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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K



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

For the fiscal year ended December 30, 2001

OR



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

For the transition period from __________________ to __________________

Commission File Number: 333-43129

BIG 5 CORP.

SUCCESSOR TO: UNITED MERCHANDISING CORP.

DBA: BIG 5 SPORTING GOODS
(Exact name of registrant as specified in its charter)

Delaware
(State of Incorporation)

95-1854273
(IRS Employer Identification Number)

2525 East El Segundo Boulevard
El Segundo, California 90245
(310) 536-0611
(Address, including zip code, and telephone number,
including area code, of registrants principal executive offices)

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

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

No voting stock of the registrant is held by non-affiliates of the registrant.
The registrants voting stock is wholly owned by Big 5 Sporting Goods Corp.., a
Delaware Corporation. Neither the registrants nor Big 5 Sporting Goods
Corp.s voting stock is publicly traded.

Indicate the number of shares outstanding for each of the registrants classes
of common stock, as of the latest practicable date: 1,000 shares of common
stock, $.01 par value, at March 25, 2002.

DOCUMENTS INCORPORATED BY REFERENCE:
None





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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 THE REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.           
|              | ITEM 6: SELECTED HISTORICAL FINANCIAL DATA                                                   
|              | ITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|              | ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS                         
|              | 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                                      
|PART IV      
|              | ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|SIGNATURES   
|EXHIBIT 10.11
|EXHIBIT 10.12
|EXHIBIT 10.13
|EXHIBIT 12.1 



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PART I




ITEM 1: BUSINESS

General

We are the leading sporting goods retailer in the western United States,
operating 260 stores in 10 states under the Big 5 Sporting Goods name at
December 30, 2001. 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 46 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 parent
company so that the majority of our parent companys 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 30, 2001, we have
realized 24 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 2001, we
generated net sales of $622.5 million and adjusted EBITDA of $55.1 million.
For the past five fiscal years ended December 30, 2001, our net sales and
adjusted EBITDA increased at compounded annual growth rates of 9.0% and 16.1%,
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.

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

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 71 stores, an average of

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14 new stores annually, of which 73% were outside of California. The following
table illustrates the results of our expansion program during the periods
indicated:

|     |  |            |   |         |  |       |    |                  |  |               |    |               |  |  |    |   |  |  |    |              |  |  |     | 
|---- |  | ---------- | - | ------- |  | ----- | -- | ---------------- |  | ------------- | -- | ------------- |  |  | -- | - |  |  | -- | ------------ |  |  | --- | 
|     |  |            |   |         |  | Other |    |                  |  |               |    |               |  |  |    |   |  |  |    | #. Of Stores
|Year |  | California |   | Markets |  | Total |    | Stores Relocated |  | Stores Closed |    | at Period End
|     |  |            |   |         |  |       |    |                  |  |               |    |              
|1997 |  |            | 6 |         |  |       | 8  |                  |  |               | 14 |               |  |  |   |   |  |  |   |              |  |  | 210 | 
|1998 |  |            | 3 |         |  |       | 9  |                  |  |               | 12 |               |  |  | (1 | ) |  |  |   |              |  |  | 221 | 
|1999 |  |            | 3 |         |  |       | 12 |                  |  |               | 15 |               |  |  | (1 | ) |  |  | (1 | )            |  |  | 234 | 
|2000 |  |            | 5 |         |  |       | 10 |                  |  |               | 15 |               |  |  |   |   |  |  |   |              |  |  | 249 | 
|2001 |  |            | 2 |         |  |       | 13 |                  |  |               | 15 |               |  |  | (4 | ) |  |  |   |              |  |  | 260 | 

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, require larger
target markets, are more expansive 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 $350,000 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 cash-on-cash returns of approximately 35% to 40%
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 expect to open 15 to 18 new stores in fiscal 2002. Beginning in
fiscal 2003 we expect to open 15 to 20 new stores per year for the foreseeable
future.

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 # of  |  | Average
|                                    |  | Employees |     | Years With Us |  | Age    
|                                    |  |           |     |               |  |        
|Senior Management                   |  |           | 7   |               |  |         | 28 |  |  |  | 56 | 
|Vice Presidents                     |  |           | 10  |               |  |         | 24 |  |  |  | 52 | 
|Buyers                              |  |           | 13  |               |  |         | 17 |  |  |  | 44 | 
|Store District/Division Supervisors |  |           | 28  |               |  |         | 21 |  |  |  | 45 | 
|Store Managers                      |  |           | 260 |               |  |         | 9  |  |  |  | 36 | 

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,
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

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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 percent of net sales:

|           |                             |                  |      |             |       |      |      |      |       |      |      |      |       |   |      |      |       |  
|---------- | --------------------------- | ---------------- | ---- | ----------- | ----- | ---- | ---- | ---- | ----- | ---- | ---- | ---- | ----- | - | ---- | ---- | ----- | -
|           |                             |                  |      | Fiscal Year
|           |                             |                  |      |            
|           |                             |                  |      | 1998        |       | 1999 |      | 2000 |       | 2001
|           |                             |                  |      |             |       |      |      |      |       |     
|Soft Goods |                             |                  |      |             |       |      |      |      |       |      |      |      |       |   |      |     
|           | Athletic and sport apparel  |                  |      | 16.8        | %     |      |      | 15.7 | %     |      |      | 16.4 | %     |   |      | 16.5 | %    
|           | Athletic and sport footwear |                  |      | 32.5        |       |      |      | 31.3 |       |      |      | 29.8 |       |   |      | 30.3 |      
|           |                             |                  |      |             |       |      |      |      |       |      |      |      |       |   |      |     
|           |                             | Total soft goods |      |             | 49.3  |      |      |      | 47.0  |      |      |      | 46.2  |   |      |      | 46.8  |  
|Hard goods |                             |                  | 50.7 |             |       |      | 53.0 |      |       |      | 53.8 |      |       |   | 53.2 |     
|           |                             |                  |      |             |       |      |      |      |       |      |      |      |       |   |      |     
|           |                             | 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
Asics
Bauer
Bausch & Lomb
Bike Athletic
Browning
Bushnell
Casio |  | Coleman
Columbia
Crosman
Easton
Everlast
Fila
Franklin
Head |  | Hillerich & Bradsby
Icon (Proform)
JanSport
K2
Lifetime
Mizuno
New Balance
Nike |  | Prince
Rawlings
Razor
Reebok
Remington
Rockport
Rollerblade
Russell Athletic |  | Saucony
Shimano
Spalding
Speedo
Timex
Titleist
Wilson
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 46 years of experience across different demographic, economic
and competitive markets, we have refined our merchandising strategy to increase
net sales by offering a selection of products that meets customer demands while
effectively managing inventory levels. In terms of category selection, we
believe our merchandise offering compares favorably to our competitors,
including the superstores. Our edited selection of products enables customers
to comparison shop without being overwhelmed by a large number of different
products in any one category. We further tailor our merchandise selection on a
store-by-store basis in order to satisfy each regions specific needs and
seasonal buying habits.

Our 13 buyers, who average 17 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 12.5 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 120 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 46 years. In
fiscal 2001, no single vendor represented greater than 6.0% 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 28 leased and two owned
tractors, and 12 leased and 66 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. Based on our expected
net sales and store growth, we plan to replace our existing distribution center
during the next two to three years.

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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..

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 three
regional supervisors who report directly to the senior vice president of store
operations and who oversee 25 district supervisors. The district supervisors
are each responsible for an average of 10 stores. Each of our stores has a
store manager who is responsible for all aspects of store operations and who
reports directly to a district supervisor. In addition, each store has at
least two assistant managers, at least one full-time cashier, at least one
management trainee and a complement of full and part-time associates.

As of December 30, 2001, we had approximately 7,240 full and part-time
employees. The Steel, Paper House, Chemical Drivers & Helpers, Local Union
578, affiliated with the International Brotherhood of Teamsters, currently
represents 446 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 21 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. We have
also registered Court Casuals, Golden Bear, Pacifica and Rugged Exposure as
federal trademarks under which we well a variety of merchandise. In fiscal
2001, 2.2% of our net sales resulted from sales of this private label
merchandise.




ITEM 2: PROPERTIES

Properties

We lease all but one of our 260 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 259 store leases we have, only 17 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 2001, we processed approximately 18 million sales
transactions and our average transaction size was approximately $34.

Our store format has resulted in productivity levels that we believe is
among the highest of any full-time sporting goods retailer, with net sales per
gross square foot of approximately $224 for fiscal 2001. 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

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store due to poor performance. The following table details our store locations
as of December 30, 2001.

| |                     |                  |  |         |  |           |  |                  |     |                     |  |      |      |  |  | 
| | ------------------- | ---------------- |  | ------- |  | --------- |  | ---------------- | --- | ------------------- |  | ---- | ---- |  |  | 
| |                     |                  |  |         |  | Year      |  | Number           |     | Percentage of Total
| |                     | Regions          |  | Entered |  | Of Stores |  | Number of Stores
| |                     |                  |  |         |  |           |  |                 
| | California:         |                  |  |         |  |           |  |                  |     |                     |  |      |     
| | Southern California |                  |  | 1955    |  |           |  | 88               |     |                     |  | 33.8 | %   
| | Northern California |                  |  | 1971    |  |           |  | 71               |     |                     |  | 27.3 |     
| |                     |                  |  |         |  |           |  |                  |     |                     |  |      |      |  |  | 
| |                     | Total California |  |         |  |           |  |                  | 159 |                     |  |      | 61.1 | 
| | Washington          |                  |  | 1984    |  |           |  | 28               |     |                     |  | 10.8 |     
| | Arizona             |                  |  | 1993    |  |           |  | 17               |     |                     |  | 6.5  |     
| | Oregon              |                  |  | 1995    |  |           |  | 16               |     |                     |  | 6.2  |     
| | Texas               |                  |  | 1995    |  |           |  | 10               |     |                     |  | 3.8  |     
| | New Mexico          |                  |  | 1995    |  |           |  | 8                |     |                     |  | 3.1  |     
| | Nevada              |                  |  | 1978    |  |           |  | 8                |     |                     |  | 3.1  |     
| | Utah                |                  |  | 1998    |  |           |  | 6                |     |                     |  | 2.3  |     
| | Idaho               |                  |  | 1993    |  |           |  | 6                |     |                     |  | 2.3  |     
| | Colorado            |                  |  | 2001    |  |           |  | 2                |     |                     |  | 0.8  |     
| |                     |                  |  |         |  |           |  |                  |     |                     |  |      |      |  |  | 
| | Total               |                  |  |         |  |           |  | 260              |     |                     |  | 100  | %   
| |                     |                  |  |         |  |           |  |                  |     |                     |  |      |      |  |  | 




ITEM 3: LEGAL PROCEEDINGS

On August 9, 2001, we received a copy of a complaint filed in the
California Superior Court in Los Angeles entitled Mosely, et al., v. Big 5
Corp., Case No. BC255749, 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 allege that we
improperly classified our store managers and first assistant store managers as
exempt employees not entitled to overtime pay for work in excess of forty hours
per week. They seek, on behalf of the class members, back pay for overtime
allegedly not paid, statutory penalties in the amount of an additional thirty
days wages for each such employee whose employment terminated in the four
years preceding the complaint, and injunctive relief to require us to treat our
store management as non-exempt. On February 8, 2002, we filed a joint
settlement with the court. Under the terms of the settlement, we agreed to pay
$32.46 per week of active employment as store manager during 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. We also agreed to pay
attorneys fees, plus costs and expenses, in the amount of $690,000, as well as
up to $40,000 for the cost of the settlement administrator. In addition, we
agreed to pay the class representatives an additional aggregate amount of
$32,500 for their service as named plaintiffs. We recorded a charge of
approximately $2.5 million in the fourth quarter of fiscal 2001 to provide for
expected payments to the class members as well as legal and other fees
associated with the settlement. The settlement is subject to the approval of
the court. Once approved the settlement will constitute a full and complete
settlement and release of all claims related to the lawsuit. We intend to
defend the case vigorously if the court does not approve the settlement
agreement. If the settlement is not approved by the court, an adverse result
in this litigation could harm our financial condition, and any required change
in our labor practices, as well as the costs of defending this litigation,
could have a negative impact on our results of operations.

In addition, we are from time to time involved in routing 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 by management for such litigation matters. We believe no other
litigation currently pending against us will have a material adverse effect on
our financial position or results of operations.




ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the
year ended December 30, 2001.

8



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##### Table of Contents






PART II




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

We are a wholly-owned subsidiary of Big 5 Sporting Goods Corporation, our
parent. Neither ours nor our parents capital stock is publicly traded.
Restrictive covenants in our revolving credit facility generally restrict the
declaration or payment of dividends on our common stock other than to enable
our parent to pay operating and overhead expenses and certain other limited
types of expenses. The senior notes (see Liquidity and Capital Resources)
restrict the declaration and payment of dividends unless we satisfy certain
financial covenants, among other things.




ITEM 6: SELECTED HISTORICAL FINANCIAL DATA

The selected data presented below under the captions Statements of
Operations Data: and Balance Sheet Data for and as of the end of the fiscal
years ended December 28, 1997, January 3, 1999, January 2, 2000, December 31,
2000 and December 30, 2001 are derived from our audited financial statements,
which financial statements have been audited by KPMG, LLP, independent
certified public accountants. The financial statements as of December 31, 2000
and December 30, 2001 and for each of the years ended January 2, 2000, December
31, 2000 and December 30, 2001 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(a)
|                                                                                 |                               |   |               
|                                                                                 |                               |   | 1997           |         | 1998 |   | 1999                          |         | 2000 |   | 2001   
|                                                                                 |                               |   |                |         |      |   |                               |         |      |   |        
|                                                                                 |                               |   |                |         |      |   | (dollar amounts in thousands) |         |      |   |        
|Statement of Operations Data:                                                    |                               |   |                |         |      |   |                               |         |      |   |         |         |  |   |         |         |  |   |         |        
|Net sales                                                                        |                               | $ | 443,541        |         |      | $ | 491,430                       |         |      | $ | 514,324 |         |  | $ | 571,476 |         |  | $ | 622,481 |        
|Cost of goods sold, buying and
occupancy                                         |                               |   | 298,893        |         |      |   | 330,243                       |         |      |   | 341,852 |         |  |   | 377,040 |         |  |   | 407,679 |        
|                                                                                 |                               |   |                |         |      |   |                               |         |      |   |         |         |  |   |         |         |  |   |         |        
|                                                                                 | Gross profit                  |   |                | 144,648 |      |   |                               | 161,187 |      |   |         | 172,472 |  |   |         | 194,436 |  |   |         | 214,802 | 
|Operating expenses:                                                              |                               |   |                |         |      |   |                               |         |      |   |         |         |  |   |         |         |  |   |         |        
|                                                                                 | Selling and administrative    |   |                | 110,131 |      |   |                               | 121,643 |      |   |         | 130,833 |  |   |         | 144,323 |  |   |         | 159,667 | 
|                                                                                 | Litigation settlement         |   |                |        |      |   |                               |        |      |   |         |        |  |   |         |        |  |   |         | 2,515   | 
|                                                                                 | Depreciation and amortization |   |                | 8,176   |      |   |                               | 8,890   |      |   |         | 9,479   |  |   |         | 9,340   |  |   |         | 10,031  | 
|                                                                                 |                               |   |                |         |      |   |                               |         |      |   |         |         |  |   |         |         |  |   |         |        
|Total operating expenses                                                         |                               |   | 118,307        |         |      |   | 130,533                       |         |      |   | 140,312 |         |  |   | 153,663 |         |  |   | 172,213 |        
|                                                                                 |                               |   |                |         |      |   |                               |         |      |   |         |         |  |   |         |         |  |   |         |        
|Operating income                                                                 |                               |   | 26,341         |         |      |   | 30,654                        |         |      |   | 32,160  |         |  |   | 40,773  |         |  |   | 42,589  |        
|Interest expense                                                                 |                               |   | 12,442         |         |      |   | 19,285                        |         |      |   | 17,461  |         |  |   | 17,035  |         |  |   | 15,541  |        
|                                                                                 |                               |   |                |         |      |   |                               |         |      |   |         |         |  |   |         |         |  |   |         |        
|Income before income taxes
and extraordinary gain (loss)                         |                               |   | 13,899         |         |      |   | 11,369                        |         |      |   | 14,699  |         |  |   | 23,738  |         |  |   | 27,048  |        
|Income taxes                                                                     |                               |   | 1,436          |         |      |   | 4,604                         |         |      |   | 5,829   |         |  |   | 9,438   |         |  |   | 10,922  |        
|                                                                                 |                               |   |                |         |      |   |                               |         |      |   |         |         |  |   |         |         |  |   |         |        
|Income before extraordinary gain
(loss)                                          |                               |   | 12,463         |         |      |   | 6,765                         |         |      |   | 8,870   |         |  |   | 14,300  |         |  |   | 16,126  |        
|Extraordinary gain (loss) from early
extinguishment of debt, net of
income taxes |                               |   | (1,597         | )       |      |   |                              |         |      |   | (396    | )       |  |   | 87      |         |  |   |        |        
|                                                                                 |                               |   |                |         |      |   |                               |         |      |   |         |         |  |   |         |         |  |   |         |        
|Net income                                                                       |                               | $ | 10,866         |         |      | $ | 6,765                         |         |      | $ | 8,474   |         |  | $ | 14,387  |         |  | $ | 16,126  |        
|                                                                                 |                               |   |                |         |      |   |                               |         |      |   |         |         |  |   |         |         |  |   |         |        

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##### Table of Contents



|                                           |  |                |         |      |  |                               |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------------------------------ |  | -------------- | ------- | ---- |  | ----------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                           |  | Fiscal Year(a)
|                                           |  |               
|                                           |  | 1997           |         | 1998 |  | 1999                          |         | 2000 |  | 2001
|                                           |  |                |         |      |  |                               |         |      |  |     
|                                           |  |                |         |      |  | (dollar amounts in thousands) |         |      |  |     
|Other Data:                                |  |                |         |      |  |                               |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Adjusted EBITDA(b)                         |  | $              | 34,517  |      |  | $                             | 39,544  |      |  | $    | 41,639  |   |  | $ | 50,113  |   |  | $ | 55,135  |  
|Adjusted EBITDA margin(c)                  |  |                | 7.8     | %    |  |                               | 8.0     | %    |  |      | 8.1     | % |  |   | 8.8     | % |  |   | 8.9     | %
|Cash flow provided by
operating activities |  | $              | 2,831   |      |  | $                             | 30,499  |      |  | $    | 15,595  |   |  | $ | 19,855  |   |  | $ | 31,520  |  
|Cash flow used in
investing activities     |  |                | (5,151  | )    |  |                               | (11,106 | )    |  |      | (14,438 | ) |  |   | (11,602 | ) |  |   | (17,198 | )
|Cash flow used in
financing activities     |  |                | 7,315   |      |  |                               | (22,730 | )    |  |      | (2,521  | ) |  |   | (9,591  | ) |  |   | (10,210 | )
|Capital expenditures                       |  |                | 5,151   |      |  |                               | 8,500   |      |  |      | 13,075  |   |  |   | 11,602  |   |  |   | 10,510  |  
|Ratio of earnings to fixed
charges(d)      |  |                | 1.7x    |      |  |                               | 1.4x    |      |  |      | 1.5x    |   |  |   | 1.8x    |   |  |   | 2.0x    |  
|                                          
|Operating Data:                            |  |                |         |      |  |                               |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Same store sales increase(e)               |  |                | 6.6     | %    |  |                               | 5.2     | %    |  |      | 2.0     | % |  |   | 6.6     | % |  |   | 4.9     | %
|End of period stores                       |  |                | 210     |      |  |                               | 221     |      |  |      | 234     |   |  |   | 249     |   |  |   | 260     |  
|Inventory turns(f)                         |  |                | 2.2x    |      |  |                               | 2.3x    |      |  |      | 2.3x    |   |  |   | 2.3x    |   |  |   | 2.5x    |  
|                                          
|Balance Sheet Data End of Period:          |  |                |         |      |  |                               |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net working capital(g)                     |  | $              | 80,881  |      |  | $                             | 67,625  |      |  | $    | 72,081  |   |  | $ | 70,503  |   |  | $ | 67,035  |  
|Total assets                               |  |                | 224,873 |      |  |                               | 223,870 |      |  |      | 237,082 |   |  |   | 255,770 |   |  |   | 256,585 |  
|Total debt                                 |  |                | 173,660 |      |  |                               | 151,352 |      |  |      | 151,309 |   |  |   | 141,089 |   |  |   | 128,806 |  
|Stockholders equity / (deficit)           |  |                | (38,843 | )    |  |                               | (27,877 | )    |  |      | (18,045 | ) |  |   | (3,658  | ) |  |   | 5,780   |  

(Notes to table on previous page and this page)



---

|(a) |  | Our fiscal year is the 52 or 53-week year ending on the Sunday closest to
the calendar year end. Fiscal years 1997, 1999, 2000 and 2001 consist of
52 weeks and fiscal year 1998 consists of 53 weeks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | EBITDA is operating income before depreciation and amortization. In
fiscal 2001, adjusted EBITDA is EBITDA adjusted to exclude accrued
expenses of $2,515 relating to litigation regarding the exempt status of
certain of our store managers. EBITDA and adjusted EBITDA are not
measures of financial performance under generally accepted accounting
principles, or GAAP. Although EBITDA and adjusted EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP, or as a measure of profitability or liquidity, we
understand that EBITDA and adjusted EBITDA are widely used by financial
analysts as a measure of financial performance. Our calculation of EBITDA
and adjusted EBITDA may not be comparable to similarly titled measures
reported by other companies.
|   
|   
|   
|   
|(c) |  | Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by net
sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|   
|   
|   
|(d) |  | For the purpose of calculating the ratio of earnings to fixed charges,
earnings represents income before provisions for income taxes and fixed
charges. Fixed charges consist of interest expense, amortization of
debt financing costs, and one third of lease expense, which management
believes is representative of the interest component of lease expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|   
|   
|   
|(e) |  | Same store sales data for a fiscal year reflects stores open throughout
that fiscal year and the prior fiscal year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|   
|   
|   
|(f) |  | Inventory turns equal fiscal year cost of goods sold, buying and
occupancy costs divided by 4 quarter average FIFO inventory balances
adjusted to exclude overhead costs capitalized into inventory balances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|   
|   
|   
|(g) |  | Net working capital is defined as current assets less current
liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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

Throughout this section, our fiscal years January 2, 2000, December 31,
2000 and December 30, 2001 are referred to as Fiscal 1999, Fiscal 2000 and
Fiscal 2001, respectively. The following discussion and analysis of our
financial condition and results of operations for fiscal 1999, fiscal 2000 and
fiscal 2001 should be read in conjunction with the financial statements and
related notes included elsewhere. 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 tour business includes
forward-looking statements that involve risk and uncertainties.

Overview

We are the leading sporting goods retailer in the western United States,
operating 260 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 46 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 46 year history, we have emphasized controlled growth. The
following table summarizes our store count for the periods presented:

|                            |  |             |     |      |  |      |     |  |  |  |     |  
|--------------------------- |  | ----------- | --- | ---- |  | ---- | --- |  |  |  | --- | -
|                            |  | Fiscal Year
|                            |  |            
|                            |  | 1999        |     | 2000 |  | 2001
|                            |  |             |     |      |  |     
|Big 5 Sporting Goods stores |  |             |     |      |  |      |     |  |  |  |     |  
|Beginning of period         |  |             | 221 |      |  |      | 234 |  |  |  | 249 |  
|New stores(1)               |  |             | 15  |      |  |      | 15  |  |  |  | 15  |  
|Stores relocated            |  |             | (1  | )    |  |      |    |  |  |  | (4  | )
|Stores closed               |  |             | (1  | )    |  |      |    |  |  |  |    |  
|                            |  |             |     |      |  |      |     |  |  |  |     |  
|End of Period               |  |             | 234 |      |  |      | 249 |  |  |  | 260 |  
|                            |  |             |     |      |  |      |     |  |  |  |     |  



---

|(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 opened 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, store
occupancy costs and corporate office occupancy costs. Store occupancy costs
and corporate occupancy costs include rent, contingent rents, common area
maintenance, real estate property taxes and property insurance.

11



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##### Table of Contents



Selling and Administrative

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

Depreciation and Amortization

Depreciation and amortization consists primarily of the depreciation of
leasehold improvements, fixtures and equipment owned by us, amortization of
leasehold interest and goodwill and non-cash rent expense.

Discussion of Critical Accounting Policies

In the ordinary course of business, we have made a number of estimates and
assumptions relating to the reporting of results of operations and financial
condition in the preparation of our financial statements in conformity with
accounting principles generally accepted in the United States of America.
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 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 cost of goods sold for estimated decreases in 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 too high 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
over-valued or that would require an impairment consideration at this time.

12



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##### Table of Contents



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
|                                 |                  |  |            
|                                 |                  |  | 1999        |      | 2000 |  | 2001 
|                                 |                  |  |             |      |      |  |      
|Statement of Operations Data:    |                  |  |             |      |      |  |       |      |  |  |       |     
|Net sales                        |                  |  | 100.0       | %    |      |  | 100.0 | %    |  |  | 100.0 | %   
|Costs of sales                   |                  |  | 66.5        |      |      |  | 66.0  |      |  |  | 65.5  |     
|                                 |                  |  |             |      |      |  |       |      |  |  |       |     
|                                 | Gross profit     |  |             | 33.5 |      |  |       | 34.0 |  |  |       | 34.5 | 
|Selling and administrative       |                  |  | 25.4        |      |      |  | 25.3  |      |  |  | 25.7  |     
|Litigation settlement            |                  |  |            |      |      |  |      |      |  |  | 0.4   |     
|Depreciation and amortization    |                  |  | 1.8         |      |      |  | 1.6   |      |  |  | 1.6   |     
|                                 |                  |  |             |      |      |  |       |      |  |  |       |     
|                                 | Operating income |  |             | 6.3  |      |  |       | 7.1  |  |  |       | 6.8  | 
|Interest expense, net            |                  |  | 3.4         |      |      |  | 2.9   |      |  |  | 2.5   |     
|                                 |                  |  |             |      |      |  |       |      |  |  |       |     
|Income before income tax expense |                  |  | 2.9         |      |      |  | 4.2   |      |  |  | 4.3   |     
|Income tax expense               |                  |  | 1.2         |      |      |  | 1.7   |      |  |  | 1.7   |     
|Extraordinary gain (loss)        |                  |  | (0.1        | )    |      |  |      |      |  |  |      |     
|                                 |                  |  |             |      |      |  |       |      |  |  |       |     
|                                 | Net income       |  |             | 1.6  |      |  |       | 2.5  |  |  |       | 2.6  | 
|                                 |                  |  |             |      |      |  |       |      |  |  |       |     
|Adjusted
EBITDA                  |                  |  | 8.1         | %    |      |  | 8.8   | %    |  |  | 8.9   | %   

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.

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.

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##### Table of Contents



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 of our senior notes.

Fiscal 2000 Compared to Fiscal 1999

Net Sales.Net sales increased by $57.2 million, or 11.1%, to $571.5
million in fiscal 2000 from $514.3 million in fiscal 1999. This growth
reflected an increase of $33.3 million in same store sales and an increase of
$26.0 million in new store sales, which reflected the opening of 15 stores
during each of fiscal 2000 and fiscal 1999. The remaining variance was
attributable to net sales from closed stores. Same store sales increased by
6.6% for fiscal 2000. The increase in same store sales was primarily
attributable to higher net sales in the majority of our merchandise categories
led by growth in the exercise, skating (including scooters), winter apparel,
golf, water sports and snowboard equipment categories. The increase in same
store sales was in part due to a significant increase in the sale of scooters
during the second half of 2000. Excluding scooter sales, net sales increased
9.3% and same store sales increased 4.9% for 2000.

Gross Profit.Gross profit increased by $21.9 million, or 12.7%, to $194.4
million in fiscal 2000 from $172.5 million in fiscal 1999. Gross profit margin
was 34.0% in fiscal 2000 compared to 33.5% in fiscal 1999. We were able to
achieve higher gross margins in the majority of our product categories in
fiscal 2000.

Selling and Administrative.Selling and administrative expenses increased
by $13.5 million, or 10.3%, to $144.3 million in fiscal 2000 from $130.8
million in fiscal 1999. The increase was primarily due to an $8.4 million
increase in store personnel expenses and related costs associated with
supporting increased sales and new store openings, and a $2.9 million increase
in advertising expenses that resulted primarily form increased advertising
during parts of fiscal 2000. Selling and administrative expenses was 25.3% of
net sales in fiscal 2000 compared to 25.4% in fiscal 1999. The decrease
resulted from the 6.6% increase in same store sales that allowed us to leverage
certain costs included in selling administrative.

Depreciation and Amortization Expense. Depreciation and amortization
expense decreased by $0.2 million, or 1.5%, to $9.3 million in fiscal 2000 from
$9.5 million in fiscal 1999. This decrease resulted primarily from the
completion in the fourth quarter of fiscal 1999 of depreciation of fixed assets
related to our original acquisition by Green Equity Investors, L.P. and
management in fiscal 1992 and a decrease in non-cash rent expense. These
decreases were partially offset by added depreciation and amortization related
to expenditures for the growth

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in our store base during fiscal 2000, with store
count growing from 234 at the end of fiscal 1999 to 249 at the end of fiscal
2000.

Interest Expense, net.Interest expense, net decreased by $0.5 million, or
2.9%, to $17.0 million in fiscal 2000 from $17.5 million in fiscal 1999. This
variance was primarily due to lower average debt balances during fiscal
2000 versus fiscal 1999 and was partially offset by higher interest rates on
our revolving debt in fiscal 2000 versus fiscal 1999. Our debt balances
consist of borrowings under our revolving credit facility and our senior notes
(see Liquidity and Capital Resources).

Income Taxes.Provision for income taxes was $9.4 million in fiscal 2000
and $5.8 million in fiscal 1999. Our effective income tax rate for fiscal 2000
was 39.8% as compared to 39.7% for 1999.

Extraordinary Gain (Loss) from Early Extinguishment of Debt.We incurred
an extraordinary gain of $0.1 million, net of taxes, in fiscal 2000, in
connection with the repurchase of $7.8 million face value of our senior notes.
We incurred an extraordinary loss of $0.4 million, net of taxes, in 1999, in
connection with the repurchase of $19.1 million of our previously outstanding
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 revolving credit facility.

Net cash provided by operating activities for fiscal 2001 and fiscal 2000
was $31.5 million and $19.9 million, respectively. The change between periods
primarily reflected higher net income in fiscal 2001 and more efficient
management of working capital.

Capital expenditures for fiscal 2001 and fiscal 2000 were $10.5 million
and $11.6 million, respectively. The variance was primarily attributable to
the opening of new stores as well as timing of expenditures related to our new
point-of-sale store register systems. We expended $0.5 million on hardware and
software to complete this project in 2001, $2.2 million in 2000 and $2.5
million in 1999. We expect capital expenditures for fiscal 2002 will range
from $10 to $12 million, primarily to fund the opening of approximately 15 to
18 new stores, store maintenance and remodels, warehouse and headquarters
maintenance and system related expenditures. Our store format requires a low
investment in fixtures and equipment (approximately $350,000), working capital
(approximately $400,000, of which one-third is typically financed by vendors)
and real estate (leased built-to-suit locations).

Net cash used in financing activities in fiscal 2001 and fiscal 2000 was
$10.2 million and $9.6 million, respectively, reflecting higher cash provided
by operating activities in fiscal 2001. As of December 30, 2001, we had
borrowings of $25.0 million and letter of credit commitments of $3.4 million
outstanding under our revolving credit facility and $103.8 million of our
senior notes outstanding. These balances compared to borrowings of $37.3
million and letter of credit commitments of $4.0 million outstanding under our
revolving credit facility, and $103.8 million of our senior notes outstanding
as of December 31, 2000. We had cash and cash equivalents of $7.9 million and
$3.8 million at December 30, 2001 and December 31, 2000, respectively. During
fiscal 2000, we repurchased $7.75 million face value of our senior notes.
During fiscal 2001, we repurchased $12.5 million face value of our parents
senior discount notes. Subsequent to fiscal 2001, on February 1, 2002, we
repurchased $2.8 million face value of our parents senior discount 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
revolving 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.

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Our principal future obligations and commitments, excluding periodic
interest payments, include the following:

|                             |       |   |                        |         |        |  |           |        |           |  |               |        |  |  |        |        |  |   |         |         | 
|---------------------------- | ----- | - | ---------------------- | ------- | ------ |  | --------- | ------ | --------- |  | ------------- | ------ |  |  | ------ | ------ |  | - | ------- | ------- | 
|                             |       |   | Payments Due by Period
|                             |       |   |                       
|                             |       |   | Total                  |         | 1 Year |  | 1-3 Years |        | 4-5 Years |  | After 5 Years
|                             |       |   |                        |         |        |  |           |        |           |  |              
|                             |       |   | (in thousands)        
|Long-term debt               |       | $ | 103,806                |         |        |  |          |        |           |  |              |        |  |  |       |        |  | $ | 103,806 |        
|Operating leases commitments |       |   | 266,822                |         |        |  | 33,350    |        |           |  | 65,134        |        |  |  | 54,813 |        |  |   | 113,525 |        
|Revolving credit facility    |       |   | 25,000                 |         |        |  |          |        |           |  | 25,000        |        |  |  |       |        |  |   |        |        
|Letters of credit            |       |   | 3,435                  |         |        |  | 3,435     |        |           |  |              |        |  |  |       |        |  |   |        |        
|                             |       |   |                        |         |        |  |           |        |           |  |               |        |  |  |        |        |  |   |         |        
|                             | Total |   | $                      | 399,063 |        |  | $         | 36,785 |           |  | $             | 90,134 |  |  | $      | 54,813 |  |   | $       | 217,331 | 
|                             |       |   |                        |         |        |  |           |        |           |  |               |        |  |  |        |        |  |   |         |        

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 revolving credit
facility, expansion of our revolving credit facility or replacement 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.

The revolving credit facility provides for a maximum facility of $125.0
million, subject to certain borrowing base limitations. The revolving 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
in December 2002. We may terminate the revolving credit facility at any time
upon 30 days prior written notice, provided that we are required to pay an
early termination fee if we terminate prior to December 31, 2002. We plan to
make additional borrowings or pay down the revolving credit facility based on
our cash flow requirements. We may re-negotiate our revolving credit facility
prior to the expiration date depending on our future capital needs and the
availability of alternative sources of financing.

If we fail to make any required payment under our revolving 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 2001, we generated 27.3% or our net sales and 35.5% 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 form 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 New Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations. SFAS
No. 141 specifies criteria that intangible assets acquired in a business
combination must meet

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to be recognized and reported separately from goodwill.
SFAS No. 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested
for impairment at least annually in accordance with the provisions of SFAS No.
142. SFAS No. 142 also requires that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121 and subsequently, SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, after its adoption.

SFAS No. 142 requires us to evaluate our existing intangible assets and
goodwill that were acquired in purchase business combinations and to make any
necessary reclassifications in order to conform with the new classification
criteria in SFAS No. 141 for recognition separate from goodwill. We are
required to reassess the useful lives and residual values of all intangible
assets acquired and make any necessary amortization period adjustments by the
end of the first interim period after adoption. If an intangible asset is
identified as having an indefinite useful life, we are required to test the
intangible asset for impairment in accordance with the provisions of SFAS No.
142 within the first interim period. Impairment is measured as the excess of
carrying value over the fair value of an intangible asset with an indefinite
life. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.

In connection with SFAS No. 142s transitional goodwill impairment
evaluation, the statement requires us to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this, we must 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. We will then have up to six months from December 31,
2001 to determine the fair value of each reporting unit and compare it to the
carrying amount of the reporting unit. To the extent the carrying amount of a
reporting unit exceeds the fair value of the reporting unit, an indication
exists that the reporting unit goodwill may be impaired and we must perform the
second step of the transitional impairment test. The second step is required
to be completed as soon as possible, but no later than the end of the year of
adoption. In the second step, we must compare the implied fair value of the
reporting unit goodwill with the carrying amount of the reporting unit
goodwill, both of which would be measured as of the date of adoption. The
implied fair value of goodwill is determined by allocating the fair value of
the reporting unit to all of the assets, recognized and unrecognized, and
liabilities of the reporting unit in a manner similar to a purchase price
allocation in accordance with SFAS No. 141. The residual fair value after this
allocation is the implied fair value of the reporting unit goodwill. Any
transitional impairment loss will be recognized as the cumulative effect of a
change in accounting principle in our statement of income.

As of the date of adoption of SFAS No. 142, we had net unamortized
goodwill in the amount of $4.4 million and unamortized identifiable intangible
assets in the amount of $7.6 million, all of which will be subject to the
transition provisions of SFAS No. 142. Amortization expense related to goodwill
was $0.25 million for each of fiscal 2001, 2000 and 1999. Because of the
extensive effort needed to comply with adopting SFAS No. 141 and No. 142, it is
not practicable to reasonably estimate the impact of adopting the statements on
our financial statements, including whether we will be required to recognize
any transitional impairment losses as the cumulative effect of a change in
accounting principle.

In August, 2001, the FASB issued SFAS No. 144. SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This statement requires that long-lived assets be 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 an
asset to future net cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset. SFAS No. 144 requires companies
to separately report discontinued operations and extends that reporting to a
component of an entity that either has been disposed of (by sale, abandonment,
or in a distribution to owners) or is classified as held for sale. Assets to
be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. We were required to adopt SFAS No. 144 December 31, 2001.
We do not expect the adoption of SFAS No. 144 to have a material impact on our
financial condition or results of operation.

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Forward-Looking Statements

Certain information contained herein includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
is subject to the safe harbor created by that Act. Forward-looking
statements can be identified by the use of forward-looking
terminology, such as may, will, should, expect, anticipate,
estimate, continue, plan, intend or other similar terminology. Such
forward-looking statements, which relate to, among other things, the financial
condition, results of operations and business of our company, are subject to
significant risks and uncertainties that could cause actual results to differ
materially and adversely from those set forth in such statements. These
include, without limitation, our ability to open new stores on a timely and
profitable basis, the impact of competition on revenues and margins, the effect
of weather conditions and general economic conditions in the western United
States (which is our area of operation), the seasonal nature of our business,
and other risks and uncertainties including the risk factors listed in our
Registration Statement on Form S-4 as filed with the Securities and Exchange
Commission on January 16, 1998 and as may be detailed from time to time in our
public announcements and filings with the Securities and Exchange Commission.
We assume no obligation to publicly release the results of any revisions to the
forward-looking statements contained herein which may be made to reflect events
or circumstances occurring subsequent to the filing of this Form 10-K with the
Securities and Exchange Commission or otherwise to revise or update any oral or
written forward-looking statements that may be made from time to time by or on
behalf of our company.




ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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 2002 as compared to
the rate at December 30, 2001, our interest expense for 2002 would increase
$0.25 million based on the outstanding balance of our revolving credit facility
at December 30, 2001. We do not hold any derivative instruments and does not
engage in hedging activities.




ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information called for by this item is set forth in our financial
statements contained in this report. Specific financial statements can be
found at the pages listed in the following index.

INDEX TO FINANCIAL STATEMENTS

|                                                                            |                                              |  |     |     | 
|--------------------------------------------------------------------------- | -------------------------------------------- |  | --- | --- | 
|Index to Financial Statements                                               |                                              |  | F-1 |    
|Independent Auditors Report                                                |                                              |  | F-2 |    
|Balance Sheets at December 31, 2000 and December 30, 2001                   |                                              |  | F-3 |    
|Fiscal Years Ended January 2, 2000, December 31, 2000 and December 30, 2001 |                                              |  |     |    
|                                                                            | Statements of Operations                     |  |     | F-5 | 
|                                                                            | Statements of Stockholders Equity (Deficit) |  |     | F-6 | 
|                                                                            | Statements of Cash Flows                     |  |     | F-7 | 
|Notes to Financial Statements                                               |                                              |  | F-9 |    

|                              |                                                                                                  |  |          |  | 
|----------------------------- | ------------------------------------------------------------------------------------------------ |  | -------- |  | 
|                              |                                                                                                  |  | Schedule
|                              |                                                                                                  |  |         
|Financial Statement Schedule: |                                                                                                  |  |          | 
|                              | Valuation and Qualifying Accounts as of January 2, 2000,
December 31, 2000 and December 30, 2001 |  | II-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
|                      |  |     |    |          
|Robert W. Miller      |  |     | 78 |           |  | Chairman of the Board                            
|Steven G. Miller      |  |     | 49 |           |  | President, Chief Executive Officer and Director  
|Charles P. Kirk       |  |     | 46 |           |  | Senior Vice President and Chief Financial Officer
|Gary S. Meade         |  |     | 55 |           |  | Secretary, Vice President and General Counsel    
|Richard A. Johnson    |  |     | 56 |           |  | Senior Vice President, Store Operations          
|Thomas J. Schlauch    |  |     | 57 |           |  | Senior Vice President, Buying                    
|Jeffrey L. Fraley     |  |     | 45 |           |  | Senior Vice-President, Human Resources           
|Dr. Michael D. Miller |  |     | 52 |           |  | Director                                         
|John G. Danhakl       |  |     | 46 |           |  | Director                                         

Robert W. Millerhas served as Chairman of our board of directors since
1992, served as President from 1973 to 1992 and Chief Executive Officer from
1973 to 2000 and co-founded our company in 1955.

Steven G. Millerhas served as our Chief Executive Officer since 2000 and
our President since 1992. Mr. Steven G. Miller served as our Chief Operating
Officer from 1992 to 2000 and our Executive Vice President, Administration from
1998 to 1992. Mr. Miller is Robert W. Millers son and Dr. Michael D. Millers
brother.

Charles P. Kirkhas served as our Senior Vice President and Chief
Financial Officer since 1992. Prior to joining us, Mr. Kirk served as Thrifty
Corporations Director of Planning and Vice President of Planning and Treasury
since October 1990. Prior to that, Mr. Kirk held various financial positions
with Thrifty Corporations former parent, Pacific Enterprises, since 1981.

Gary S. Meadehas served as our Senior Vice President since July 2001 and
our General Counsel and Secretary since 1997. 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 since 1992 and
Thrifty Corporations Vice President  Legal Affairs since 1979.

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

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

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

Michael D. Miller, Ph.D.has served as a director since 1997. Dr. Miller
is a senior mathematician at the RAND Corporation. Dr. Miller is Robert W.
Millers son and Steven G. Millers brother.

John G. Danhaklhas served as a director since 1997. Mr. Danhakl has
been an executive officer and equity owner of Leonard Green & Partners, L.P.,
since 1995. From 1990 to 1995, Mr. Danhakl was a Managing Director at
Donaldson, Lufkin & Jenrette Securities Corporation. Prior to joining
Donaldson, Lufkin & Jenrette

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Securities Corporation, Mr. Danhakl was a Vice
President at Drexel Burnham Lambert Incorporated. Mr. Danhakl is
also a member of the board of directors of Arden Group, Inc., Twinlab
Corporation, Communications & Power Industries, Inc., Leslies Poolmart, Inc.,
Liberty Group Publishing, Inc. and Diamond Triumph Auto Glass, Inc.




ITEM 11: EXECUTIVE COMPENSATION

Summary Compensation Table

The following table shows compensation for our Chief Executive Officer and
each of our four other most highly compensated executive officers for the past
three fiscal years.

|                          |  |      |      |     |  |        |         |       |  |   |         | 
|------------------------- |  | ---- | ---- | --- |  | ------ | ------- | ----- |  | - | ------- | 
|Annual Compensation      
|                         
|Name and                  |  |      |      |     |  |        |         |       |  |   |         | 
|Principal                 |  |      |      |     |  | Salary |         | Bonus
|Position                  |  | Year |      | ($) |  | ($)   
|                          |  |      |      |     |  |       
|Robert W. Miller,         |  |      | 2001 |     |  | $      | 340,000 |       |  | $ | 600,000 | 
|Chairman of the Board     |  |      | 2000 |     |  |        | 330,000 |       |  |   | 540,000 | 
|                          |  |      | 1999 |     |  |        | 330,000 |       |  |   | 445,000 | 
|                          |  |      |      |     |  |        |         |       |  |   |         | 
|Steven G. Miller,         |  |      | 2001 |     |  | $      | 325,000 |       |  | $ | 485,000 | 
|President and             |  |      | 2000 |     |  |        | 300,000 |       |  |   | 425,000 | 
|Chief Executive Officer   |  |      | 1999 |     |  |        | 285,000 |       |  |   | 330,000 | 
|                          |  |      |      |     |  |        |         |       |  |   |         | 
|Thomas J. Schlauch,       |  |      | 2001 |     |  | $      | 196,000 |       |  | $ | 160,000 | 
|Senior Vice President,    |  |      | 2000 |     |  |        | 186,000 |       |  |   | 140,000 | 
|Buying                    |  |      | 1999 |     |  |        | 178,000 |       |  |   | 109,000 | 
|                          |  |      |      |     |  |        |         |       |  |   |         | 
|Richard A. Johnson,       |  |      | 2001 |     |  | $      | 168,000 |       |  | $ | 140,000 | 
|Senior Vice President,    |  |      | 2000 |     |  |        | 158,000 |       |  |   | 120,000 | 
|Store Operations          |  |      | 1999 |     |  |        | 150,000 |       |  |   | 90,000  | 
|                          |  |      |      |     |  |        |         |       |  |   |         | 
|Charles P. Kirk,          |  |      | 2001 |     |  | $      | 178,000 |       |  | $ | 125,000 | 
|Senior Vice President     |  |      | 2000 |     |  |        | 168,000 |       |  |   | 105,000 | 
|& Chief Financial Officer |  |      | 1999 |     |  |        | 160,000 |       |  |   | 80,000  | 
|                          |  |      |      |     |  |        |         |       |  |   |         | 

Aggregated Option/SAR Exercises in Fiscal 2001 and 2001 Fiscal Year-End Option
Value

None.

Employment Agreements

Steven G. Miller and Robert W. Miller (collectively, the Millers) are
employed with us pursuant to employment agreements entered into January 1993.
According to these employment agreements, the Millers are to continue
employment with us for successive one-year periods renewing annual on December
31, unless any party gives timely notice to the other that the employment term
shall not be so extended. The agreements require us provide the Millers with a
base salary and those benefits generally available to the companys senior
executive officers, including health insurance, sick leave, and profit sharing
plan participation, and require our board to make an annual determination as to
whether each is entitled to receive a bonus for such year and an increase in
base salary for the next year. Robert W. Millers agreement also provides for
supplemental annual retirement benefits and health insurance benefits for
himself and his surviving spouse upon his retirement.

Employment under both agreements is terminable by us at any time, with or
without cause, and, under Robert W. Millers agreement, by him, if for good
reason (as defined in his employment agreement). If Steven G.

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Miller or Robert
W. Miller is terminated without cause or, in the case of Robert W. Miller, by
him for good reason, each is entitled to receive as severance pay his base
salary through the remainder of the employment term as then in
effect. The agreement of either of the Millers may be terminated if such
person becomes unable to render full services during certain prescribed periods
of time. The agreements contain covenants precluding the Millers from engaging
in certain competition with us and from soliciting certain of our employees for
a specified period following the termination of employment, the basis of which
depends upon the reason for the termination.

Director Compensation

Directors on our board do not receive any compensation. However, Green
Equity Investors, L.P., an affiliate of Leonard Green & Partners, L.P., holds a
significant equity interest in our parent. In addition, John G. Danhakl, an
executive officer and equity owner of Leonard Green & Partners, L.P., currently
serves on our board. During each of the fiscal years ended January 2, 2000,
December 31, 2000 and December 30, 2001 we paid Leonard Green & Associates,
L.P., also an affiliate of Leonard Green & Partners, L.P., compensation for
management services fees of $340,091, including out-of-pocket expenses pursuant
to a management services agreement with Leonard Green & Associates, L.P.
entered into on November 13, 1997. Pursuant to the management services
agreement, we pay an annual fee of $333,333 to Leonard Green & Associates, L.P.
for ongoing management, consulting and financial planning services. We also
pay reasonable and customary fees to Leonard Green & Associates, L.P. for
services rendered in connection with any major financial transactions that we
may undertake from time to time. In addition to the fees we pay for these
services, we also pay reasonable out-of-pocket expenses incurred in connection
with rendering such services. While we believe that we obtain significant
benefits from these services, we do not believe that our business, operating
results or financial condition are materially dependent on them. In addition,
we believe we would be able to obtain similar services from other consultants
or investment banking firms in the event that the management services agreement
were to be terminated. The agreement does 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. We believe the terms of the
management services agreement are comparable to what could be obtained from
unrelated, but equally qualified, third parties.

21



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##### Table of Contents






ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Stockholders

All of our outstanding capital stock is owned by our parent. Our parents
outstanding equity securities consist of common stock and Series A senior
exchangeable preferred stock. The following table sets forth the ownership of
our parents common stock as of March 25, 2002 by any person known us to be
the beneficial owner of more than 5% of either class of parents securities,
our directors, executive officers named in the Summary Compensation Table
above, and all executive officers and directors of our company as a group.

|                                                |  |                     |           |                  |  |  |      |  
|----------------------------------------------- |  | ------------------- | --------- | ---------------- |  |  | ---- | -
|Name and Address(1)                             |  | Parent Common Stock
|                                                |  |                    
|Of Beneficial Owner                             |  | Number of Shares    |           | Percent of Class
|                                                |  |                     |           |                 
|Robert W. Miller(2)                             |  |                     | 250,809   | (3)              |  |  | 13.0 | %
|Steven G. Miller(2)                             |  |                     | 200,000   | (4)              |  |  | 10.4 | %
|Dr. Michael D. Miller                           |  |                     | 100,000   | (5)              |  |  | 5.2  | %
|Richard A. Johnson                              |  |                     | 48,000    |                  |  |  | 2.5  | %
|Charles P. Kirk                                 |  |                     | 48,000    |                  |  |  | 2.5  | %
|Thomas J. Schlauch                              |  |                     | 40,000    |                  |  |  | 2.1  | %
|John G. Danhakl                                 |  |                     | 1,524     | (6)              |  |  | *    |  
|Green Equity Investors, L.P.(2)                 |  |                     | 723,577   |                  |  |  | 37.6 | %
|All Executive Officers and Directors as a Group |  |                     | 1,439,100 | (7)              |  |  | 74.7 | %



---

|*   |  | The percentage of shares beneficially owned does not exceed 1% of the class.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(1) |  | The address for each stockholder is 2525 East El Segundo Boulevard, El
Segundo, California 90245, except Green Equity Investor, L.P. and Mr.
Danhakl for which the address is 11111 Santa Monica Boulevard, Suite 2000,
Los Angeles, California 90025.                                                                                                                                                                                                                                                                               
|   
|   
|   
|   
|(2) |  | Pursuant to the stockholders agreement, each of Green Equity Investors,
L.P. and the Millers have agreed to vote for the directors designated by
the other.                                                                                                                                                                                                                                                                                                                                                                          
|   
|   
|   
|   
|(3) |  | Includes 100,809 shares of common stock held by Robert W. Miller and
Florence H. Miller, Trustees of the Robert W. and Florence H. Miller
Family Trust dated January 11, 1991 and 150,000 shares of common stock
held by Robert W. Miller and Florence H. Miller, Family Partners L.P.                                                                                                                                                                                                                                               
|   
|   
|   
|   
|(4) |  | Includes 200,000 shares of common stock held by Steven G. Miller and
Jacquelyne G. Miller, Trustees of the Steven G. Miller and Jacquelyne G.
Miller Trust dated September 13, 1990.                                                                                                                                                                                                                                                                                                                                                 
|   
|   
|   
|   
|(5) |  | Includes 100,000 shares of common stock held by Michael D. Miller,
Trustee of the Miller Living Trust, dated December 11, 1997.                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|   
|   
|   
|(6) |  | Includes 154 shares of common stock owned directly by John G. Danhakl and
1,370 shares of common stock owned by John G. Danhakl and Kathy Danhakl,
as joint tenants. Additionally, Mr. Danhakl is an executive officer and
equity owner of Leonard Green & Partners, L.P. and may be deemed to be a
beneficial owner of the shares of common stock owned by Green Equity
Investors, L.P. because of his interest in Leonard Green & Partners. L.P.,
which is an affiliate of the sole general partner of Green Equity
Investors, L.P.
|   
|   
|   
|   
|(7) |  | Includes the shares identified in note (6) above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Parent Equity and Debt

Our parents certificate of incorporation contains restrictions on
transfer of its outstanding stock and grants to our parent, or our parents
assignee, a right of first refusal in the event of a proposed sale by any
stockholder of our parent. In addition to its common stock, our parent issued
Series A 13.45% senior exchangeable preferred stock and a warrant to purchase
60,000 shares of its common stock, which was issued in connection with the 1997
recapitalization. In connection with the recapitalization in 1997, our parent,
the Millers and Green Equity Investors, L.P. entered into a stockholders
agreement which, among other things, generally provides that Green Equity
Investors, L.P. will vote all of our parents common stock that it owns (and
will cause its affiliates to vote) in favor of the election of the Millers and
an additional person designated by them to be directors of our parent.
Likewise, the Millers agreed to vote the common stock of our parent that they
own (and will cause their affiliates to vote) in favor of the election of two
persons designated by Green Equity Investors, L.P. to be directors of our
parent. The stockholders agreement further provides that all such persons will
cause our parent to vote the common stock of our

22



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##### Table of Contents



company in favor of the
election of the same five persons as our directors. The stockholders agreement
and the
respective certificates of incorporation of our parent and our company
contain a requirement for a supermajority director vote generally applicable to
transactions not in the ordinary course of business. The stockholders
agreement is generally for a term of ten years, subject to earlier termination
upon the occurrence of certain events.




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 Pay Less, 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s obligations under
ERISA will continue until the expiration of all applicable statutes of
limitation. In addition, 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

Potential Conflicts of Interest; Past Transactions with Affiliates

Green Equity Investors, L.P., an affiliate of Leonard Green & Partners,
L.P., holds an equity interest in our parent and also holds and 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
board of directors. Jonathan Sokoloff and Jonathan Seiffer, equity owners of
Leonard Green & Partners, L.P. and former members of our 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. All
of these potential conflicts may not e 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.

Consulting Fees

As consideration for the provision of ongoing management and financial
advisory services, we, on behalf of our parent, pay Leonard Green & Associates,
L.P. certain fees. See Executive Compensation  Compensation of Directors.

23



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PART IV




ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



|(A) |  | Documents filed as part of this report:
|--- |  | ---------------------------------------
|   
|(1) |  | Financial Statements.                  

| |                                                                                
| | -------------------------------------------------------------------------------
| | See Financial Statements Index included in Item 8 of Part II of
this Form 10-K.



|(2) |  | Financial Statement Schedule.
|--- |  | -----------------------------

| |                                                                                
| | -------------------------------------------------------------------------------
| | See Financial Statements Index included in Item 8 of Part II of
this Form 10-K.



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

| |             
| | ------------
| | (a) Exhibits

|           |  |                                                                                                                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(i)(1)  |  | Restated Certificate of Incorporation of our company                                                                                                                                            
|3.1(ii)(1) |  | By-Laws of our company, as amended October 27, 1997                                                                                                                                             
|4.1(5)     |  | Indenture dated as of November 13, 1997 between us and First Trust National Association, as trustee                                                                                             
|4.2(5)     |  | Form of our Series B 10 7/8% Senior Notes due 2007 (included in Exhibit 4.1)                                                                                                                    
|10.1(a)(2) |  | Employment Agreement between us and Robert W. Miller dated as of January 1, 1993                                                                                                                
|10.1(b)(2) |  | Employment Agreement between us and Steven G. Miller dated as of January 1, 1993                                                                                                                
|10.1(c)(2) |  | Sublease between us and Thrifty dated as of September 25, 1992                                                                                                                                  
|10.2(a)(3) |  | Amended and Restated Indemnification Implementation Agreement between us (formerly known as United Merchandising
Corp.) and Thrifty PayLess Holdings, Inc. dated as of April 20, 1994           
|10.2(b)(3) |  | Agreement and Release among Pacific Enterprises, Thrifty PayLess Holdings, Inc., Thrifty PayLess, Inc., Thrifty
and us (formerly known as United Merchandising Corp.) dated as of March 11, 1994
|10.3(a)(4) |  | Financing Agreement dated March 8, 1996 between The CIT Group/Business Credit, Inc. and us                                                                                                      
|10.3(b)(4) |  | Grant of Security Interest in and Collateral Assignment of Trademarks and Licenses dated as of March 8, 1996 by
us in favor of The CIT Group/Business Credit, Inc.                              
|10.3(c)(4) |  | Guarantee dated March 8, 1996 by Big 5 Corporation (now known as Big 5 Holdings Corp.) in favor of The CIT
Group/Business Credit, Inc.                                                          
|10.4(a)(4) |  | Agreement on Purchase and Sale among us and the State of Wisconsin dated as of February 13, 1996                                                                                                

24



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##### Table of Contents



|           |  |                                                                                                                                                                                                                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.4(b)(4) |  | Lease among us (Lessee) and the State of Wisconsin Investment Board (Lessor) dated as of March 5, 1996                                                                                                                                                                                          
|10.5(5)    |  | Purchase Agreement, dated as of November 13, 1997, by and among us and the Initial Purchasers named therein                                                                                                                                                                                     
|10.6(5)    |  | Registration Rights Agreement, dated as of November 13, 1997, by and among the Company and the Initial Purchasers
named therein                                                                                                                                                                 
|10.7(5)    |  | Management Services Agreement, dated as of November 13, 1997, by and between the Company, Big 5 Holdings Corp.
and Leonard Green & Associates, LP                                                                                                                                               
|10.8(5)    |  | Letter from The CIT Group/Business Credit, Inc. to us dated November 13, 1997, amending the Financing Agreement,
dated March 8, 1996 between the Company (formerly known as United Merchandising Corp.) and The CIT Group/Business
Credit, Inc.                                                 
|10.9(4)    |  | 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.                                                                                                                    
|10.10(4)   |  | Guarantee dated March 8, 1996 by Big 5 Corporation (now known as the Registrant) in favor of The CIT Group/Business
Credit, Inc.                                                                                                                                                                
|10.11      |  | Letter 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.                                             
|10.12      |  | 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.   
|10.13      |  | Sixth Amendment to Financing Agreement, dated February 27, 2002, by and among Big 5 Corp. and The CIT Group/Business
Credit, Inc., amending the Financing Agreement, dated March 8, 1996, between Big 5 Corp. (successor to
United Merchandising Corp.) and The CIT Group/ Business Credit, Inc.
|12.1       |  | Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                              



---

|(1) |  | Incorporated by reference to our Current Report on Form 8-K filed
November 26, 1997.                                                                            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Incorporated by reference to our Registration Statement on Form S-4
(file no. 33-61096) effective as of June 29, 1993.                                          
|   
|   
|   
|   
|(3) |  | Incorporated by reference to our Annual Report on Form 10-K for the
year ended January 1, 1995                                                                  
|   
|   
|   
|   
|(4) |  | Incorporated by reference to our Annual Report on Form 10-K for the year
ended December 31, 1995.                                                               
|   
|   
|   
|   
|(5) |  | Incorporated by reference to our Registration Statement on Form S-4
(file no. 333-43129) filed with the Securities and Exchange Commission on
December 23, 1997.

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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 any annual report covering our last fiscal year
nor any proxy statement to security holders.

26



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 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 25, 2002 | By:                                                 | /S/ Robert W. Miller
|                     |                                                    
|                     | Robert W. Miller
Chairman of the Board of Directors

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/ Robert W. MillerRobert W. Miller   |  | Chairman of the Board of Directors                                                             |  | March 25, 2002
|                                      
|/S/ Steven G. MillerSteven G. Miller   |  | President,
Chief Executive Officer
and Director of the Company
(Principal Executive Officer)   |  | March 25, 2002
|                                      
|/S/ Charles P. KirkCharles P. Kirk     |  | Senior Vice President
and Chief Financial Officer (Principal
Financial and Accounting Officer) |  | March 25, 2002
|                                      
|/S/ Michael D. MillerMichael D. Miller |  | Director of the Company                                                                        |  | March 25, 2002
|                                      
|/S/ John G. DanhaklJohn G. Danhakl     |  | Director of the Company                                                                        |  | March 25, 2002

27



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##### Table of Contents



BIG 5 CORP.

INDEX TO FINANCIAL STATEMENTS

|                                                                            |                                              |     |    
|--------------------------------------------------------------------------- | -------------------------------------------- | --- | ---
|Index to Financial Statements                                               |                                              | F-1
|Independent Auditors Report                                                |                                              | F-2
|Balance Sheets at December 31, 2000 and December 30, 2001.                  |                                              | F-3
|Fiscal Years Ended January 2, 2000, December 31, 2000 and December 30, 2001 |                                              |     |    
|                                                                            | Statements of Operations                     |     | F-5
|                                                                            | Statements of Stockholders Equity (Deficit) |     | F-6
|                                                                            | Statements of Cash Flows                     |     | F-7
|Notes to Financial Statements                                               |                                              | F-9

|                              |                                                                                                  |  |          |  | 
|----------------------------- | ------------------------------------------------------------------------------------------------ |  | -------- |  | 
|                              |                                                                                                  |  | Schedule
|                              |                                                                                                  |  |         
|Financial Statement Schedule: |                                                                                                  |  |          | 
|                              | Valuation and Qualifying Accounts as of January 2, 2000,
December 31, 2000 and December 30, 2001 |  | II-1    

F-1



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##### 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 financial statement
schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and
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 31,
2000 and December 30, 2001 and the results of its operations and its cash flows
for each of the fiscal years ended January 2, 2000, December 31, 2000 and
December 30, 2001 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.



| | KPMG LLP
| | --------

Los Angeles, California
March 1, 2002

F-2



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BIG 5 CORP.

Balance Sheets

(Dollar amounts in thousands)

|                                                                                         |                                                                                                    |                            |        |              |         |              |        |         |         | 
|---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ------------ | ------- | ------------ | ------ | ------- | ------- | 
|                                                                                         |                                                                                                    |                            |        | December 31, |         | December 30,
|Assets                                                                                   |                                                                                                    | 2000                       |        | 2001        
|                                                                                         |                                                                                                    |                            |        |             
|Current assets:                                                                          |                                                                                                    |                            |        |              |         |              |        |        
|                                                                                         | Cash                                                                                               |                            | $      | 3,753        |         |              |        | 7,865   |        
|                                                                                         | Trade and other receivables, net of allowance
for doubtful accounts of $607 and $671,
respectively |                            |        | 7,429        |         |              |        | 8,229   |        
|                                                                                         | Merchandise inventories                                                                            |                            |        | 168,981      |         |              |        | 163,680 |        
|                                                                                         | Prepaid expenses                                                                                   |                            |        | 1,146        |         |              |        | 1,469   |        
|                                                                                         |                                                                                                    |                            |        |              |         |              |        |        
|                                                                                         |                                                                                                    | Total current assets       |        |              | 181,309 |              |        |         | 181,243 | 
|                                                                                         |                                                                                                    |                            |        |              |         |              |        |        
|Property and equipment:                                                                  |                                                                                                    |                            |        |              |         |              |        |        
|                                                                                         | Land                                                                                               |                            |        | 186          |         |              |        | 186     |        
|                                                                                         | Buildings and improvements                                                                         |                            |        | 27,264       |         |              |        | 31,903  |        
|                                                                                         | Furniture and equipment                                                                            |                            |        | 50,089       |         |              |        | 51,007  |        
|                                                                                         | Less accumulated depreciation and amortization                                                     |                            |        | (37,577      | )       |              |        | (40,446 | )      
|                                                                                         |                                                                                                    |                            |        |              |         |              |        |        
|                                                                                         |                                                                                                    | Net property and equipment |        |              | 39,962  |              |        |         | 42,650  | 
|                                                                                         |                                                                                                    |                            |        |              |         |              |        |        
|Deferred income taxes, net                                                               |                                                                                                    |                            | 8,461  |              |         |              | 7,440  |        
|Leasehold interest, net of accumulated
amortization of $19,387 and $21,134, respectively |                                                                                                    |                            | 9,347  |              |         |              | 7,600  |        
|Other assets, at cost, less accumulated
amortization of $3,688 and $4,323, respectively  |                                                                                                    |                            | 12,011 |              |         |              | 13,219 |        
|Goodwill, less accumulated amortization of $1,865
and $2,112, respectively               |                                                                                                    |                            | 4,680  |              |         |              | 4,433  |        
|                                                                                         |                                                                                                    |                            |        |              |         |              |        |        
|                                                                                         |                                                                                                    | Total assets               |        | $            | 255,770 |              |        |         | 256,585 | 
|                                                                                         |                                                                                                    |                            |        |              |         |              |        |        

(Continued)

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##### Table of Contents



BIG 5 CORP.

Balance Sheets, Continued

(Dollar amounts in thousands)

|                                               |                                                                                                                                       |                                                      |         |              |         |              |         |         |         | 
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ------- | ------------ | ------- | ------------ | ------- | ------- | ------- | 
|                                               |                                                                                                                                       |                                                      |         | December 31, |         | December 30,
|Liabilities and Stockholder's Equity (Deficit) | 2000                                                                                                                                  |                                                      | 2001   
|                                               |                                                                                                                                       |                                                      |         |              |         |             
|Current liabilities:                           |                                                                                                                                       |                                                      |         |              |         |              |         |        
|                                               | Accounts payable                                                                                                                      |                                                      | $       | 64,401       |         |              |         | 62,308  |        
|                                               | Accrued expenses                                                                                                                      |                                                      |         | 46,405       |         |              |         | 51,900  |        
|                                               |                                                                                                                                       |                                                      |         |              |         |              |         |        
|                                               |                                                                                                                                       | Total current liabilities                            |         |              | 110,806 |              |         |         | 114,208 | 
|Deferred rent                                  |                                                                                                                                       |                                                      | 7,533   |              |         |              | 7,791   |        
|Long-term debt                                 |                                                                                                                                       |                                                      | 141,089 |              |         |              | 128,806 |        
|                                               |                                                                                                                                       |                                                      |         |              |         |              |         |        
|                                               |                                                                                                                                       | Total liabilities                                    |         |              | 259,428 |              |         |         | 250,805 | 
|                                               |                                                                                                                                       |                                                      |         |              |         |              |         |        
|Commitments and contingencies                  |                                                                                                                                       |                                                      |         |              |         |              |         |        
|Stockholders equity (deficit):                |                                                                                                                                       |                                                      |         |              |         |              |         |        
|                                               | Common stock, $.01 par value. Authorized 3,000 shares;
issued and outstanding 1,000 shares at December 30, 2001
and December 31, 2000 |                                                      |         |             |         |              |         |        |        
|                                               | Additional paid-in capital                                                                                                            |                                                      |         | 40,639       |         |              |         | 40,639  |        
|                                               | Accumulated deficit                                                                                                                   |                                                      |         | (44,297      | )       |              |         | (34,859 | )      
|                                               |                                                                                                                                       |                                                      |         |              |         |              |         |        
|                                               |                                                                                                                                       | Net stockholders equity (deficit)                   |         |              | (3,658  | )            |         |         | 5,780   | 
|                                               |                                                                                                                                       |                                                      |         |              |         |              |         |        
|                                               |                                                                                                                                       | Total liabilities and stockholders equity (deficit) |         | $            | 255,770 |              |         |         | 256,585 | 
|                                               |                                                                                                                                       |                                                      |         |              |         |              |         |        

See accompanying notes to financial statements.

F-4



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##### Table of Contents



BIG 5 CORP.
Statements of Operations

(Dollar amounts in thousands)

|                                                                                                 |                                 |                                                          |         |            |         |              |         |              |         |  |         |         |         | 
|------------------------------------------------------------------------------------------------ | ------------------------------- | -------------------------------------------------------- | ------- | ---------- | ------- | ------------ | ------- | ------------ | ------- |  | ------- | ------- | ------- | 
|                                                                                                 |                                 |                                                          |         | Year ended |         | Year ended   |         | Year ended  
|                                                                                                 |                                 |                                                          |         | January 2, |         | December 31, |         | December 30,
|                                                                                                 |                                 |                                                          |         | 2000       |         | 2000         |         | 2001        
|                                                                                                 |                                 |                                                          |         |            |         |              |         |             
|Net sales                                                                                        |                                 | $                                                        | 514,324 |            |         |              | 571,476 |              |         |  | 622,481 |        
|Cost of goods sold, buying and occupancy                                                         |                                 |                                                          | 341,852 |            |         |              | 377,040 |              |         |  | 407,679 |        
|                                                                                                 |                                 |                                                          |         |            |         |              |         |              |         |  |         |        
|                                                                                                 |                                 | Gross profit                                             |         |            | 172,472 |              |         |              | 194,436 |  |         |         | 214,802 | 
|                                                                                                 |                                 |                                                          |         |            |         |              |         |              |         |  |         |        
|Operating expenses:                                                                              |                                 |                                                          |         |            |         |              |         |              |         |  |         |        
|                                                                                                 | Selling and administrative      |                                                          |         | 130,833    |         |              |         | 144,323      |         |  |         | 159,667 |        
|                                                                                                 | Litigation settlement (note 10) |                                                          |         |           |         |              |         |             |         |  |         | 2,515   |        
|                                                                                                 | Depreciation and amortization   |                                                          |         | 9,479      |         |              |         | 9,340        |         |  |         | 10,031  |        
|                                                                                                 |                                 |                                                          |         |            |         |              |         |              |         |  |         |        
|                                                                                                 |                                 | Total operating expenses                                 |         |            | 140,312 |              |         |              | 153,663 |  |         |         | 172,213 | 
|                                                                                                 |                                 |                                                          |         |            |         |              |         |              |         |  |         |        
|                                                                                                 |                                 | Operating income                                         |         |            | 32,160  |              |         |              | 40,773  |  |         |         | 42,589  | 
|Interest expense                                                                                 |                                 |                                                          | 17,461  |            |         |              | 17,035  |              |         |  | 15,541  |        
|                                                                                                 |                                 |                                                          |         |            |         |              |         |              |         |  |         |        
|                                                                                                 |                                 | Income before income taxes and
extraordinary gain (loss) |         |            | 14,699  |              |         |              | 23,738  |  |         |         | 27,048  | 
|Income taxes                                                                                     |                                 |                                                          | 5,829   |            |         |              | 9,438   |              |         |  | 10,922  |        
|                                                                                                 |                                 |                                                          |         |            |         |              |         |              |         |  |         |        
|                                                                                                 |                                 | Income before extraordinary gain (loss)                  |         |            | 8,870   |              |         |              | 14,300  |  |         |         | 16,126  | 
|Extraordinary gain (loss) from early extinguishment of
debt, net of income tax (expense) benefit |                                 |                                                          | (396    | )          |         |              | 87      |              |         |  |        |        
|                                                                                                 |                                 |                                                          |         |            |         |              |         |              |         |  |         |        
|                                                                                                 |                                 | Net income                                               |         | $          | 8,474   |              |         |              | 14,387  |  |         |         | 16,126  | 
|                                                                                                 |                                 |                                                          |         |            |         |              |         |              |         |  |         |        

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 January 2, 2000, December 31, 2000 and December 30, 2001

(Dollar amounts in thousands)

|                                                        |  |            |        |             |  |                  |         |     |  |  |         |  
|------------------------------------------------------- |  | ---------- | ------ | ----------- |  | ---------------- | ------- | --- |  |  | ------- | -
|                                                        |  | Additional |        |             |  |                  |         | Net
|                                                        |  | paid-in    |        | Accumulated |  | Stockholder's   
|                                                        |  | capital    |        | Deficit     |  | Equity (Deficit)
|                                                        |  |            |        |             |  |                 
|Balance at January 3, 1999                              |  |            | 39,281 |             |  |                  | (67,158 | )   |  |  | (27,877 | )
|Forgiveness of net payable to Parent (Note 2)           |  |            | 1,358  |             |  |                  |        |     |  |  | 1,358   |  
|Net income for the year ended January 2, 2000           |  |            |       |             |  |                  | 8,474   |     |  |  | 8,474   |  
|                                                        |  |            |        |             |  |                  |         |     |  |  |         |  
|Balance at January 2, 2000                              |  |            | 40,639 |             |  |                  | (58,684 | )   |  |  | (18,045 | )
|Net income for the year ended December 31, 2000         |  |            |       |             |  |                  | 14,387  |     |  |  | 14,387  |  
|                                                        |  |            |        |             |  |                  |         |     |  |  |         |  
|Balance at December 31, 2000                            |  |            | 40,639 |             |  |                  | (44,297 | )   |  |  | (3,658  | )
|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                            |  | $          | 40,639 |             |  |                  | (34,859 | )   |  |  | 5,780   |  
|                                                        |  |            |        |             |  |                  |         |     |  |  |         |  

See accompanying notes to financial statements.

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##### Table of Contents



BIG 5 CORP.
Statements of Cash Flows

(Dollar amounts in thousands)

|                                      |                                                                                   |                                                             |                                          |                                           |        |            |         |              |       |              |         |         |        |        |         |  
|------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------- | ----------------------------------------- | ------ | ---------- | ------- | ------------ | ----- | ------------ | ------- | ------- | ------ | ------ | ------- | -
|                                      |                                                                                   |                                                             |                                          |                                           |        | Year ended |         | Year ended   |       | Year ended  
|                                      |                                                                                   |                                                             |                                          |                                           |        | January 2, |         | December 31, |       | December 30,
|                                      |                                                                                   |                                                             |                                          |                                           |        | 2000       |         | 2000         |       | 2001        
|                                      |                                                                                   |                                                             |                                          |                                           |        |            |         |              |       |             
|Cash flows from operating activities: |                                                                                   |                                                             |                                          |                                           |        |            |         |              |       |              |         |        
|                                      | Net income                                                                        |                                                             | $                                        | 8,474                                     |        |            |         | 14,387       |       |              |         | 16,126  |       
|                                      | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                             |                                          |                                           |        |            |         |              |       |              |         |         |       
|                                      |                                                                                   | Depreciation and amortization                               |                                          |                                           | 9,479  |            |         |              | 9,340 |              |         |         | 10,031 |       
|                                      |                                                                                   | Amortization of deferred finance charges
and discounts      |                                          |                                           | 179    |            |         |              | (39   | )            |         |         | (157   | )     
|                                      |                                                                                   | Deferred tax provision (benefit)                            |                                          |                                           | (1,666 | )          |         |              | (637  | )            |         |         | 1,021  |       
|                                      |                                                                                   | Loss on disposal of equipment
and leasehold interest        |                                          |                                           | 133    |            |         |              | 278   |              |         |         | 43     |       
|                                      |                                                                                   | Extraordinary gain/(loss) from early
extinguishment of debt |                                          |                                           | 661    |            |         |              | (148  | )            |         |         |       |       
|                                      |                                                                                   | Changes in assets and liabilities:                          |                                          |                                           |        |            |         |              |       |              |         |         |        |       
|                                      |                                                                                   |                                                             | Merchandise inventories                  |                                           |        | (7,987     | )       |              |       | (13,698      | )       |         |        | 5,301  |        
|                                      |                                                                                   |                                                             | Trade and other accounts receivable, net |                                           |        | (584       | )       |              |       | (498         | )       |         |        | (800   | )      
|                                      |                                                                                   |                                                             | Prepaid expenses and other assets        |                                           |        | (555       | )       |              |       | (2,994       | )       |         |        | (1,336 | )      
|                                      |                                                                                   |                                                             | Accounts payable                         |                                           |        | (2,562     | )       |              |       | 6,538        |         |         |        | (4,204 | )      
|                                      |                                                                                   |                                                             | Accrued expenses                         |                                           |        | 10,023     |         |              |       | 7,326        |         |         |        | 5,495  |        
|                                      |                                                                                   |                                                             |                                          |                                           |        |            |         |              |       |              |         |        
|                                      |                                                                                   |                                                             |                                          | Net cash provided by
operating activities |        |            | 15,595  |              |       |              | 19,855  |         |        |        | 31,520  |  
|                                      |                                                                                   |                                                             |                                          |                                           |        |            |         |              |       |              |         |        
|Cash flows from investing activities: |                                                                                   |                                                             |                                          |                                           |        |            |         |              |       |              |         |        
|                                      | Purchases of property and equipment                                               |                                                             |                                          | (13,075                                   | )      |            |         | (11,602      | )     |              |         | (10,510 | )     
|                                      | Purchase of Parent Senior Discount Notes                                          |                                                             |                                          |                                          |        |            |         |             |       |              |         | (6,688  | )     
|                                      | Purchase of long-term investments                                                 |                                                             |                                          | (1,363                                    | )      |            |         |             |       |              |         |        |       
|                                      |                                                                                   |                                                             |                                          |                                           |        |            |         |              |       |              |         |        
|                                      |                                                                                   |                                                             |                                          | Net cash used in investing
activities     |        |            | (14,438 | )            |       |              | (11,602 | )       |        |        | (17,198 | )
|                                      |                                                                                   |                                                             |                                          |                                           |        |            |         |              |       |              |         |        

(Continued)

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BIG 5 CORP.
Statements of Cash Flows, Continued

(Dollar amounts in thousands)

|                                                   |                                                                          |                                                        |       |                                                      |        |            |        |              |        |              |        |         |        |  |         |  
|-------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------------------ | ----- | ---------------------------------------------------- | ------ | ---------- | ------ | ------------ | ------ | ------------ | ------ | ------- | ------ |  | ------- | -
|                                                   |                                                                          |                                                        |       |                                                      |        | Year ended |        | Year ended   |        | Year ended  
|                                                   |                                                                          |                                                        |       |                                                      |        | January 2, |        | December 31, |        | December 30,
|                                                   |                                                                          |                                                        |       |                                                      |        | 2000       |        | 2000         |        | 2001        
|                                                   |                                                                          |                                                        |       |                                                      |        |            |        |              |        |             
|Cash flows from financing activities:              |                                                                          |                                                        |       |                                                      |        |            |        |              |        |              |        |        
|                                                   | Net borrowings (repayments) under revolving credit
facilities, and other |                                                        | $     | 16,539                                               |        |            |        | (2,252       | )      |              |        | (10,210 | )     
|                                                   | Repayment of Senior Notes                                                |                                                        |       | (19,060                                              | )      |            |        | (7,339       | )      |              |        |        |       
|                                                   |                                                                          |                                                        |       |                                                      |        |            |        |              |        |              |        |        
|                                                   |                                                                          |                                                        |       | Net cash used in financing activities                |        |            | (2,521 | )            |        |              | (9,591 | )       |        |  | (10,210 | )
|                                                   |                                                                          |                                                        |       |                                                      |        |            |        |              |        |              |        |        
|                                                   |                                                                          |                                                        |       | Net increase (decrease) in cash and
cash equivalents |        |            | (1,364 | )            |        |              | (1,338 | )       |        |  | 4,112   |  
|Cash and cash equivalents at beginning of year     |                                                                          |                                                        | 6,455 |                                                      |        |            | 5,091  |              |        |              | 3,753  |        
|                                                   |                                                                          |                                                        |       |                                                      |        |            |        |              |        |              |        |        
|Cash and cash equivalents at end of year           |                                                                          | $                                                      | 5,091 |                                                      |        |            | 3,753  |              |        |              | 7,865  |        
|                                                   |                                                                          |                                                        |       |                                                      |        |            |        |              |        |              |        |        
|Non-cash financing activities:                     |                                                                          |                                                        |       |                                                      |        |            |        |              |        |              |        |        
|                                                   |                                                                          | Dividend  forgiveness of Parent Senior
Discount Notes |       | $                                                    |       |            |        |              |       |              |        |         | 6,688  | 
|                                                   |                                                                          |                                                        |       |                                                      |        |            |        |              |        |              |        |        
|Supplemental disclosures of cash flow information: |                                                                          |                                                        |       |                                                      |        |            |        |              |        |              |        |        
|                                                   |                                                                          | Interest paid                                          |       | $                                                    | 16,935 |            |        |              | 17,013 |              |        |         | 14,690 | 
|                                                   |                                                                          | Income taxes paid                                      |       |                                                      | 1,664  |            |        |              | 8,143  |              |        |         | 13,820 | 
|                                                   |                                                                          |                                                        |       |                                                      |        |            |        |              |        |              |        |        

See accompanying notes to financial statements.

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##### Table of Contents



BIG 5 CORP.

Notes to Financial Statements

December 31, 2000 and December 30, 2001

(Dollar amounts in thousands)



|(1) |  | Basis of Presentation and Description of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The accompanying financial statements as of December 31, 2000 and December
30, 2001 and for the years ended January 2, 2000, December 31, 2000 and
December 30, 2001 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 260 stores at December 30, 2001 in California,
Washington, Arizona, Oregon, Texas, New Mexico, Nevada, Utah, Idaho and
Colorado.
|   
|(2) |  | 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 January 2,
2000, December 31, 2000 and December 30,2001 represent 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 returns.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | Other Receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | Other receivables consist principally of net amounts due from vendors for
certain co-op advertising and amounts due from third party credit card
companies. 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.                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                              

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| |  | 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 since 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, is amortized on a straight-line basis over periods
ranging from 15 to 30 years. The Company assesses the recoverability of
goodwill by determining whether the carrying value can be recovered through
undiscounted future operating cashflows from the assets. The impairment,
if any, is measured based on projected discounted future operating
cashflows using a discount rate equal to the Companys average cost of
funds. Recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved.
|
| |  | Other Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Other assets consist principally of deferred financing costs and long-term
investments held to maturity. Deferred financing costs are amortized
straight line over the terms of the respective debt. Investments
held-to-maturity are carried at amortized cost and consist of Parent Senior
Discount Notes. Investments held-to-maturity at December 31, 2000 and
December 30, 2001 were $5,306 and $6,136, respectively and mature in 2008.                                                                                                                                                                                          
|
| |  | 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 $4,628 and $4,987 at
December 31, 2000 and December 30, 2001, 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 $30,613 for the year ended January
2, 2000, $33,498 for the year ended December 31, 2000, and $35,981 for the
year ended December 30, 2001. 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                                                                                                                                                    
|
| |  | 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

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| |  | includes the enactment date. The realizability of deferred tax assets is
assessed throughout the year and a valuation allowance is established
accordingly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company files a consolidated tax return with its Parent, however, tax
expense is recorded based on the stand alone operations of the Company. In
1999, the excess tax liability of the Company over amounts due under the
consolidated tax return of $1,358 was treated as a capital contribution
from the parent. In 2000, the excess of amounts due under the consolidated
return over the Companys current tax liability of $2,745 was reflected as
a receivable from Parent in other long-term assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Reclassification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Certain prior year balances in the accompanying financial statements have
been reclassified to conform to current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value, less costs to sell.                                                                                                                                                                                                                                                                                           
|
| |  | Impact of New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | In June 2001, the FASB issued SFAS No. 141 Business Combinations, (SFAS No.
141) and SFAS No. 142, Goodwill and Other Intangible Assets(SFAS No. 142).
SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations. SFAS No. 141 specifies criteria that intangible
assets acquired in a business combination must meet to be recognized and
reported separately from goodwill. SFAS No. 142 will require that goodwill
and intangible assets with indefinite useful lives no longer be amortized,
but instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 also requires that intangible
assets with estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 121 and subsequently, SFAS No. 144
Accounting for the Impairment or Disposal of Long-Lived Assetsafter its
adoption.
|
| |  | SFAS No. 142, requires the Company to evaluate its existing intangible
assets and goodwill that were acquired in purchase business combinations,
and to make any necessary reclassifications in order to conform with the
new classification criteria in SFAS No. 141 for recognition separate from
goodwill. The Company is required to reassess the useful lives and
residual values of all intangible assets acquired and make any necessary
amortization period adjustments by the end of the first interim period
after adoption. If an intangible asset is identified as having an
indefinite useful life, the Company is required to test the intangible
asset for impairment in accordance with the provisions of SFAS No. 142
within the first interim period. Impairment is measured as the excess of
carrying value over the fair                                                                                                                                                             

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| |  | value of an intangible asset with an
indefinite life. Any impairment loss will be measured as of the date
of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In connection with SFAS No. 142s transitional goodwill impairment
evaluation, the statement requires the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date of
adoption. To accomplish this, the Company must 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 will
then have up to six months from December 31, 2001 to determine the fair
value of each reporting unit and compare it to the carrying amount of the
reporting unit. To the extent the carrying amount of a reporting unit
exceeds the fair value of the reporting unit, an indication exists that the
reporting unit goodwill may be impaired and the Company must perform the
second step of the transitional impairment test. The second step is
required to be completed as soon as possible, but no later than the end of
the year of adoption. In the second step, the Company must compare the
implied fair value of the reporting unit goodwill with the carrying amount
of the reporting unit goodwill, both of which would be measured as of the
date of adoption. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit to all of the assets
(recognized and unrecognized) and liabilities of the reporting unit in a
manner similar to a purchase price allocation, in accordance with SFAS No.
141. The residual fair value after this allocation is the implied fair
value of the reporting unit goodwill. Any transitional impairment loss
will be recognized as the cumulative effect of a change in accounting
principle in the Companys statement of income.
|
| |  | As of the date of adoption of SFAS No. 142, the Company had net unamortized
goodwill in the amount of $4,433 and unamortized identifiable intangible
assets in the amount of $7,600, all of which will be subject to the
transition provisions of SFAS No. 142. Amortization expense related to
goodwill was $247 for each of the years ended December 30, 2001, December 31,
2000 and January 2, 2000. Because of the extensive effort needed to comply
with adopting SFAS No. 141 and No. 142, it is not practicable to reasonably
estimate the impact of adopting the statements on the Companys financial
statements at the date of this report, including whether it will be
required to recognize any transitional impairment losses as the cumulative
effect of a change in accounting principle.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | In August, 2001, the FASB issued SFAS No. 144. SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement requires that long-lived assets be
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 an asset to future net cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the fair value of
the asset. SFAS No. 144 requires companies to separately report
discontinued operations and extends that reporting to a component of an
entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. The Company is required to adopt SFAS No. 144 on
January 1, 2002. The Company does not expect the adoption of SFAS No. 144
to have a material impact on the Companys financial condition or results
of operation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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|(3) |  | Long-Term Debt                           
|--- |  | -----------------------------------------
|   
|    |  | Long-term debt consists of the following:

|                                                                                          |                      |   |                            |         |                            |  |         |         | 
|----------------------------------------------------------------------------------------- | -------------------- | - | -------------------------- | ------- | -------------------------- |  | ------- | ------- | 
|                                                                                          |                      |   | December 31, 
        2000 |         | December 30, 
        2001
|                                                                                          |                      |   |                            |         |                           
|Revolving credit facility                                                                 |                      | $ | 37,321                     |         |                            |  | 25,000  |        
|10 7/8% Senior Notes, net of
unamortized discount, $104.1
million face amount due in 2007 |                      |   | 103,768                    |         |                            |  | 103,806 |        
|                                                                                          |                      |   |                            |         |                            |  |         |        
|                                                                                          | Total long-term debt |   | $                          | 141,089 |                            |  |         | 128,806 | 
|                                                                                          |                      |   |                            |         |                            |  |         |        



| |  | In 1997, the Company issued $131 million face amount, 10 7/8% Senior Notes
due 2007 (Senior Notes), less discount of $591 based on an imputed interest
rate of 10.95%. The 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 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 passu in right of payment with
all current and future unsubordinated indebtedness, subject to
restrictions due to the securitization of certain assets. During the year ended January 2, 2000 the Company
repurchased $19,100 face value of Senior Notes for a repurchase price of
$19,060 and an additional $7,750 face value of Senior Notes during the year
ended December 31, 2000 for a repurchase price of $7,339. On February 14,
2002, the Company repurchased an additional of $500 face value of Senior
Notes for a repurchase price of $499.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 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 has a five-year, non-amortizing $125 million revolving credit
facility (the CIT Credit Facility). The CIT Credit Facility may be
terminated by the lender by giving at least 90 days prior written notice
before any anniversary date, commencing with its anniversary date on
December 31, 2002. Unless it is terminated, the CIT Credit Facility will
continue on an annual basis from anniversary date to anniversary date
beginning in January 2003. 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 JP Morgan Chase prime lending rate and a ceiling of LIBOR
plus 2.50% or the JP Morgan Chase 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 30, 2001, loans under the CIT Credit Facility bear interest at
a rate of LIBOR (2.0% at December 30, 2001) plus 1.50% or the JP Morgan
Chase prime lending rate (5.0% at December 30, 2001). An annual fee of
0.325%, payable monthly, is assessed on the unused portion of the facility.
On December 30, 2001, the Company had $25,000 in LIBOR and prime lending
rate borrowings and letters of credit of $3,435 outstanding. The
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|    |  | Companys
maximum eligible borrowing available under the 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 $91,366 at December 30, 2001.                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | 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 such covenants at December 30, 2001.
|   
|    |  | The Company repurchased and forgave $12,500 face value of the Parent Senior
Discount Notes during the year ended December 30, 2001 for $6,688. On
February 1, 2002 the Company repurchased an additional $2,825 face value of
the Parent Senior Discount Notes. On February 14, 2002 the Company
repurchased an additional $500 face value of Senior Notes.                                                                                                                                                                                                                                                     
|   
|(4) |  | 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 Companys investments
held-to-maturity approximated $6,550 based upon recent market prices. The
fair value of the Companys Senior Notes at December 30, 2001 approximated
$103,546 based on recent market prices. The carrying amount of the
revolving credit facility reflects the fair value based on current rates
available to the Company for debt with the same remaining maturities.            
|   
|(5) |  | 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
noncash 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  
|                     |                |   | January 2, |        | December 31, |  | December 30,
|                     |                |   | 2000       |        | 2000         |  | 2001        
|                     |                |   |            |        |              |  |             
|Cash rental payments |                | $ | 27,179     |        |              |  | 29,667       |        |  |  | 31,602 |       
|Noncash rentals      |                |   | 625        |        |              |  | 375          |        |  |  | 258    |       
|Contingent rentals   |                |   | 1,360      |        |              |  | 1,592        |        |  |  | 1,710  |       
|                     |                |   |            |        |              |  |              |        |  |  |        |       
|                     | Rental expense |   | $          | 29,164 |              |  |              | 31,634 |  |  |        | 33,570 | 
|                     |                |   |            |        |              |  |              |        |  |  |        |       



| |  | Future minimum lease payments (cash rentals) under noncancelable operating
leases (with initial or remaining lease terms in excess of one year) as of
December 30, 2001 are:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|             |            |  |   |         | 
|------------ | ---------- |  | - | ------- | 
|Year ending: |            |  |   |        
|             | 2002       |  | $ | 33,350  | 
|             | 2003       |  |   | 32,957  | 
|             | 2004       |  |   | 32,178  | 
|             | 2005       |  |   | 29,552  | 
|             | 2006       |  |   | 25,262  | 
|             | Thereafter |  |   | 113,525 | 



|(6) |  | Accrued Expenses
|--- |  | ----------------

Accrued expenses consist of the following:

|                             |  |              |        |              |  |  |        | 
|---------------------------- |  | ------------ | ------ | ------------ |  |  | ------ | 
|                             |  | December 31, |        | December 30,
|                             |  | 2000         |        | 2001        
|                             |  |              |        |             
|Payroll and related expenses |  | $            | 12,494 |              |  |  | 13,051 | 
|Advertising                  |  |              | 5,059  |              |  |  | 5,768  | 
|Sales tax                    |  |              | 6,781  |              |  |  | 7,285  | 
|Income tax                   |  |              | 8,111  |              |  |  | 5,287  | 
|Litigation Settlement        |  |              |       |              |  |  | 2,515  | 
|Other                        |  |              | 13,960 |              |  |  | 17,994 | 
|                             |  |              |        |              |  |  |        | 
|                             |  | $            | 46,405 |              |  |  | 51,900 | 
|                             |  |              |        |              |  |  |        | 

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|7) |  | Income Taxes                                                 
|-- |  | -------------------------------------------------------------
|  
|   |  | Total income tax expense (benefit) consists of the following:

|                                            |                          |   |            |       |              |  |              |       |  |  |        |        | 
|------------------------------------------- | ------------------------ | - | ---------- | ----- | ------------ |  | ------------ | ----- |  |  | ------ | ------ | 
|                                            |                          |   | January 2, |       | December 31, |  | December 30,
|                                            |                          |   | 2000       |       | 2000         |  | 2001        
|                                            |                          |   |            |       |              |  |             
|Income tax before
extraordinary gain (loss) |                          | $ | 5,829      |       |              |  | 9,438        |       |  |  | 10,922 |       
|Tax effect of extraordinary
gain (loss)     |                          |   | (265       | )     |              |  | 61           |       |  |  |       |       
|                                            |                          |   |            |       |              |  |              |       |  |  |        |       
|                                            | Total income tax expense |   | $          | 5,564 |              |  |              | 9,499 |  |  |        | 10,922 | 
|                                            |                          |   |            |       |              |  |              |       |  |  |        |       

|      |         |   |         |       |          |  |        |        |   |  |        |       | 
|----- | ------- | - | ------- | ----- | -------- |  | ------ | ------ | - |  | ------ | ----- | 
|      |         |   | Current |       | Deferred |  | Total 
|      |         |   |         |       |          |  |       
|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  |      
|      |         |   |         |       |          |  |        |        |   |  |        |      
|1999: |         |   |         |       |          |  |        |        |   |  |        |      
|      | Federal |   | $       | 6,161 |          |  |        | (1,416 | ) |  |        | 4,745 | 
|      | State   |   |         | 1,334 |          |  |        | (250   | ) |  |        | 1,084 | 
|      |         |   |         |       |          |  |        |        |   |  |        |      
|      |         | $ | 7,495   |       |          |  | (1,666 | )      |   |  | 5,829  |      
|      |         |   |         |       |          |  |        |        |   |  |        |      



| |  | 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  
|                                    |  | January 2, |       | December 31, |  | December 30,
|                                    |  | 2000       |       | 2000         |  | 2001        
|                                    |  |            |       |              |  |             
|Tax expense at statutory rate       |  | $          | 5,145 |              |  |              | 8,180 |  |  |  | 9,467  | 
|State taxes, net of federal benefit |  |            | 713   |              |  |              | 1,131 |  |  |  | 1,310  | 
|Other                               |  |            | (29   | )            |  |              | 127   |  |  |  | 145    | 
|                                    |  |            |       |              |  |              |       |  |  |  |        | 
|                                    |  | $          | 5,829 |              |  |              | 9,438 |  |  |  | 10,922 | 
|                                    |  |            |       |              |  |              |       |  |  |  |        | 

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

|                                             |                                                |                         |     |              |       |              |       |       |       | 
|-------------------------------------------- | ---------------------------------------------- | ----------------------- | --- | ------------ | ----- | ------------ | ----- | ----- | ----- | 
|                                             |                                                |                         |     | December 31, |       | December 30,
|                                             |                                                |                         |     | 2000         |       | 2001        
|                                             |                                                |                         |     |              |       |             
|Deferred assets:                             |                                                |                         |     |              |       |              |       |      
|                                             | Self-insurance reserves                        |                         | $   | 1,844        |       |              |       | 1,987 |      
|                                             | Employee benefits                              |                         |     | 1,754        |       |              |       | 1,946 |      
|                                             | State taxes                                    |                         |     | 651          |       |              |       | 648   |      
|                                             | Noncash rentals                                |                         |     | 3,001        |       |              |       | 3,104 |      
|                                             | Amortization of tangible and intangible assets |                         |     | 598          |       |              |       | 194   |      
|                                             | Other                                          |                         |     | 903          |       |              |       | 753   |      
|                                             |                                                |                         |     |              |       |              |       |      
|                                             |                                                | Deferred tax assets     |     | $            | 8,751 |              |       |       | 8,632 | 
|Deferred liabilities  basis in fixed assets |                                                | $                       | 290 |              |       |              | 1,192 |      
|                                             |                                                |                         |     |              |       |              |       |      
|                                             |                                                | Net deferred tax assets |     | $            | 8,461 |              |       |       | 7,440 | 
|                                             |                                                |                         |     |              |       |              |       |      



|    |  | 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 carryforward period are reduced.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(8) |  | 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 $1,483 for the year ended January 2, 2000, $1,650 for
the year ended December 31, 2000 and $1,830 for the year ended December 30,
2001 in employer matching and profit sharing contributions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The Company has no other significant postretirement or postemployment
benefits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(9) |  | 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, 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                                                                                                                                                                                                                                                                                                                                                                                                                     

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|     |  | unitary tax returns of PE; and subleases described as
follows. An affiliate of a stockholder of the Parent
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 $194 for the year ended January 2, 2000, $203 for
the year ended December 31, 2000 and $212 for the year ended December 30,
2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|     |  | The Company has a Management Services Agreement with an investment advisor
group that is an affiliate of a stockholder of the Parent that expires in
May 2005, under which $333, plus expenses, will be paid annually for
financial advisory and investment banking services. During each of the
years ended January 2, 2000, December 31, 2000 and December 30, 2001, the
Company, on behalf of the Parent, paid $340, plus expenses, to this advisor
group. An individual of the investor advisor group is a member of the
Companys board of directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|(10) |  | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|     |  | In August 2001, the Company received a copy of a complaint 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 its California store managers and its California
first assistant store managers. The plaintiffs allege 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. They seek, on behalf of the class members, back pay
for overtime allegedly not paid, statutory penalties in the amount of an
additional thirty days wages for each such employee whose employment
terminated in the four years preceding the complaint, and injunctive relief
to require us to treat our store management as non-exempt. On February 8,
2002, the Company filed a joint settlement with the court. Under the terms
of the settlement, the Company agreed to pay $32.46 per week of active
employment as store manager during 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 $32.5 for their service as named plaintiffs. The settlement is
subject to the approval of the court. Once approved, the settlement will
constitute a full and complete settlement and release of all claims related
to the lawsuit. In addition, the Company admits no liability or other
wrongdoing with respect to the claims set forth in the lawsuit. The
Company intends to defend the case vigorously if the court does not approve
the settlement agreement. If the settlement is not approved by the court,
an adverse result in this litigation could harm the Companys financial
condition, and any required change in the Companys labor
practices, as well
as the costs of defending this litigation, could have a negative impact on
the Companys results of operations. The Company recorded a litigation
charge of $2,515 in the fourth quarter of 2001, to provide for expected
payments to class members as well as legal and other fees associated with
the settlement of this complaint.
|    
|     |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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|(11) |  | 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 is impacted by
the general economy. Changes in the marketplace may significantly affect
managements estimates and the Companys performance.
|    
|(12) |  | Quarterly Financial Data (unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|             |  |                              |         |         |  |         |         |         |  |       |         |  |  |  |         |  |  |  |         | 
|------------ |  | ---------------------------- | ------- | ------- |  | ------- | ------- | ------- |  | ----- | ------- |  |  |  | ------- |  |  |  | ------- | 
|             |  | Year Ended December 31, 2000
|             |  |                             
|             |  | First                        |         | Second  |  | Third   |         | Fourth  |  |       |         | 
|             |  | Quarter                      |         | Quarter |  | Quarter |         | Quarter |  | Total
|             |  |                              |         |         |  |         |         |         |  |      
|Net sales    |  | $                            | 129,712 |         |  |         | 137,271 |         |  |       | 146,169 |  |  |  | 158,324 |  |  |  | 571,476 | 
|Gross Profit |  | $                            | 42,888  |         |  |         | 48,394  |         |  |       | 48,913  |  |  |  | 54,241  |  |  |  | 194,436 | 
|Net Income   |  | $                            | 851     |         |  |         | 3,372   |         |  |       | 3,191   |  |  |  | 6,973   |  |  |  | 14,387  | 

|             |  |                              |         |         |  |         |         |         |  |       |         |  |  |  |         |  |  |  |         | 
|------------ |  | ---------------------------- | ------- | ------- |  | ------- | ------- | ------- |  | ----- | ------- |  |  |  | ------- |  |  |  | ------- | 
|             |  | 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  | 

F-19



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##### Table of Contents



BIG 5 CORP.
Schedule II  Valuation and Qualifying Accounts
(Dollar amounts in thousands)

|                  |                                    |  |            |     |            |  |             |     |           |  |   |      |   |  |  |     | 
|----------------- | ---------------------------------- |  | ---------- | --- | ---------- |  | ----------- | --- | --------- |  | - | ---- | - |  |  | --- | 
|                  |                                    |  | BALANCE AT |     | ADDITIONS: |  | DEDUCTIONS: |     | BALANCE  
|                  |                                    |  | BEGINNING  |     | CHARGES TO |  | A/R         |     | AT END OF
|                  |                                    |  | OF YEAR    |     | OPERATIONS |  | WRITE OFFS  |     | YEAR     
|                  |                                    |  |            |     |            |  |             |     |          
|January 2, 2000   |                                    |  |            |     |            |  |             |     |           |  |   |      |   |  |  |    
|                  | Allowance for doubtful receivables |  | $          | 939 |            |  | $           | 181 |           |  | $ | (621 | ) |  |  | 499 | 
|December 31, 2000 |                                    |  |            |     |            |  |             |     |           |  |   |      |   |  |  |    
|                  | Allowance for doubtful receivables |  |            | 499 |            |  |             | 365 |           |  |   | (257 | ) |  |  | 607 | 
|December 30, 2001 |                                    |  |            |     |            |  |             |     |           |  |   |      |   |  |  |    
|                  | Allowance for doubtful receivables |  |            | 607 |            |  |             | 129 |           |  |   | (65  | ) |  |  | 671 | 

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