |  
|                                    | Accumulated deficit        |  | $             | (34,859 | )           |  |  | (36,808 | )
|                                    | Total stockholders equity |  | $             | 5,780   |             |  |  | 3,831   |  
|Accumulated deficit at:             |                            |  |               |         |             |  |  |        
|                                    | December 31, 2000          |  | $             | (44,297 | )           |  |  | (46,246 | )
|                                    | January 2, 2000            |  | $             | (58,684 | )           |  |  | (60,633 | )

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BIG 5 CORP.
Schedule II - Valuation and Qualifying Accounts
(dollars in thousands)

|                                   |  |            |     |            |  |            |     |           |  |             |       |   |  |   |     | 
|---------------------------------- |  | ---------- | --- | ---------- |  | ---------- | --- | --------- |  | ----------- | ----- | - |  | - | --- | 
|                                   |  |            |     |            |  |            |     |           |  | DEDUCTIONS: |       |   |  |  
|                                   |  | BALANCE AT |     | ADDITIONS: |  | ACCOUNTS   |     | BALANCE  
|                                   |  | BEGINNING  |     | CHARGES TO |  | RECEIVABLE |     | AT END OF
|                                   |  | OF YEAR    |     | OPERATIONS |  | WRITE OFFS |     | YEAR     
|                                   |  |            |     |            |  |            |     |          
|December 31, 2000                  |  |            |     |            |  |            |     |           |  |             |       |   |  |   |     | 
|Allowance for doubtful receivables |  | $          | 499 |            |  | $          | 365 |           |  |             | ($257 | ) |  | $ | 607 | 
|December 30, 2001                  |  |            |     |            |  |            |     |           |  |             |       |   |  |   |     | 
|Allowance for doubtful receivables |  |            | 607 |            |  |            | 129 |           |  |             | (65   | ) |  |   | 671 | 
|December 29, 2002                  |  |            |     |            |  |            |     |           |  |             |       |   |  |   |     | 
|Allowance for doubtful receivables |  |            | 671 |            |  |            | 120 |           |  |             | (62   | ) |  |   | 729 | 

II-1