<PAGE>   1

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


[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
     AND EXCHANGE ACT OF 1934

                    For the fiscal year ended January 2, 2000
                                       OR

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

For the transition period from __________________ to _________________________

COMMISSION FILE NUMBER: 333-43129

                                   BIG 5 CORP.
                    SUCCESSOR TO: UNITED MERCHANDISING CORP.
                            DBA: BIG 5 SPORTING GOODS
             (Exact name of registrant as specified in its charter)

                                    DELAWARE
                            (State of Incorporation)

                                   95-1854273
                      (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 Holdings Corp., a
Delaware Corporation. Neither the registrant's nor Big 5 Holdings 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 29, 2000.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      None


<PAGE>   2

                                     PART I


ITEM 1:  BUSINESS

GENERAL

           Big 5 Corp. (the "Company" or "Big 5") is the leading sporting goods
retailer in the Western United States, operating 234 stores under the "Big 5
Sporting Goods" name at January 2, 2000. The Company's core market is
California, Washington and Nevada and beginning in 1993, it expanded into
Arizona, Idaho, Oregon, New Mexico, Texas and Utah. Big 5 provides a full-line
product offering of over 25,000 SKU's in a traditional sporting goods store
format that averages 11,000 square feet. The Company's products include athletic
shoes and apparel, tennis, golf, ski, snowboard, in-line skating, fitness,
outdoor and team sports equipment for the competitive and recreational sporting
goods customer. Big 5 offers customers attractive values on recognized
brand-name merchandise at a wide variety of price points. Important brand-names
offered by the Company include Nike, Reebok, Wilson, K2, Rollerblade, Coleman,
Spalding, Adidas, Fila, Speedo, Easton and Columbia, among others. The Company
augments its value image by emphasizing merchandise produced exclusively for the
Company, and on a selective basis, opportunistic buys comprising first quality
items, including overstock and close-out merchandise. These merchandise values
are communicated weekly through print advertising created by the Company in
order to generate store traffic and drive sales. For the twelve months ended
January 2, 2000, the Company generated $514.3 million of revenue, $41.6 million
of EBITDA (as defined below) and a same store sales increase of 2.0% over the
prior period. Through the period ended January 2, 2000, Big 5 has enjoyed 16
consecutive quarterly increases in same store sales over the comparable prior
period.

           Big 5 was founded in 1955 by Robert W. Miller, Maurie Liff and Harry
Liff, with the establishment of five retail locations in Los Angeles, Burbank,
Inglewood, Glendale and San Jose. The Company originally sold World War II
surplus items including tents, sleeping bags, air mattresses, housewares, tools
and other merchandise. Other sporting goods gradually entered the product mix
and as a result, in 1963, the Company decided to become a sporting goods
specialist and changed its trade name to "Big 5 Sporting Goods." In 1971, the
Company was acquired by Thrifty Corporation ("Thrifty"), which was subsequently
purchased by Pacific Enterprises ("PE") in 1986. Throughout these changes in
ownership, management remained relatively constant and in 1992, management in
conjunction with Leonard Green & Partners, LP ("LGP") bought the Company. In
October 1997, Big 5 Holdings Corp., the parent corporation of the Company
("Parent"), Robert W. Miller, Steven G. Miller and Green Equity Investors, LP
("GEI") agreed to a Plan of Recapitalization and Stock Repurchase Agreement (the
"Recapitalization Agreement") which resulted in existing management and
employees of the Company (and members of their families) beneficially owning the
majority of Parent. Several transactions (collectively referred to as the
"Recapitalization") were effected pursuant to the Recapitalization Agreement,
including the reincorporation of the Company in Delaware as Big 5 Corp. See
"Liquidity and Capital Resources" for a detailed description of the
Recapitalization.


MERCHANDISING

           Offering approximately 25,000 SKUs, the typical Company store targets
the competitive and recreational sporting goods customer with a full-line
product offering at a wide variety of price points. The Company believes its
long history of success is attributable to its adherence to a consistent
merchandising strategy, the key elements of which are summarized below:

           Delivering Consistent Value to Consumers. The Company offers
consistent value to consumers by offering a distinctive combination of in-line
products, "special make-up" merchandise (produced exclusively for the Company
under a manufacturer's brand name), private label merchandise and opportunistic
buys. The Company offers this consistent value to its customers while
maintaining strong



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<PAGE>   3

margins as a result of its ability to purchase in large quantities and quickly
adjust this combination of merchandise to take advantage of purchasing
opportunities. Through its 44 years of operations, the Company has developed
specific expertise in selling its particular mix of these products, thereby
building the Company's price image, driving its weekly print advertisements and
creating retail traffic.

           The Company sources its in-line 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 carried by the
Company:

<TABLE>
      <S>           <C>           <C>                     <C>                  <C>
      Adidas        Columbia      Hillerich & Bradsby     Prince               Shakespeare
      Bauer         Daiwa         Icon (Proform)          Rawlings             Shimano
      Brooks        Danskin       Jansport                Reebok               Spalding
      Browning      Discus        K2                      Remington            Titleist
      Bushnell      Easton        Nike                    Rollerblade          Wilson
      Casio         Fila          Nordica                 Rossignol            Winchester
      Coleman       Franklin      Pentland                Russell Athletic     Zebco
</TABLE>


           The Company also offers a variety of private label merchandise to
complement its branded product offerings. The Company's private label items
include shoes, apparel, tennis rackets, binoculars, camping equipment and
fishing supplies. They are sold under the labels: Fives, Court Casuals, Sport
Essentials, Rugged Exposure, Hot Voltage, Golden Bear, Body Glove (licensed),
Kemper (licensed), Pacifica and South Bay Golf.

           Offering a Customized Product Assortment. Through its 44 years of
experience across different demographic, economic and competitive markets, the
Company's management has refined its merchandising strategy to increase sales by
offering a selection of goods that meets customer demands while managing
inventory levels. The Company believes it provides consumers with a merchandise
offering that compares favorably to its competitors, including the superstores,
in terms of category selection. A goal of the Company's merchandising strategy
is to offer a customized and selected assortment of products, which enables the
consumer to comparison shop at a Big 5 store without being overwhelmed by a
large number of different products in any one category. The Company tailors its
merchandise selection and quantity on a store-by-store basis in order to satisfy
each region's specific needs and buying habits.

           The Company's buyers work closely with senior management to determine
the product selection, promotion and pricing of the merchandise mix. The Company
utilizes an integrated merchandising, distribution and financial information
system. Management uses the information provided to continually refine its
merchandise mix, pricing strategy, advertising effectiveness and inventory
levels.

           Market Leader in Core Market Served. The Company has built a
recognized franchise by establishing a strong presence in its core market of
California, Washington and Nevada and by consistently promoting quality
brand-name products at attractive prices. The Company has over triple the number
of stores as its closest full-line sporting goods competitor in such core
market. This concentration of stores provides economies of scale in advertising
and distribution as well as increased customer awareness of the Big 5 name.


ADVERTISING

           The Company believes that the consistency and reach of Big 5's print
advertising programs have created high customer awareness of Big 5. Through
years of focused advertising, Big 5 has reinforced its reputation for providing
quality products at attractive prices. The Company attempts to highlight a broad
range of merchandise categories in every advertisement to maintain customer
awareness of its full-line product offering. The Company's advertising message
is reinforced 52 weeks a year in the form of newspaper inserts or mailers,
typically consisting of four standard pages using color photography. The



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<PAGE>   4

Company believes that its print advertising consistently reaches more households
in its core market than does the print advertising of its competitors. The
Company's effectiveness in communicating the product values it offers is
evidenced by the fact that typically 40% of sales have been products included in
these weekly advertisements.

           The Company uses its professional in-house advertising staff rather
than an outside advertising agency. The staff centrally handles all of its
advertising, including design, layout, production and media management. This
approach has been in place since its founding. Big 5's in-house advertising
enables management the flexibility to react quickly to merchandise trends and
maximize the effectiveness of its weekly inserts and mailers.


EXPANSION AND STORE DEVELOPMENT

           The Company's expansion within and beyond its core market has been
systematic and designed to take advantage of Big 5's name recognition and to
capitalize on the Company's economical store format and distinctive merchandise
mix. Throughout the Company's history, management has emphasized careful site
selection and controlled growth. Over the past five fiscal years, the Company
has added 64 stores (13 new stores annually on average), of which 61% were
outside of the Company's core market of California, Washington and Nevada. These
non-core stores have grown to 20% of the Company's store base at the end of
1999. The following table sets forth certain information regarding the Company's
expansion program during the periods indicated:

<TABLE>
<CAPTION>
                                                            New Stores
                                        --------------------------------------------
                                                   New       Core                                    No. Of Stores
      Year                              Total    Markets    Markets     Acquisitions    Closures     at Period End
      ----                              -----    -------    -------     ------------    --------     -------------
      <S>                               <C>      <C>        <C>         <C>             <C>          <C>
      1995 .........................     19         6         6               7           (2)             192
      1996 .........................      4         2         2               -            -              196
      1997 .........................     14         5         9               -            -              210
      1998 .........................     12         9         3               -           (1)             221
      1999 .........................     15        10         5               -           (2)             234
</TABLE>


               The Company has identified numerous expansion opportunities to
further penetrate its core market, develop recently entered markets and expand
into new market areas with similar demographic, competitive and economic
profiles as its existing markets. The typical Big 5 store size provides the
Company with a large selection of locations for new store placement, which in
turn, allows the Company to open stores conveniently located to the customer.
Continuing its controlled growth strategy, the Company plans on opening
approximately 15-20 stores annually over the next five years. This expansion
plan is designed to take advantage of the growing economies of the Company's
existing and recently entered markets and to capitalize on opportunities in fast
growing new markets.

           Big 5's store format requires a low investment in fixtures and
equipment (approximately $350,000), working capital (approximately $500,000, of
which one-third is typically financed by vendors) and real estate (leased,
"built-to-suit" locations). The Company's leases generally require the lessor,
rather than the Company, to fund all or a significant portion of the capital
expenditures related to new store construction and costs of improvements. The
Company expects that the net cash generated from operations, together with
borrowings under the CIT Credit Facility (as defined below), will enable the
Company to finance the expenditures related to its planned expansion.


MANAGEMENT INFORMATION SYSTEMS

               Big 5 believes its ability to generate an efficiently stocked
merchandise selection and store inventory level that satisfies customer demands
while effectively managing inventory levels is a critical



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<PAGE>   5

component of its merchandising strategy and serves to differentiate the Company
from its competition. The Company is able to execute this strategy as a result
of its effective use of its integrated management information systems, called
the COACH (Customer Oriented Approach for Continued High-Performance) system.

               The COACH system is a low maintenance data processing environment
capable of supporting Big 5's future growth (see "Year 2000"). The COACH system
provides the Company with valuable inventory tracking information through the
implementation of store-level perpetual inventories. Each store has a unique
inventory model that allows the Company to maximize inventory mix at the store
level. The COACH system also includes a local area network that connects all
corporate users to electronic mail, scheduling and the host AS/400 system. The
host system and the Company's stores are linked by a network that provides
satellite communications for credit card, in-house tender authorization, and
daily polling of sales at the store level. In Big 5's distribution center, radio
frequency terminals are used in the areas of receiving, stock putaway, stock
movement, order filling, cycle counting and inventory management. Store
processes have been streamlined by implementing radio frequency, hand-held
terminals to assist in store ordering, receiving transfers and perpetual
inventories. The COACH system also helps the Company to control shrink.
Management believes its use of these systems is more extensive, disciplined and
sophisticated than that of many of its competitors.

               During Fiscal 1999 the Company embarked on a project to replace
the existing 10 plus year-old technology point-of-sale (POS) registers component
of the COACH system with new hardware and software. The new system utilizes
state of the art hardware based on a Microsoft Windows NT operating system. This
enables the Company to utilize a variety of readily available Windows
applications in conjunction with the JDA Win/DSS POS software that has been
purchased to replace the existing POS application. Additional benefits will be
improved system speed, stability and flexibility. The system will continue to
utilize existing satellite communications to verify credit cards and checks and
to provide corporate data exchange. To date the Company expended approximately
$2.5 million on this project and expects to expend another $1.5 million to
complete the project. The Company anticipates a complete rollout of the new POS
systems by September of 2000.


DISTRIBUTION

               The Company maintains a 440,000 square foot leased distribution
center in Fontana, California that serviced all 234 of its stores at January 2,
2000. The Fontana facility is fully integrated with the COACH management
information system that provides warehousing and distribution capabilities. The
COACH system enhances the Company's distribution process and aids in controlling
distribution costs. Big 5 believes that its Fontana distribution facility can
readily support the Company's expansion plans discussed above.

               The distribution facility was constructed in 1990 and warehouses
the majority of the merchandise carried in the Company's stores. Big 5 estimates
that 98% of all store merchandise is received from its distribution center. The
Company distributes merchandise from the facility to its stores at least once a
week, Monday through Saturday, using a fleet of 25 leased tractors, 12 leased
trailers, two Company-owned tractors, 60 Company-owned trailers as well as
contract carriers.

               On March 5, 1996, the Company purchased the Fontana facility
building and improvements from MLTC Funding, Inc. ("MLTC"), which previously
owned and leased such property to the Company, and then entered into a sale and
leaseback agreement with regard to the Fontana facility. Prior to this
transaction, the Company owned the land associated with the facility and leased
the buildings and improvements.



                                       5
<PAGE>   6

INDUSTRY AND COMPETITION

               Sporting goods are marketed through various retail entities,
including sporting goods stores, department stores, discount retailers,
specialty stores, electronic commerce and mail order. According to the National
Sporting Goods Association, total U.S. retail sales of sporting goods were
approximately $45.6 billion in 1999. In general, the Company's competitors tend
to fall into five basic categories: traditional sporting goods stores, mass
merchandisers, specialty sporting goods stores, sporting goods superstores and
e-tailers.

               Traditional Sporting Goods Stores. This category consists of
traditional sporting goods chains, including the Company. 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 Copeland'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 freestanding 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. Typically, 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 SKU's. Examples include
Oshman's Super Sports, The Sports Authority, Sport Chalet, Gart Sports and
Sportmart.

               E-tailers. This category consists of on-line internet retailers
such as Fogdog Sports, dsports.com, MVP.com and Global Sports Interactive. These
competitors are relatively new, selling a full line of sporting goods products
via the internet.

               The Company believes that it competes successfully with each of
the competitors discussed above by focusing on what the Company believes are the
primary factors of competition in the sporting goods industry. These factors
include experienced and knowledgeable personnel, personal attention given to
customers, 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.


DESCRIPTION OF SERVICE MARKS AND TRADEMARKS

               The Company uses the "Big 5 Sporting Goods" name as a service
mark in connection with its business operations and has registered this name as
a federal service mark. The Company has also registered federally and/or locally
as trademarks and service marks certain private labels, under which it sells a
variety of merchandise, including apparel.



                                       6
<PAGE>   7

EMPLOYEES

               As of January 2, 2000, Big 5 had approximately 5,823 full and
part-time employees. The General Warehousemen Union, Local 598, International
Brotherhood of Teamsters ("Local 598") currently represents 391 hourly employees
(or approximately 6.7%) in the Company's distribution center and certain stores.
In September 1997, the Company negotiated two contracts with Local 598 covering
these employees, which expire on August 31, 2000. The Company has not had a
strike or work stoppage in the last 20 years. The Company believes that it
provides working conditions and wages that are comparable to those offered by
other retailers in the industry, and that its employee relations are good.

               The Company emphasizes friendly and knowledgeable customer
service at its stores. To provide the proper incentives, the Company has
established various advancement and compensation programs. Store managers and
first assistant managers receive a commission based on their store's gross
sales. In addition, full-time employees are given opportunities for career
advancement, and part-time employees are eligible to receive merit-based pay
increases. Periodic store sales contests are held throughout the year.


EMPLOYEE TRAINING

               The Company has developed an extensive training program for all
store employees, including salespeople, cashiers and management trainees. An
introductory program for all full-time retail employees stresses excellence in
customer service as well as effective selling skills. Management trainees
receive additional training throughout their careers, including seminars that
focus on advanced management and sales skills, and store specific information
relating to loss prevention, scheduling and merchandising strategy.



                                       7
<PAGE>   8

ITEM 2: PROPERTIES

               As of January 2, 2000, Big 5 operated 234 stores in nine western
states. All but one of the Company's store sites are leased. Only eight, or
approximately 3%, of the Company's leases are due to expire in the next five
years without renewal options, and most of the Company's long-term leases
contain renewal options. The average lease expiration term of the Company's
existing leases, taking into account renewal options, is approximately 20 years.
The Company believes that it benefits from long-term below-market leases in many
of its locations. The Company's stores average approximately 11,000 square feet
in size typically ranging from 8,000 to 15,000 square feet and are located
primarily in multi-store shopping centers or as freestanding units. Specific
store locations are selected based on market demographics, competitive factors
and site economics. The Company currently leases its Fontana warehouse facility
from the State of Wisconsin Investment Board. The lease for the facility has an
initial term of ten years and commenced on March 5, 1996. The Company also has
the right to exercise three five-year options beyond the initial ten-year term.

                      The chart below sets forth information with respect to Big
5's geographic markets:

                           STORE STATISTICS BY REGION
                              AS OF JANUARY 2, 2000

<TABLE>
<CAPTION>
                                                                                          PERCENTAGE
                                                        YEAR             NUMBER            OF TOTAL
              REGIONS                                 ENTERED          OF STORES       NUMBER OF STORES
              -------                                 -------          ---------       ----------------
              <S>                                     <C>              <C>             <C>
              California:
                     Southern California                1955                82                  35%
                     Northern California                1971                50                  21
                     Central California                 1974                22                  10
                                                                     ----------         -----------
                                 Total California                          154                  66
                                                                     ----------         -----------
              Washington                                1984                27                  11
              Oregon                                    1995                13                   6
              Arizona                                   1993                12                   5
              Texas                                     1995                10                   4
              New Mexico                                1995                 6                   3
              Nevada                                    1978                 6                   3
              Utah                                      1998                 3                   1
              Idaho                                     1993                 3                   1
                                                                     ----------         -----------
              Total                                                         234                100%
                                                                     ==========         -----------
</TABLE>

ITEM 3: LEGAL PROCEEDINGS

           The Company is from time to time involved in routine litigation
incidental to the conduct of its business. The Company regularly reviews all
pending litigation matters in which it is involved and establishes reserves
deemed appropriate by management for such litigation matters. The Company
believes that no litigation currently pending against it will have a material
adverse effect on its 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 January 2, 2000.



                                       8
<PAGE>   9

                                     PART II


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

           The Company is a wholly-owned subsidiary of Parent. Neither the
Company's nor Parent's capital stock is publicly traded. Restrictive covenants
in the Company's revolving credit facility generally restrict the declaration or
payment of dividends on the Company's common stock other than to enable Parent
to pay operating and overhead expenses and certain other limited types of
expenses. The Senior Notes (as defined below) restrict the declaration and
payment of dividends unless the Company satisfies certain financial covenants,
among other things.


ITEM 6: SELECTED HISTORICAL FINANCIAL DATA

           The following selected historical financial data have been prepared
by the Company's management from the audited financial statements and the notes
thereto of United Merchandising Corp. (which was reincorporated in Delaware as
Big 5 Corp. in connection with the Recapitalization) and Big 5 Corp. With
respect to the selected historical financial data, the Company means United
Merchandising Corp. for fiscal years 1995 through 1996 and Big 5 Corp. for
fiscal years 1997 through 1999. The selected historical financial data should be
read in conjunction with, and are qualified in their entirety by, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of the Company and the related notes
thereto.


<TABLE>
<CAPTION>
                                                                     FISCAL YEAR (a)
                                         -------------------------------------------------------------------------
                                            1999            1998           1997            1996            1995
                                         ---------       ---------       ---------       ---------       ---------
                                                           (dollar amounts in thousands)
<S>                                      <C>             <C>             <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA:
Net sales .............................  $ 514,324       $ 491,430       $ 443,541       $ 404,265       $ 370,126
Cost of goods sold, buying and
      occupancy .......................    341,852         330,243         298,893         277,116         256,583
                                         ---------       ---------       ---------       ---------       ---------
      Gross profit ....................    172,472         161,187         144,648         127,149         113,543
Operating expenses:
      Selling and administrative ......    130,833         121,643         110,131         101,053          95,158
      Depreciation and
            amortization ..............      9,479           8,890           8,176           9,578          11,991
                                         ---------       ---------       ---------       ---------       ---------
Total operating expenses ..............    140,312         130,533         118,307         110,631         107,149
                                         ---------       ---------       ---------       ---------       ---------
Operating income ......................     32,160          30,654          26,341          16,518           6,394
Interest expense ......................     17,461          19,285          12,442          11,482          12,347
                                         ---------       ---------       ---------       ---------       ---------
Income (loss) before income taxes
      and extraordinary loss ..........     14,699          11,369          13,899           5,036          (5,953)
Income taxes ..........................      5,829           4,604           1,436             970             368
                                         ---------       ---------       ---------       ---------       ---------
Income (loss) before extraordinary
      loss ............................      8,870           6,765          12,463           4,066          (6,321)
                                                                                         .........       .........
Extraordinary loss from early
      Extinguishment of debt, net of
      Income taxes ....................       (396)             --          (1,597)         (1,285)             --
                                         ---------       ---------       ---------       ---------       ---------
Net income (loss) .....................  $   8,474       $   6,765       $  10,866       $   2,781       $  (6,321)
                                         =========       =========       =========       =========       =========
</TABLE>



                                       9
<PAGE>   10

<TABLE>
<CAPTION>
                                                                     FISCAL YEAR (a)
                                         -------------------------------------------------------------------------
                                            1999            1998           1997            1996            1995
                                         ---------       ---------       ---------       ---------       ---------
                                                            (dollar amounts in thousands)
<S>                                      <C>             <C>             <C>             <C>             <C>
OTHER DATA:
EBITDA (b) ............................     41,639       $  39,544       $  34,517       $  26,096       $  18,385
EBITDA margin .........................        8.1%            8.0%            7.8%            6.5%            5.0%
Cash flow provided by (used in)
      operating activities ............     16,471       $  29,699       $   3,631       $  19,798       $  (3,824)
Cash flow provided by (used in)
      investing activities ............    (14,438)        (11,106)         (5,151)          1,539          (7,374)
Cash flow provided by (used in)
      financing activities ............     (2,033)        (19,957)         (1,913)        (19,738)          6,728
Capital expenditures ..................     13,075           8,500           5,151           3,453           6,822
Ratio of earnings to fixed
      charges (c) .....................       1.5x            1.4x            1.7x            1.3x              --

OPERATING DATA:
Same store sales increase/
      (decrease) (d) ..................        2.0%            5.2%            6.6%            3.7%           (4.9)%
End of period stores ..................        234             221             210             196             192
Inventory turns (e) ...................       2.3x            2.3x            2.2x            2.2x            1.8x

BALANCE SHEET DATA END OF PERIOD:
Net working capital (f) ...............  $  72,081       $  67,625       $  80,881       $  70,428       $  74,994
Total  assets .........................    231,465         217,415         216,322         197,869         207,119
Total  debt ...........................    151,309         151,352         173,660          86,450         103,594
Stockholder's equity/ (deficit) .......    (18,045)        (27,877)        (38,843)         31,855          29,074
</TABLE>

(Notes to table on previous page and this page)
-------------------------------------------------------

(a)  The Company's fiscal year is a 52 or 53-week year ending on the Sunday
     closest to the calendar year end. Fiscal years 1995 through 1997 and fiscal
     year 1999 consist of 52 weeks and fiscal year 1998 consists of 53 weeks.

(b)  EBITDA represents net earnings (loss) before taking into consideration net
     interest expense, income tax expense, depreciation expense, amortization
     expense, and non-cash rent expense (see Footnote 5 in "Notes to Financial
     Statements"), and where relevant to the period referenced, extraordinary
     loss from early extinguishment of debt. While EBITDA is not intended to
     represent cash flow from operations as defined by generally accepted
     accounting principles ("GAAP") and should not be considered as an indicator
     of operating performance or an alternative to cash flow (as measured by
     GAAP) as a measure of liquidity, it is included herein to provide
     additional information with respect to the ability of the Company to meet
     its future debt service, capital expenditure and working capital
     requirements. See "Management's Discussion and Analysis of Financial
     Condition and Results of Operations."

(c)  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. Earnings were
     insufficient to cover fixed charges by approximately $6,383 for fiscal year
     1995.

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

(e)  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.

(f)  Net working capital is defined as current assets less current liabilities
     excluding current maturities of long-term debt.



                                       10
<PAGE>   11

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

               The Company's fiscal year ends on the Sunday closest to December
31. Accordingly, fiscal years 1999, 1998 and 1997 ended on January 2, 2000,
January 3, 1999 and December 28, 1997, respectively. Certain information in this
Management's Discussion and Analysis section includes forward-looking
statements. Such forward-looking statements relate to the Company's financial
condition, results of operations, expansion plans, and business (see
"Forward-Looking Statements").


RESULTS OF OPERATIONS

               The Company operates in one business segment, as a sporting goods
retailer under the Big 5 Sporting Goods name. The table below sets forth certain
statement of operation components as a percentage of net sales.

<TABLE>
<CAPTION>
                                                                  FISCAL YEAR
                                                  -------------------------------------------
                                                     1999            1998            1997
                                                  -----------     -----------     -----------
            <S>                                   <C>             <C>             <C>
            STATEMENT OF OPERATIONS DATA:
            Net sales.........................      100.0%          100.0%          100.0%
            Gross profit......................       33.5%           32.8%           32.6%
            Selling and administrative........       25.4%           24.8%           24.8%
            Depreciation and amortization.....        1.8%            1.8%            1.8%
            Operating income..................        6.3%            6.2%            6.0%
            EBITDA............................        8.1%            8.0%            7.8%
</TABLE>


(The fiscal years ended January 2, 2000, January 3, 1999 and December 28, 1997
are referred to below as "Fiscal 1999", "Fiscal 1998" and "Fiscal 1997",
respectively.)


FISCAL 1999 VERSUS FISCAL 1998

               Fiscal 1998 was a 53-week period for the Company. As a result,
the following discussion of Fiscal 1999 versus Fiscal 1998 reflects a comparison
of a 1999 52-week period to a 1998 53-week period. Exceptions to this comparison
are noted where appropriate.

               Net sales. Net sales increased 4.7% (or $22.9 million) from
$491.4 million for 53 weeks in Fiscal 1998 to $514.3 million for 52 weeks in
Fiscal 1999. Net sales on a comparable 52-week basis would have increased 6.3%
(or $30.6 million) from $483.7 million in Fiscal 1998 to $514.3 million in
Fiscal 1999. Same store sales, or sales for stores open throughout the year in
Fiscal 1999 and Fiscal 1998, increased 2.0% for Fiscal 1999 versus a comparable
52-week period in Fiscal 1998. Store count at the end of Fiscal 1999 was 234
versus 221 at the end of Fiscal 1998 as the Company opened fifteen new stores,
of which two replaced existing stores. Sales attributable to this increase in
store count represented a net sales increase of 4.3% over Fiscal 1998. The
Company achieved positive same store sales of 3.5% during the fourth quarter of
Fiscal 1999, representing the sixteenth consecutive quarter of positive
quarterly same store sales results.

               Gross Profit. Gross profit increased 7.0% (or $11.3 million) from
$161.2 million in Fiscal 1998 to $172.5 million in Fiscal 1999, reflecting
increased sales (as discussed above) and improved gross profit margin. Gross
profit margin increased from 32.8% in Fiscal 1998 to 33.5% in Fiscal 1999. The
improvement is primarily the result of increased gross profit margins in the
majority of the Company's product categories and improved store inventory
results, both of which were aided by data provided by the Company's information
systems.



                                       11
<PAGE>   12

               Operating Expenses. Selling and administrative expenses increased
7.6% (or $9.2 million) from $121.6 million in Fiscal 1998 to $130.8 million in
Fiscal 1999. As a percentage of sales, selling and administrative expenses
increased from 24.8% in Fiscal 1998 to 25.4% in Fiscal 1999, reflecting
increases in store related expenses as well as planned increases in advertising
expenses during certain periods of Fiscal 1999.

               Depreciation and Amortization Expense. Depreciation and
amortization expense increased 6.6% (or $0.6 million) from $8.9 million in
Fiscal 1998 to $9.5 million in Fiscal 1999. The increase was due primarily to
added depreciation and amortization related to expenditures for the growth in
the Company's store base during Fiscal 1999, with store count growing from 221
at the end of Fiscal 1998 to 234 at the end of Fiscal 1999 (see "Liquidity and
Capital Resources").

               Interest Expense. Interest expense decreased 9.5% (or $1.8
million) from $19.3 million in Fiscal 1998 to $17.5 million in Fiscal 1999. This
variance was primarily due to lower average debt balances during Fiscal 1999
versus Fiscal 1998. The Company's debt balances consist of borrowings under the
CIT Credit Facility and the Senior Notes (see "Liquidity and Capital
Resources").

               Income Taxes. There was an income tax provision of $5.8 million
in Fiscal 1999 versus $4.6 million in Fiscal 1998. The increase in income tax
expense in Fiscal 1999 compared to Fiscal 1998 is attributable to the increase
in earnings before income taxes.

               Extraordinary Loss from Early Extinguishment of Debt. There was
an extraordinary loss of $0.4 million, net of taxes, reported for Fiscal 1999,
in connection with the repurchase and retirement of $19.1 million face value of
the Company's previously outstanding Senior Notes. The proportionate write off
of unamortized deferred financing fees related to the Senior Notes resulted in
an extraordinary loss of $0.6 million, net of related income taxes of $0.3
million. There was no such extraordinary loss for Fiscal 1998.

               Net Income. Net income for Fiscal 1999 increased 25.3% (or $1.7
million) from $6.8 million in Fiscal 1998 to $8.5 million in Fiscal 1999. This
variance reflects higher operating income as well as decreased interest expense
in Fiscal 1999.

               EBITDA. EBITDA increased 5.3% (or $2.1 million) from $39.5
million in Fiscal 1998 to $41.6 million in Fiscal 1999. Positive sales
comparisons along with improved gross profit margins were the primary factors
creating Fiscal 1999's positive operating results versus Fiscal 1998.


FISCAL 1998 VERSUS FISCAL 1997

               Fiscal 1998 was a 53-week period for the Company. As a result,
the following discussion of Fiscal 1998 versus Fiscal 1997 reflects a comparison
of a 1998 53-week period to a 1997 52-week period. Exceptions to this comparison
are noted where appropriate.

               Net sales. Net sales increased 10.8% (or $47.9 million) from
$443.5 million for 52 weeks in Fiscal 1997 to $491.4 million for 53 weeks in
Fiscal 1998. Same store sales increased 5.2% for Fiscal 1998 versus a comparable
period in 1997. Sales generated from new stores opened in Fiscal 1997 and Fiscal
1998 and the extra week of sales in Fiscal 1998 versus Fiscal 1997 created the
remainder of the Fiscal 1998 net sales increase. Store count at the end of
Fiscal 1998 was 221 versus 210 at the end of Fiscal 1997 as the Company opened
twelve new stores and closed one during the year. The Company achieved positive
same store sales of 4.1% during the fourth quarter of Fiscal 1998, representing
the twelfth consecutive quarter of positive quarterly same store sales results.

               Gross Profit. Gross profit increased 11.4% (or $16.5 million)
from $144.6 million in Fiscal 1997 to $161.2 million in Fiscal 1998, reflecting
increased sales (as discussed above) and improved gross profit margin. Gross
profit margin increased from 32.6% in Fiscal 1997 to 32.8% in Fiscal 1998. The



                                       12
<PAGE>   13

improvement is primarily the result of improved productivity and leveraging of
fixed costs at the Company's distribution center while maintaining overall gross
profit margins for product sales and store inventory shrink results.

               Operating Expenses. Selling and administrative expenses increased
10.5% (or $11.5 million) from $110.1 million in Fiscal 1997 to $121.6 million in
Fiscal 1998. As a percentage of sales, selling and administrative expenses
remained unchanged at 24.8% in Fiscal 1998 compared with Fiscal 1997.

               Depreciation and Amortization Expense. Depreciation and
amortization expense increased 8.7% (or $0.7 million) from $8.2 million in
Fiscal 1997 to $8.9 million in Fiscal 1998. The increase was due primarily to
added depreciation and amortization related to expenditures for the growth in
the Company's store base during Fiscal 1998, with store count growing from 210
at the end of Fiscal 1997 to 221 at the end of Fiscal 1998.

               Interest Expense. Interest expense increased 55.0% (or $6.8
million) from $12.4 million in Fiscal 1997 to $19.3 million in Fiscal 1998. The
variance in interest expense versus last year reflected the impact of increased
debt due to the Company's Recapitalization, which took place in November of
1997. This variance was partially offset by a decrease in the Company's average
borrowings under the CIT Credit Facility, which totaled $20.9 million at the end
of Fiscal 1998 versus $43.3 million at the end of Fiscal 1997.

               Income Taxes. There was an income tax provision of $4.6 million
in Fiscal 1998 versus $1.4 million in Fiscal 1997. Income tax expense in Fiscal
1998 and 1997 was impacted by a $0.2 million and $3.9 million, respectively,
reduction of the valuation allowance on the Company's deferred tax assets.

               Extraordinary Loss from Early Extinguishment of Debt. There was
no extraordinary loss reported for Fiscal 1998. In the fourth quarter of Fiscal
1997, an extraordinary loss of $1.6 million, net of taxes, was incurred in
connection with the repayment of the Company's previously outstanding
subordinated debt. The extraordinary loss consisted of a redemption premium of
$2.1 million and a $0.6 million write-off of unamortized deferred financing
fees.

               Net Income. Net income for Fiscal 1998 decreased $4.1 million
from $10.9 million in Fiscal 1997 to $6.8 million in Fiscal 1998. This variance
reflects higher operating income in Fiscal 1998 which was more than offset by
the impact of the Recapitalization on interest expense combined with increased
income tax expense recorded in Fiscal 1998.

               EBITDA. EBITDA increased 14.6% (or $5.0 million) from $34.5
million in Fiscal 1997 to $39.5 million in Fiscal 1998. Strong sales along with
improved gross profit margins were the primary factors creating Fiscal 1998's
positive operating results versus Fiscal 1997.


LIQUIDITY AND CAPITAL RESOURCES

               The Company's primary sources of liquidity are cash flow from
operations and borrowings under the Company's five year, non-amortizing, $125.0
million revolving credit facility (the "CIT Credit Facility"). The Company
amended its then current Credit Facility effective November 13, 1997, to provide
for the CIT Credit Facility. The CIT Credit Facility is secured by the Company's
trade accounts receivable, merchandise inventories and general intangible
assets. The Company intends to use net cash provided by operating activities and
borrowings under the CIT Credit Facility to fund its anticipated capital
expenditures and working capital requirements. However, if additional cash is
required, it may be difficult for the Company to obtain because the Company is
highly leveraged.

               In October 1997, Parent, Robert W. Miller, Steven G. Miller and
Green Equity Investors, LP ("GEI") agreed to the Recapitalization Agreement. The
following transactions (collectively constituting the Recapitalization) were
effected pursuant to the Recapitalization Agreement: (i) the Company issued the
Senior Notes (as defined below) ($130.4 million gross proceeds); (ii) the
Company defeased and repaid all



                                       13
<PAGE>   14

of its outstanding 13 5/8% Senior Subordinated Notes due 2002 (the "Old
Subordinated Notes"); (iii) Parent issued Senior Discount Notes in an aggregate
principal amount at maturity of $48.2 million maturing on November 30, 2008 (the
"Parent Discount Notes") with a warrant to purchase approximately three percent
of the Common Stock of Parent, par value $.01 per share (the "Common Stock") at
a nominal exercise price (the "Warrant") ($24.5 million proceeds); (iv) Parent
accelerated vesting of substantially all outstanding options and restricted
stock held by management and employees of the Company; (v) Parent redeemed for
cash its existing Series A 9% Cumulative Redeemable Preferred Stock (the "Parent
Old Preferred") for approximately $21.9 million in the aggregate, including
accrued dividends; (vi) Parent paid a cash distribution of $15 per share on its
outstanding shares of Common Stock (approximately $63.2 million in the
aggregate); (vii) Parent repurchased from Pacific Enterprises ("PE") its warrant
respecting 397,644 shares of Common Stock and 16,667 shares of Parent Old
Preferred (the "PE Warrant") and approximately 2,737,310 shares of Common Stock
from the Selling Stockholders (as defined below) (of which GEI owned 86.8% ) for
an aggregate of $17.6 million in cash and $35.0 million of Parent Senior
Exchangeable Preferred Stock (the "Parent New Preferred"); (viii) Parent sold
additional Common Stock to middle and senior level management of the Company
(approximately $2.3 million gross proceeds), increasing the beneficial ownership
of management and employees (and members of their families) from 14.0% to 55.3%
(in each instance on a fully diluted basis); and (ix) other transactions
occurred, including a distribution of $81.5 million from the Company to Parent,
so that the above referenced transactions could be effected. The
Recapitalization is accounted for as a recapitalization for accounting purposes.
As a result of the Recapitalization, existing management and employees of the
Company (and members of their families) beneficially own the majority of Parent.
Chairman and Chief Executive Officer Robert W. Miller, who co-founded the
Company in 1955, and his son Steven G. Miller, President and Chief Operating
Officer, who has been with the Company for 30 years, significantly increased
their ownership in Parent and control the Board of Directors of Parent and thus
the Company (see "Principal Stockholders").

           In connection with the Recapitalization, the Company issued $131.0
million in aggregate principal amount of 10 7/8% Senior Notes due 2007 (the
"Senior Notes"), requiring semi-annual interest payments. The Company has no
mandatory payments of principal on the Senior Notes prior to their final
maturity in 2007. The Company repurchased and retired $19.1 million face value
of the Senior Notes during Fiscal 1999. Subsequent to Fiscal 1999, in March 2000
the Company repurchased and retired an additional $5.75 million face value of
the Senior Notes.

           The Company's interest expense decreased from $19.3 million in Fiscal
1998 to $17.5 million in Fiscal 1999. The Company believes that cash flow from
operations will be sufficient to cover the interest expense arising from the CIT
Credit Facility and the Senior Notes. However, the Company's ability to meet its
debt service obligations depends upon its future performance, which, in turn, is
subject to general economic conditions and regional risks, and to financial,
business and other factors affecting the operations of the Company, including
factors beyond its control. Accordingly, there can be no assurance that cash
flow from operations will be sufficient to meet the Company's debt service
obligations.

           Net cash provided by operating activities decreased from $29.7
million in Fiscal 1998 to $16.5 million in Fiscal 1999. The change between
periods primarily reflected normalization of working capital seasonal trends in
Fiscal 1999. The Recapitalization had impacted those trends during Fiscal 1998.

           Net cash used in financing activities was $2.0 million in Fiscal 1999
versus $20.0 million in Fiscal 1998 reflecting normalization of seasonal trends
in working capital and increased capital expenditures in Fiscal 1999. As of
January 2, 2000, the Company had borrowings of $39.9 million and letter of
credit commitments of $3.5 million outstanding under the CIT Credit Facility and
Senior Notes outstanding of $111.5 million compared to $20.9 million, $3.7
million and $130.4 million, respectively, at January 3, 1999. The Company had no
cash and cash equivalents at both January 2, 2000 and at January 3, 1999. On
March 8, 2000, the Company repurchased and retired $5.75 million face value of
the Company's Senior Notes resulting in a net gain of $0.1 million, net of the
write off of deferred financing fees.

           Capital expenditures for Fiscal 1999 were $13.1 million as the
Company opened a total of 15 new stores and purchased approximately $2.5 million
of an anticipated $4.0 million total for the hardware and software for its new
point of sale system, which will be rolled out to all stores in Fiscal 2000.
Management expects capital expenditures for Fiscal 2000 will range from $10 to
$11 million and will be used primarily to fund the opening of approximately 15
to 20 new stores as well as approximately $1.5 million in



                                       14
<PAGE>   15

additional expenditures for new point-of-sale hardware and software. The
Company's store format requires a low investment in fixtures and equipment
(approximately $350,000), working capital (approximately $500,000, of which
one-third is typically financed by vendors) and real estate (leased
"built-to-suit" locations).

           The CIT Credit Facility and the Senior Notes indenture contain
various covenants, which impose certain restrictions on the Company, including
the incurrence of additional indebtedness, the payment of dividends, and the
ability to make acquisitions. In addition, the CIT Credit Facility requires
compliance with the maintenance of certain financial ratios and other financial
covenants. The Company is in compliance with all the covenants under the CIT
Credit Agreement and the Senior Notes indenture.

           The Company is not aware of any material environmental liabilities
relating to either past or current properties owned, operated or leased by it.
There can be no assurance that such liabilities do not currently exist or will
not exist in the future.


SEASONALITY

           The Company's business is seasonal in nature. As a result, the
Company's results of operations are likely to vary during its fiscal year.
Historically, the Company's revenues and income are highest during its fourth
quarter, due to industry wide retail sales trends during the holidays. The
fourth quarter contributed 27.3% in 1999 and 27.8% in 1998 of fiscal year net
sales and 35.1% in 1999 and 32.9% in 1998 of fiscal year EBITDA. Any decrease in
sales for such period could have a material adverse effect on the Company's
business, financial condition and operating results for the entire fiscal year.


IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

               The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, (Accounting for Derivative
Instruments and Hedging Activities) effective for all fiscal quarters of fiscal
years beginning after June 15, 2000, as amended by SFAS No. 137. Management has
determined that the accounting and disclosure requirements from this statement
will not impact the financial statements of the Company.


                                       15
<PAGE>   16


FORWARD-LOOKING STATEMENTS

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


ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

In the ordinary course of its business, the Company is exposed to certain market
risks, primarily changes in interest rates. After an assessment of these risks
to the Company's operations, the Company believes that its primary market risk
exposures (within the meaning of Regulation S-K Item 305) are not material and
are not expected to have any material adverse effect on the Company's financial
condition, results of operations or cash flows for the next fiscal year. (See
Note 3 of the accompanying financial statements.)



                                       16
<PAGE>   17

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                    <C>
Index to Financial Statements......................................................    F-1


Independent Auditors' Report.......................................................    F-2

Balance Sheets at January 2, 2000 and January 3, 1999..............................    F-3

Fiscal Years Ended January 2, 2000, January 3, 1999 and December 28, 1997

           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 ......................................    II-1
</TABLE>



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

           None.



                                       17
<PAGE>   18

                                    PART III


ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS AND DIRECTORS

           The following table sets forth certain information regarding the
current executive officers and directors of the Company. The Company's directors
are elected at each annual meeting of shareholders to serve for a period of one
year or until their successors are duly elected and qualified. The Company's
executive officers serve at the discretion of the Company's Board of Directors.

<TABLE>
<CAPTION>
NAME                        AGE                        POSITIONS
----                        ---                        ---------
<S>                         <C>        <C>
Robert W. Miller            76         Chief Executive Officer and
                                       Chairman of the Board

Steven G. Miller            47         President, Chief Operating Officer and
                                       Director

Charles P. Kirk             44         Senior Vice President and Chief
                                       Financial Officer

Gary S. Meade               53         Secretary, Vice President and
                                       General Counsel

Richard A. Johnson          54         Senior Vice President,
                                       Store Operations

Thomas J. Schlauch          55         Senior Vice President, Buying


Dr. Michael D. Miller       50         Director


John G. Danhakl             44         Director
</TABLE>


           ROBERT W. MILLER became Chairman of the Board of the Company in 1992.
Mr. Miller has been the Company's Chief Executive Officer and was President from
1973 to 1992.

           STEVEN G. MILLER became President, Chief Operating Officer and a
Director of the Company in 1992. Mr. Miller is Robert W. Miller's son and Dr.
Michael D. Miller's brother. He had been the Company's Executive Vice President,
Administration, since 1988.

           CHARLES P. KIRK became Senior Vice President and Chief Financial
Officer of the Company in 1992. Mr. Kirk had been Thrifty's Director of Planning
and Vice President of Planning and Treasury since October 1990. Prior to joining
Thrifty, Mr. Kirk had held various financial positions with Thrifty's former
parent, Pacific Enterprises ("PE"), since 1981.



                                       18
<PAGE>   19

           GARY S. MEADE became Secretary, Vice President and General Counsel of
the Company in August 1997. Mr. Meade had been Thrifty Payless, Inc.'s Vice
President, Secretary and General Counsel since 1992 and Thrifty's Vice President
- Legal Affairs since 1979.

           RICHARD A. JOHNSON became Senior Vice President, Store Operations,
for the Company in 1992. Mr. Johnson had been the Company's Vice President,
Store Operations, since 1986.

           THOMAS J. SCHLAUCH became Senior Vice President, Buying, for the
Company in 1992. Mr. Schlauch had been the Company's Head of Buying since 1990
and Vice President, Buying, since 1982.

           MICHAEL D. MILLER, PH.D. became a director of the Company in October
1997. Dr. Miller is a senior mathematician at RAND. Dr. Miller is Robert W.
Miller's son and Steven G. Miller's brother.

           JOHN G. DANHAKL became a director of the Company in October 1997. Mr.
Danhakl has been an executive officer and equity owner of LGP, a merchant
banking firm that manages GEI, since 1995. Mr. Danhakl had previously been a
Managing Director at Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
and had been with DLJ since 1990. Prior to joining DLJ, Mr. Danhakl was a Vice
President at Drexel Burnham Lambert Incorporated. Mr. Danhakl is also a director
of the Arden Group, Inc. and Twinlab Corporation.



                                       19
<PAGE>   20

ITEM 11: EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

           The following table sets forth the annual and long-term compensation
of the Company's Chief Executive Officer and four additional most highly
compensated executive officers whose annual salaries and bonus exceeded $100,000
in total during the fiscal year ended January 2, 2000.

<TABLE>
<CAPTION>
                                                                 LONG-TERM COMPENSATION AWARDS
                                                          ------------------------------------------
                                           ANNUAL COMPENSATION                AWARDS         PAYOUTS
                                     ---------------------------------  ------------------   -------
                                                                                  Securities
        Name and                                                      Restricted  Underlying
        Principal                                         Other Annual  Stock       Stock      LTIP    All Other
        Position             Year     Salary      Bonus   Compensation  Awards     Options/  Payouts  Compensation
                                       ($)         ($)         ($)       ($)         SARs      ($)        (1)
        --------             ----    --------    -------- ------------  -----      -------   -------   -----------
<S>                          <C>     <C>         <C>       <C>          <C>         <C>      <C>       <C>
Robert W. Miller,            1999    $330,000    $445,000    $ -0-      $ -0-        -0-      $ -0-     $  -0-
Chief Executive Officer      1998     315,000     425,000      -0-        -0-        -0-        -0-        -0-
                             1997     300,000     350,000      -0-        -0-        -0-        -0-     400,000
                             ----    --------    --------    -------    -----        ---      -----     -------

Steven G. Miller,            1999    $285,000    $330,000    $ -0-      $ -0-        -0-      $ -0-     $  -0-
President and                1998     270,000     315,000      -0-        -0-        -0-        -0-        -0-
Chief Operating Officer      1997     250,000     245,000      -0-        -0-        -0-        -0-     350,000
                             ----    --------    --------    -------    -----        ---      -----     -------

Thomas J. Schlauch,          1999    $178,000    $109,000    $ -0-      $ -0-        -0-      $ -0-     $  -0-
Senior Vice President ,      1998     168,000     104,000      -0-        -0-        -0-        -0-        -0-
Buying                       1997     160,000      82,000      -0-        -0-        -0-        -0-        -0-
                             ----    --------    --------    -------    -----        ---      -----     -------

Richard A. Johnson,          1999    $150,000    $ 90,000    $ -0-      $ -0-        -0-      $ -0-     $  -0-
Senior Vice President,       1998     140,000      85,000      -0-        -0-        -0-        -0-        -0-
Store Operations             1997     130,000      65,000      -0-        -0-        -0-        -0-        -0-
                             ----    --------    --------    -------    -----        ---      -----     -------

Charles P. Kirk,             1999    $160,000    $ 80,000    $ -0-      $ -0-        -0-      $ -0-     $  -0-
Senior Vice President        1998     150,000      75,000      -0-        -0-        -0-        -0-        -0-
& Chief Financial Officer    1997     140,000      55,000      -0-        -0-        -0-        -0-        -0-
                             ----    --------    --------    -------    -----        ---      -----     -------
</TABLE>


(1)  Such compensation was to facilitate the named executives' Management Stock
     Purchases.



                                       20
<PAGE>   21

AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1999 AND
1999 FISCAL YEAR-END OPTION VALUE

               None.


EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS

           The Company and each of Steven G. Miller and Robert W. Miller
(collectively, the "Millers") have entered into employment agreements, dated as
of January 1, 1993, whereby Steven G. Miller is to continue to serve as
President and Chief Operating Officer and Robert W. Miller as Chairman of the
Board of Directors (the "Board") and Chief Executive Officer of the Company
until December 31, 1994 and for additional successive one-year periods
thereafter, unless any party gives timely notice to the other that the
employment term shall not be so extended. The agreements require the Company to
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 the 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 the Company 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. 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 the Company and from soliciting certain employees of the
Company and its affiliates for a specified period following the termination of
employment, the basis of which depends upon the reason for the termination.


MANAGEMENT STOCK PURCHASES

           Pursuant to the Recapitalization, Parent accelerated the vesting
periods under substantially all outstanding employee option and restricted stock
agreements. Parent facilitated the exercise of such stock options by existing
employees by offering to such employees the option to pay the aggregate exercise
price of such outstanding options (in excess of the par value of the shares
being acquired upon exercise) by way of a personal recourse obligation secured
by such employee's existing Common Stock and the Common Stock issued pursuant to
the exercise of the options, and the proceeds thereof. Option holders who
exercised their stock options at the effective date of the Recapitalization
received the distributions on Common Stock described under the description of
the Recapitalization included under the heading "Liquidity and Capital
Resources". As a result thereof, there were outstanding 4,215,301 shares (or
4,612,945 shares on a fully diluted basis) of Common Stock immediately prior to
the Recapitalization.

           As part of the Recapitalization, and pursuant to Parent's newly
adopted 1997 Management Equity Plan applicable to employees of Parent and its
subsidiaries, Parent sold to existing middle and senior level management
employees of the Company, 462,009 shares of Common Stock for $5 per share (the
"Management Stock Purchases"). Such shares were not entitled to the distribution
on Common Stock described above under the heading "Liquidity and Capital
Resources," although any current employees who owned shares otherwise entitled
to such distribution could pay all or a portion of the purchase price of the
shares being purchased by having Parent offset or withhold such amount from the
distribution. The agreements under the 1997 Management Equity Plan prohibit the
transfer of such Common Stock until the fifth anniversary of the issuance
thereof or the occurrence of any earlier specified event that terminates such
prohibition, with an exception for transfers of vested shares to "related
transferees" (as defined therein). Thereafter, such shares of Common Stock are
transferable subject to a right of first refusal in favor of Parent. The
agreements also contain certain "call" options as to unvested shares of Common
Stock, exercisable,



                                       21
<PAGE>   22

generally, upon termination of a management employee's employment with the
Company. As a result of the Management Stock Purchases, immediately after the
Recapitalization the continuing management and employees of the Company (and
members of their families) beneficially owned approximately 55.3% of Parent on a
fully diluted basis. Senior management (and members of their families)
beneficially own approximately 34.3% of the outstanding Common Stock on a fully
diluted basis.


COMPENSATION OF DIRECTORS

           Directors of the Company, as such,  do not receive any compensation.
However, during each of the fiscal years ended January 2, 2000 and January 3,
1999, the Company, on behalf of Parent, paid Leonard Green & Associates, LP
("LGA"), a California limited partnership, compensation for management services
fees of $340,091, including out-of-pocket expenses. In 1996 the Company paid LGA
an additional $500,000 in fees for work performed in securing the Company's bank
facility. In addition, as a result of the consummation of the Recapitalization,
LGA was paid a fee of $4.3 million by the Parent in 1997. After the
Recapitalization, Parent and the Company entered into a new Management Services
Agreement with a term of seven and one-half years and pursuant to which Parent
and the Company will pay LGA a reduced annual fee for management services
($333,333) plus reasonable and customary fees for financial advisory and
investment banking services in connection with major financial transactions
(plus expenses and indemnities, if any). LGA is an affiliate of Leonard Green &
Partners, LP ("LGP"). Mr. Danhakl and two former directors of the Company are
executive officers and equity owners of LGP. LGA is the sole general partner and
manager of GEI, a stockholder of Parent. The Company believes that the terms of
its agreement and arrangements with LGA are comparable to what could be obtained
from unrelated, but equally qualified, third parties.



                                       22
<PAGE>   23

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL STOCKHOLDERS

           The Company's outstanding capital stock is wholly owned by Parent.
Parent's outstanding equity securities consist of Common Stock and the Parent
New Preferred. The following table sets forth the ownership of Common Stock as
of March 31, 2000 by any person known to the Company to be the beneficial owner
of more than 5% of either class of Parent's securities, the Company's directors,
executive officers named in the Summary Compensation Table above, and all
executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>
                                                              COMMON STOCK
                      NAME AND ADDRESS(1)         --------------------------------------
                      OF BENEFICIAL OWNER         NUMBER OF SHARES      PERCENT OF CLASS
                      -------------------         ----------------      ----------------
<S>                   <C>                         <C>                    <C>
Robert W. Miller(2)                                   350,809(3)             17.5%
Steven G. Miller(2)                                   200,000                10.0%
Dr. Michael D. Miller                                        (4)                 (4)
Thomas J. Schlauch                                     40,000                 2.0%
Richard A. Johnson                                     48,000                 2.4%
Charles P. Kirk                                        48,000                 2.4%
John G. Danhakl                                              (5)                 (5)
Green Equity Investors, LP (2)                        723,577                36.2%
All Executive Officers and Directors as a Group     1,488,289(6)             74.4%
</TABLE>

--------------

(1)  The address for each stockholder is 2525 East El Segundo Boulevard, El
     Segundo, California 90245, except GEI and Mr. Danhakl for which the address
     is 11111 Santa Monica Boulevard, Suite 2000, Los Angeles, California 90025.

(2)  Pursuant to the Stockholders Agreement (as defined), each of GEI and the
     Millers has agreed to vote for the directors designated by the other. See
     "Parent Equity and Debt".

(3)  Includes shares of Common Stock owned by Dr. Miller over which Robert W.
     Miller has voting control.

(4)  Effective as of the Recapitalization, Dr. Miller granted voting control
     over his shares to Robert W. Miller, and such shares are included with
     Robert W. Miller's shares.

(5)  Mr. Danhakl is a general partner of LGP and may be deemed to be a
     beneficial owner of the shares of Common Stock and Parent New Preferred
     owned by GEI because of his interest in LGP, which is an affiliate of the
     sole general partner of GEI. GEI owns 273,423 shares of Parent New
     Preferred and an affiliate of GEI owns 35,070 shares of Parent New
     Preferred.

(6)  Includes the shares identified in note (5) above.


REPURCHASE OF COMMON STOCK AND PE WARRANT

           Pursuant to the Recapitalization Agreement, Parent redeemed all of
the issued and outstanding Parent Old Preferred, including shares owned by GEI,
at an aggregate redemption price of $15.0 million plus accrued and unpaid
dividends of approximately $6.9 million.

           Thereafter Parent made a distribution of $15 per share of Common
Stock, or approximately $63.2 million in the aggregate, to all holders of record
of Common Stock. Such holders included option holders whose vesting periods were
accelerated as described under "Executive Compensation - Management Stock
Purchases" and who exercised their outstanding stock options, but did not
include shares of Common Stock sold to existing middle and senior level
management as part of the Recapitalization.



                                       23
<PAGE>   24

           Following such distribution to the holders of Common Stock, Parent
repurchased (i) 2,737,310 shares of Common Stock, which were originally sold
together with shares of Parent Old Preferred, from the holders of such Common
Stock (including GEI) (the "Selling Stockholders"), and (ii) the PE Warrant. The
aggregate purchase price for the PE Warrant and the Common Stock repurchased
from the Selling Stockholders was approximately $17.6 million in cash and $35.0
million of liquidation value of Parent New Preferred.

           As a result of the Recapitalization, the Selling Stockholders'
ownership of Common Stock was reduced significantly. Their percentage ownership
was reduced from 77.4% (based on the number of fully diluted shares of Common
Stock immediately prior to the Recapitalization) to 41.7% (based on the number
of fully diluted shares of Common Stock immediately after the Recapitalization).
In addition, on a fully diluted basis, the 8.6% Common Stock interest of PE in
respect of the PE Warrant was eliminated in its entirety.


PARENT EQUITY AND DEBT

           Parent's certificate of incorporation contains restrictions on
transfer of its outstanding stock and grants to Parent, or Parent's assignee, a
right of first refusal in the event of a proposed sale by any stockholder of
Parent. In addition to the Common Stock, Parent has outstanding the Parent New
Preferred and the Warrant issued with the Parent Discount Notes. In connection
with the Recapitalization, Parent, the Millers and GEI entered into a
stockholders agreement (the "Stockholders Agreement") which, among other things,
generally provides that GEI will vote its Common Stock (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 Parent. Likewise, the Millers
agreed to vote their Common Stock (and will cause their affiliates to vote) in
favor of the election of two persons designated by GEI to be directors of
Parent. The Stockholders Agreement further provides that all such persons will
cause Parent to vote the common stock of the Company in favor of the election of
the same five persons as directors of the Company. The Stockholders Agreement
and the respective certificates of incorporation of Parent and the 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, including if the Common Stock is listed or
admitted to trading on a national securities exchange or quoted on The Nasdaq
Stock Market's National Market.



ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RELATIONSHIP WITH THRIFTY PAYLESS AND RITE AID CORPORATION

           Prior to September 1992, the Company was a wholly-owned subsidiary of
Thrifty, which was in turn a wholly-owned subsidiary of PE. In December 1996,
Thrifty was acquired by Rite Aid Corporation. References herein to "Rite Aid"
include Rite Aid Corporation and its subsidiaries, including Thrifty PayLess,
Inc. and Thrifty.

           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; arrangements between the
Company and PE with respect to various tax matters and obligations under ERISA
(as defined), 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 is the common parent in certain consolidated and/or unitary tax
returns of PE; and the subleases described below.

           The Company previously subleased the building and improvements of its
Fontana, California distribution center from Thrifty Realty Company, a
California corporation and a wholly owned subsidiary of Thrifty. See "Business -
Distribution." On March 5, 1996, as permitted by the terms of such sublease, the



                                       24
<PAGE>   25

Company purchased the facility from MLTC for a purchase price of $8.9 million,
thereby terminating such sublease. Concurrently with such purchase, the Company
entered into a sale/leaseback transaction with respect to the distribution
center.

           The Company subleases certain business equipment and other personal
property from Thrifty, including the Company's point of sale system (the
"Equipment"), pursuant to a Sublease (the "Sublease") dated as of September 25,
1992 between the Company and Thrifty, as subsequently amended. Thrifty currently
holds a leasehold interest in the Equipment pursuant to an Amended and Restated
Master Lease Agreement dated as of April 20, 1994 between MLTC, as lessor, and
Thrifty, as lessee (the "Master Lease"). The Master Lease contains a
non-disturbance and attornment agreement pursuant to which the Company's use and
enjoyment of the Equipment will not be disturbed as a result of any default
under the Master Lease provided that the Company is not in default under the
Sublease.

           The Master Lease provides Thrifty with an option to purchase the
Equipment, and the Sublease provides the Company with the same option. The
Company's option to purchase is exercisable notwithstanding any default under
the Master Lease provided the Company is not otherwise in default under the
Sublease; however, in the event a default exists under the Master Lease, the
Company's exercise of its purchase option requires the payment by the Company of
all amounts due and payable under the Master Lease at the time of the
consummation of the purchase pursuant to the exercise of such option. Such
amounts may include rent, fees and other expenses that are not allocable to the
Equipment (the "Excess Fees") if the same are due and payable but have not
otherwise been paid by Thrifty. To the extent the Company is required to pay
such Excess Fees, Thrifty is obligated under the Sublease to reimburse the
Company for the full amount of such Excess Fees.

           The Company believes that all other material terms of the Sublease,
including rent payments, are comparable to what could be obtained from an
unrelated third party.


POTENTIAL CONFLICTS OF INTEREST; PAST TRANSACTIONS WITH AFFILIATES

           Mr. Danhakl of LGP holds a seat on the Board of Directors of the
Company. Jonathan Sokoloff and Jonathan Seiffer, who previously served as
directors of the Company, hold two seats on the Board of Directors of Gart
Sports Company ("Gart"). Also, affiliates of LGA have a controlling interest in
Gart, and LGA and LGP are affiliates. Mr. Danhakl may have conflicts of interest
with respect to certain matters affecting the Company, such as potential
business opportunities and business dealings between the Company and LGP and its
affiliated companies.

           Gart completed a merger with Sportmart in January, 1998. Gart and
Sportmart compete with the Company. Although Gart and Sportmart currently pursue
different business strategies than the Company, they compete in some of the
Company's markets and offer some of the same or similar merchandise, and there
can be no assurance that the Company will not encounter increased competition
from Gart or Sportmart in the future or that actions by either will not inhibit
the Company's growth strategy. In addition, there can be no assurance that all
potential conflicts will be resolved in a manner that is favorable to the
Company, or that the Company will be offered business opportunities made
available to Gart or Sportmart. The Company believes it is impossible to predict
the precise circumstances under which future potential conflicts may arise and
therefore intends to address potential conflicts on a case-by-case basis. Under
Delaware law, directors have a fiduciary duty to act in good faith and in what
they believe to be in the best interest of the corporation and its stockholders.
Such duties include the duty to refrain from impermissible self-dealing and to
deal fairly with respect to transactions in which the directors, or other
companies with which such directors are affiliated, have an interest.



                                       25
<PAGE>   26

OWNERSHIP OF OLD SUBORDINATED NOTES BY AFFILIATES

           Certain of the Old Subordinated Notes that were defeased and repaid
as a result of the Recapitalization were owned by certain of the Selling
Stockholders and by affiliates of GEI.


CONSULTING FEES

           As consideration for the provision of ongoing management and
financial advisory services, the Company, on behalf of the Parent, pays LGA
certain fees. See "Executive Compensation - Compensation of Directors."




                                       26
<PAGE>   27

                                     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 the Company

            3.1(ii)(1)   By-Laws of the Company, as amended October 27, 1997

            4.1(5)       Indenture dated as of November 13, 1997 between the
                         Company and First Trust National Association, as
                         trustee

            4.2(5)       Form of the Company's Series B 10 7/8% Senior Notes due
                         2007 (included in Exhibit 4.1)

            10.1(a)(2)   Employment Agreement between the Company and Robert W.
                         Miller dated as of January 1, 1993

            10.1(b)(2)   Employment Agreement between the Company and Steven G.
                         Miller dated as of January 1, 1993

            10.1(c)(2)   Sublease between the Company and Thrifty dated as of
                         September 25, 1992

            10.2(a)(3)   Amended and Restated Indemnification Implementation
                         Agreement between the Company (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 the Company (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 the Company

            10.3(b)(4)   Grant of Security Interest in and Collateral Assignment
                         of Trademarks and Licenses dated as of March 8, 1996 by
                         the Company 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 the Company and
                         the State of Wisconsin dated as of February 13, 1996

            10.4(b)(4)   Lease among the Company (Lessee) and the State of
                         Wisconsin Investment Board (Lessor) dated as of March
                         5, 1996



                                       27
<PAGE>   28

            10.5(5)      Purchase Agreement, dated as of November 13, 1997, by
                         and among the Company 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 the
                         Company 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.

            12.1         Ratio of Earnings to Fixed Charges

            27           Financial Data Schedule

-----------------------

(1)  Incorporated by reference to the Company's Current Report on Form 8-K filed
     November 26, 1997.

(2)  Incorporated by reference to the Company's Registration Statement on Form
     S-4 (file no. 33-61096) effective as of June 29, 1993.

(3)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended January 1, 1995.

(4)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1995.

(5)  Incorporated by reference to the Company's Registration Statement on Form
     S-4 (file no. 333-43129) filed with the Securities and Exchange Commission
     on December 23, 1997.



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.

The Company has not provided any annual report covering its last fiscal year nor
any proxy statement to security holders.



                                       28
<PAGE>   29

                                   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 29, 2000               By: /s/ Robert W. Miller
       -----------------               ------------------------------------
                                        Robert W. Miller
                                        Chairman of the Board of Directors and
                                        Chief Executive Officer of the Company


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:

<TABLE>
<CAPTION>
        Signatures                                    Title                           Date
        ----------                                    -----                           ----
<S>                                  <C>                                         <C>
     /S/ Robert W. Miller            Chairman of the Board of Directors
------------------------------         and Chief Executive Officer of the
       Robert W. Miller                Company (Principal Executive Officer)     March 29, 2000


     /S/ Steven G. Miller            President,
------------------------------         and Chief Operating Officer               March 29, 2000
       Steven G. Miller                and Director of the Company


     /S/ Charles P. Kirk             Senior Vice President and
------------------------------         Chief Financial Officer (Principal
      Charles P. Kirk                  Financial and Accounting Officer)         March 29, 2000


     /S/ Michael D. Miller           Director of the Company                     March 29, 2000
------------------------------
       Michael D. Miller


     /S/ John G. Danhakl             Director of the Company                     March 29, 2000
------------------------------
       John G. Danhakl
</TABLE>




                                       29
<PAGE>   30

                                   BIG 5 CORP.


                          INDEX TO FINANCIAL STATEMENTS



<TABLE>
<CAPTION>
<S>                                                                             <C>
Index to Financial Statements...................................................F-1


Independent Auditors' Report ...................................................F-2

Balance Sheets at January 2, 2000 and January 3, 1999...........................F-3

Fiscal Years Ended January 2, 2000, January 3, 1999 and December 28, 1997

            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,
                   January 3, 1999 and December 28, 1997 .......................II-1
</TABLE>




                                      F-1
<PAGE>   31

                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholder
Big 5 Corp.:


We have audited the accompanying balance sheets 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 generally accepted auditing
standards. 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 January 2,
2000 and January 3, 1999 and the results of its operations and its cash flows
for each of the years ended January 2, 2000, January 3, 1999 and December 28,
1997 in conformity with generally accepted accounting principles. 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
February 25, 2000, except note 4 which is as of March 8, 2000




                                      F-2
<PAGE>   32


                                   BIG 5 CORP.

                                 Balance Sheets

                          (Dollar amounts in thousands)



<TABLE>
<CAPTION>
                                                                       JANUARY 2, 2000  JANUARY 3, 1999
                                                                       ---------------  ---------------
<S>                                                                    <C>               <C>
                                     ASSETS

Current assets:
    Cash                                                                  $      --               --
    Trade and other receivables, net of allowance for doubtful
       accounts of $93 and $201, respectively                                 6,405            6,347
    Merchandise inventories                                                 155,283          147,296
    Prepaid expenses                                                          1,435            1,336
                                                                          ---------         --------

             Total current assets                                           163,123          154,979
                                                                          ---------         --------

Property and equipment:
    Land                                                                        186              186
    Buildings and improvements                                               22,885           18,910
    Furniture and equipment                                                  45,396           37,870
    Less accumulated depreciation and amortization                          (32,910)         (27,428)
                                                                          ---------         --------

             Net property and equipment                                      35,557           29,538
                                                                          ---------         --------

Deferred income taxes, net                                                    7,824            6,158
Leasehold interest, net of accumulated amortization of $17,452 and
   $15,669, respectively                                                     11,131           12,793
Other assets, at cost, less accumulated amortization of $1,015 and
   $995, respectively                                                         8,903            8,773
Goodwill, less accumulated amortization of $1,618 and $1,371,
   respectively                                                               4,927            5,174
                                                                          ---------         --------

                Total Assets                                              $ 231,465          217,415
                                                                          =========         ========

</TABLE>

                                   (Continued)



                                      F-3
<PAGE>   33

                                   BIG 5 CORP.

                            Balance Sheets, Continued

                          (Dollar amounts in thousands)



<TABLE>
<CAPTION>
                                                                          JANUARY 2, 2000  JANUARY 3, 1999
                                                                          ---------------  ---------------
<S>                                                                        <C>              <C>
LIABILITIES AND STOCKHOLDER'S DEFICIT
    Accounts payable                                                          $  51,087           56,096
    Accrued expenses                                                             39,955           31,258
                                                                              ---------         --------

             Total current liabilities                                           91,042           87,354

Deferred rent                                                                     7,159            6,586
Long-term debt                                                                  151,309          151,352
                                                                              ---------         --------

             Total liabilities                                                  249,510          245,292
                                                                              ---------         --------

Commitments and contingencies

Stockholder's deficit:
    Common stock, $.01 par value.  Authorized 3,000 shares; issued and
      outstanding 1,000 shares at January 2, 2000 and January 3, 1999                --               --
    Additional paid-in capital                                                   40,639           39,281
    Accumulated deficit                                                         (58,684)         (67,158)
                                                                              ---------         --------

             Net stockholder's deficit                                          (18,045)         (27,877)
                                                                              ---------         --------

                                                                              $ 231,465          217,415
                                                                              =========         ========
</TABLE>

See accompanying notes to financial statements.



                                      F-4
<PAGE>   34

                                   BIG 5 CORP.

                            Statements of Operations

                          (Dollar amounts in thousands)



<TABLE>
<CAPTION>
                                                      YEAR ENDED JANUARY   YEAR ENDED JANUARY  YEAR ENDED DECEMBER
                                                             2, 2000              3, 1999           28, 1997
                                                           (52 WEEKS)           (53 WEEKS)         (52 WEEKS)
                                                      ------------------   -----------------   -------------------
<S>                                                    <C>                 <C>                 <C>
Net sales                                                  $ 514,324             491,430             443,541

Cost of goods sold, buying and occupancy                     341,852             330,243             298,893
                                                           ---------             -------            --------

             Gross profit                                    172,472             161,187             144,648
                                                           ---------             -------            --------

Operating expenses:
    Selling and administrative                               130,833             121,643             110,131
    Depreciation and amortization                              9,479               8,890               8,176
                                                           ---------             -------            --------

             Total operating expenses                        140,312             130,533             118,307
                                                           ---------             -------            --------

             Operating income                                 32,160              30,654              26,341

Interest expense                                              17,461              19,285              12,442
                                                           ---------             -------            --------

             Income before income taxes and
                extraordinary loss                            14,699              11,369              13,899

Income taxes                                                   5,829               4,604               1,436
                                                           ---------             -------            --------

             Income before extraordinary loss                  8,870               6,765              12,463

Extraordinary loss from early extinguishment of
    debt, net of income tax benefit                             (396)                 --              (1,597)
                                                           ---------             -------            --------

             Net income                                    $   8,474               6,765              10,866
                                                           =========             =======            ========
</TABLE>


See accompanying notes to financial statements.




                                      F-5
<PAGE>   35

                                   BIG 5 CORP.

                  Statements of Stockholder's Equity (Deficit)

       Years ended January 2, 2000, January 3, 1999 and December 28, 1997

                          (Dollar amounts in thousands)



<TABLE>
<CAPTION>
                                                                              ADDITIONAL                   NET
                                                                   COMMON      PAID-IN    ACCUMULATED   STOCKHOLDER'S
                                                                   STOCK       CAPITAL      DEFICIT    EQUITY/(DEFICIT)
                                                                 --------       ------    -----------  ----------------
<S>                                                              <C>          <C>         <C>          <C>
Balance at December 29, 1996                                      35,080           --       (3,225)       31,855

Dividend to Parent Company                                            --           --      (81,564)      (81,564)

Recapitalization - reclassification in excess of par value       (35,080)      35,080           --            --

Net income for the year ended December 28, 1997                       --           --       10,866        10,866
                                                                --------       ------      -------       -------

Balance at December 28, 1997                                          --       35,080      (73,923)      (38,843)

Forgiveness of net payable to Parent (Note 2)                         --        4,201           --         4,201

Net income for the year ended January 3, 1999                         --           --        6,765         6,765
                                                                --------       ------      -------       -------

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)
                                                                ========       ======      =======       =======
</TABLE>


See accompanying notes to financial statements.



                                      F-6
<PAGE>   36

                                   BIG 5 CORP.

                            Statements of Cash Flows

                          (Dollar amounts in thousands)



<TABLE>
<CAPTION>
                                                          YEAR ENDED JANUARY  YEAR ENDED JANUARY  YEAR ENDED DECEMBER
                                                                2, 2000             3, 1999              28, 1997
                                                               (52 WEEKS)          (53 WEEKS)           (52 WEEKS)
                                                          ------------------  ------------------  -------------------
<S>                                                       <C>                 <C>                 <C>
Cash flows from operating activities:
    Net income                                                  $  8,474               6,765               10,866
    Adjustments to reconcile net income to net
       cash provided by operating activities:
         Depreciation and amortization                             9,479               8,890                8,176
         Amortization of deferred finance charges
            and discounts                                            179                 948                  716
         Deferred tax provision (benefit)                         (1,666)                 99               (4,557)
         Forgiveness of tax payable to Parent                      2,254               4,201                   --
         Gain on disposal of equipment
            and leasehold interest                                   133
         Extraordinary loss from early
            extinguishment of debt                                   661                  --                2,707
         Changes in assets and liabilities:
            Merchandise inventories                               (7,987)                (17)             (12,393)
            Trade and other accounts receivable, net                 (58)                355               (2,648)
            Prepaid expenses and other assets                       (555)               (993)                (413)
            Income taxes                                           3,313                  --               (1,733)
            Accounts payable                                      (3,088)              9,621                 (150)
            Accrued expenses                                       5,332                (170)               3,060
                                                                --------             -------             --------

               Net cash provided by operating
                  activities                                      16,471              29,699                3,631
                                                                --------             -------             --------

Cash flows from investing activities:
    Purchases of property and equipment                          (13,075)             (8,500)              (5,151)
     Purchase of long-term investments                            (1,363)             (2,606)                  --
                                                                --------             -------             --------
               Net cash used in investing
                 activities                                      (14,438)            (11,106)              (5,151)
                                                                --------             -------             --------
</TABLE>

                                  (Continued)



                                      F-7
<PAGE>   37

                                  BIG 5 CORP.

                      Statements of Cash Flows, Continued
                         (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                          YEAR ENDED JANUARY  YEAR ENDED JANUARY  YEAR ENDED DECEMBER
                                                                2, 2000             3, 1999              28, 1997
                                                               (52 WEEKS)          (53 WEEKS)           (52 WEEKS)
                                                          ------------------  ------------------  -------------------
<S>                                                       <C>                 <C>                 <C>
Cash flows from financing activities:
    Net borrowings (repayments) under revolving
       credit facilities, and other                             $ 17,027             (19,957)              (6,749)
    Repurchase of Senior Notes                                   (19,060)                 --                   --
    Repayment of long-term debt                                       --                  --              (36,450)
    Issuance of long-term debt                                        --                  --              130,409
    Debt issuance costs                                               --                  --               (5,431)
    Debt prepayment premiums                                          --                  --               (2,128)
    Dividend paid to Parent Company                                   --                  --              (81,564)
                                                                --------             -------             --------

                     Net cash used in financing
                        activities                                (2,033)            (19,957)              (1,913)
                                                                --------             -------             --------

                     Net increase (decrease) in cash
                        and cash equivalents                          --              (1,364)              (3,433)



Cash and cash equivalents at beginning of year                        --               1,364                4,797
                                                                --------             -------             --------

Cash and cash equivalents at end of year                        $     --                  --                1,364
                                                                ========             =======             ========


Supplemental disclosures of cash flow information:
       Interest paid                                            $ 16,935              18,044               11,807
       Income taxes paid                                           1,664                  --                6,593
                                                                ========             =======             ========
</TABLE>


See accompanying notes to financial statements.



                                      F-8
<PAGE>   38

                                   BIG 5 CORP.

                          Notes to Financial Statements

           As of January 2, 2000 and January 3, 1999 and for the years

          ended January 2, 2000, January 3, 1999 and December 28, 1997

                          (Dollar amounts in thousands)




(1)     BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

        The accompanying financial statements as of January 2, 2000 and January
        3, 1999 and for the years ended January 2, 2000, January 3, 1999 and
        December 28, 1997 represent the financial position and results of
        operations of Big 5 Corp. In connection with the November 13, 1997
        Recapitalization (as discussed below), the Company was reincorporated in
        Delaware and changed its name to Big 5 Corp. Prior to this
        reincorporation, the Company was incorporated in California as United
        Merchandising Corp. As used herein, the Company means Big 5 Corp. when
        discussing the financial position and results of operations subsequent
        to the Recapitalization and United Merchandising Corp. when discussing
        the financial position or results of operations prior to the
        Recapitalization. The Company is a wholly owned subsidiary of 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 234 stores at January 2,
        2000 in California, Washington, Arizona, Oregon, Texas, New Mexico,
        Nevada, Utah and Idaho.

        In October 1997, Big 5 Holdings Corp. (the Parent), Robert W. Miller and
        Green Equity Investors, LP (GEI) agreed to a Plan of Recapitalization
        and Stock Repurchase Agreement (the Recapitalization Agreement). On
        November 13, 1997, the following transactions (collectively referred to
        as the Recapitalization) were effected pursuant to the Recapitalization
        Agreement: (i) the Company issued 10 7/8% Senior Notes due 2007 (the
        Senior Notes) ($130,409 gross proceeds); (ii) the Company defeased and
        repaid all of its outstanding 13 5/8% Senior Subordinated Notes due
        2002; (iii) Parent issued its Senior Discount Notes in an aggregate
        principal amount at maturity of $48.2 million maturing on November 30,
        2008 (the Parent Discount Notes) with a warrant to purchase
        approximately 3% of the Common Stock of Parent, par value $.01 per share
        at a nominal exercise price (the Warrant) ($24,500 proceeds); (iv)
        Parent accelerated vesting of substantially all outstanding options and
        restricted stock held by management and employees of the Company; (v)
        Parent redeemed for cash its existing Series A 9% Cumulative Redeemable
        Preferred Stock (the Parent Old Preferred) for approximately $21.9
        million in the aggregate, including accrued dividends; (vi) Parent paid
        a cash distribution of $15 per share on its outstanding shares of Common
        Stock (approximately $63.2 million in the aggregate); (vii) Parent
        repurchased from Pacific Enterprises (PE) its warrant respecting 397,644
        shares of Common Stock and 16,667 shares of Parent Old Preferred the (PE
        Warrant) and approximately 2,737,310 shares of Common Stock from the
        Selling Stockholders (of which GEI owned 86.8%) for an aggregate of
        $17.6 million in cash and $35.0 million of Parent Senior Exchangeable
        Preferred Stock (the Parent New Preferred); (viii) Parent sold
        additional Common Stock to middle and senior level management of the
        Company (approximately $2.3 million gross proceeds), increasing the
        beneficial ownership of management and employees (and members of their
        families) from 14.0% to 55.3% (in each instance on a fully diluted
        basis); and (ix) other transactions occurred, including a distribution
        from the Company to Parent, aggregating $81.5 million, so that the
        above-referenced transactions could be effected.



                                      F-9
<PAGE>   39

(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        REPORTING PERIOD

        The Company reports on a 52-53 week fiscal year ending on the Sunday
        nearest December 31. Information presented for the years ended January
        2, 2000 and December 28, 1997 represent 52-week fiscal years, while
        information presented for the year ended January 3, 1999 represents a
        53-week fiscal year.

        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. The costs of
        distribution center operations are included in cost of sales, buying and
        occupancy.

        OTHER RECEIVABLES

        Other receivables consist principally of amounts due from vendors for
        certain co-op advertising and amounts due from credit card companies. 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
        average cost (which approximates the first-in, first-out cost) or market
        method. Average cost includes the direct purchase price of merchandise
        inventory and overhead costs associated with the Company's distribution
        center.

        PROPERTY AND EQUIPMENT

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

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

        LEASEHOLD INTEREST

        Upon acquisition of the Company in 1992, an asset was recognized for the
        net fair value of favorable operating lease agreements. The leasehold
        interest asset is being amortized on a straight-line basis over 13.5
        years. The unamortized balance attributable to leases terminated 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



                                      F-10
<PAGE>   40

        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 January
        2, 2000 and January 3, 1999 were $4,590 and $2,620, respectively.

        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.

        PREOPENING EXPENSES

        New store preopening expenses are charged against operations as
        incurred.

        ADVERTISING EXPENSES

        The Company recognizes advertising costs the first time the advertising
        takes place. Advertising expenses amounted to $30,613 for the year ended
        January 2, 2000, $28,465 for the year ended January 3, 1999, and $24,937
        for the year ended December 28, 1997. Advertising expense is included in
        selling and administrative.

        INCOME TAXES

        The Company accounts for income taxes under the asset and liability
        method whereby deferred tax assets and liabilities are recognized for
        the future tax consequences attributable to differences between
        financial statement carrying amounts of existing assets and liabilities
        and their respective tax bases. Deferred tax assets and liabilities are
        measured using tax rates expected to apply to taxable income in the
        years in which those temporary differences are expected to be recovered
        or settled. The effect on deferred tax assets and liabilities of a
        change in tax rates is recognized in income in the period that includes
        the enactment date. The realizability of deferred tax assets is assessed
        throughout the year and a valuation allowance is established
        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 and 1998, the excess tax liability of the Company over
        amounts due under the consolidated tax return were treated as capital
        contributions from the parent.

        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



                                      F-11
<PAGE>   41

        financial statements in conformity with generally accepted accounting
        principles. Actual results could differ from these estimates.

        CONCENTRATION OF CREDIT RISK

        The Company's deposits are with various high-quality financial
        institutions. Customer purchases are generally transacted using cash or
        credit cards. In certain instances, the Company grants credit to schools
        and youth-oriented organizations, under normal trade terms. Trade
        accounts receivable were approximately $306 and $462 at January 2, 2000
        and January 3, 1999, respectively. Credit losses have historically been
        within management's expectations.

        RECLASSIFICATIONS

        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.


  (3)   FAIR VALUES OF FINANCIAL INSTRUMENTS

        The following methods and assumptions were used to estimate the fair
        value of each class of financial instruments for which it is practicable
        to estimate that value:

                Cash and cash equivalents, trade and other receivables, trade
                accounts payable and accrued expenses: The carrying amounts
                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 $4,230 based upon recent market prices.

                The fair value of the Company's Senior notes at January 2, 2000
                approximated $106,995 based on recent market prices and net of
                the repurchase and retirement of $19,100 face value of Senior
                Notes during the year ended January 2, 2000. 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.



                                      F-12
<PAGE>   42

(4)     LONG-TERM DEBT

        Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                 JANUARY 2, 2000      JANUARY 3, 1999
                                                                                 ---------------      ---------------
           <S>                                                                   <C>                  <C>
                Revolving credit facility                                           $  39,856               20,908

                10 7/8% Senior Notes, net of unamortized discount, $131
                million face amount due in 2007 with an effective interest
                rate of 10.95%                                                        111,453              130,444
                                                                                    ---------               ------

           Total long-term debt                                                     $ 151,309              151,352
                                                                                    =========              =======
</TABLE>


        In connection with the Recapitalization, 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 Company repurchased and
        retired $19,100 face value of Senior Notes during the year ended January
        2, 2000. Subsequent to year-end, the Company repurchased and retired an
        additional $5,750 face value of the Senior Notes.

        If redeemed during the 12-month period beginning November 15:

<TABLE>
<CAPTION>
                  YEAR                          PERCENTAGE
          --------------------                  ----------
          <S>                                   <C>
          2002                                   105.475%
          2003                                   103.650
          2004                                   101.825
          2005 and thereafter                    100.000
                                                 =======
</TABLE>


        The Company used the proceeds from the issuance of the Senior Notes, to
        redeem, at a premium of 5.838%, all of the then outstanding unsecured
        Senior Subordinated Notes, including all accrued and unpaid interest.
        Accordingly, the Company incurred a charge of $2,707, consisting of
        $2,128 in prepayment penalties and $579 related to a write-off of
        deferred finance costs related to the unsecured Senior Subordinated
        Notes. The total charge is reflected as an extraordinary loss from early
        extinguishment of debt (net of income taxes of $1,110) of $1,597 in the
        statement of operations for the year ended December 28, 1997.

        In connection with the Recapitalization, the Company amended its
        then-current credit agreement facility with the CIT Group. The amended
        agreement provides the Company with a five year, non-amortizing $125
        million revolving credit (the CIT Credit Facility), expiring in November
        2002. The original agreement became effective March 8, 1996, when the
        Company entered into a credit agreement (the CIT Credit Agreement) among
        the Company and the CIT Group. The CIT Credit Agreement provided the
        Company with a three-year nonamortizing $100 million revolving debt
        facility (the CIT Facility). Proceeds from the initial funding under the
        CIT Facility were used to repay in full all of the



                                      F-13
<PAGE>   43

        Company's outstanding obligations under its then existing revolving
        credit facility with General Electric Capital Corporation.

        The CIT Credit Facility bears interest at various rates based on the
        Company's performance, with a floor of LIBOR plus 1.5% or the Chase
        Manhattan prime lending rate and a ceiling of LIBOR plus 2.5% or the
        Chase Manhattan prime lending rate plus 0.75% and are secured by trade
        accounts receivable, merchandise inventory and general intangible assets
        (including trademarks and trade names) of the Company. At January 2,
        2000, loans under the CIT Credit Facility bear interest at a rate of
        LIBOR (6.5% at January 2, 2000) plus 1.50% or the Chase Manhattan prime
        lending rate (8.50% at January 2, 2000) plus 0.0%. A monthly fee of
        0.325% per annum is assessed on the unused portion of the facility. On
        January 2, 2000, the Company had $39,856 in LIBOR and prime lending rate
        borrowings and letters of credit of $3,504 outstanding. The 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 $61,809 at January 2, 2000.

        The various debt agreements contain covenants restricting the ability of
        the Company to, among other things, incur additional debt, 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,
        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 January 2, 2000.

        On March 8, 2000 the Company repurchased and retired $5,750 face value
        of the Company's Senior Notes resulting in a net gain of $60, net of the
        write off of deferred financing fees.


 (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 options to purchase the leased assets.

        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.

        Rental expense for operating leases consisted of the following:

<TABLE>
<CAPTION>
                                   YEAR ENDED        YEAR ENDED        YEAR ENDED
                                   JANUARY 2,        JANUARY 3,        DECEMBER  28,
                                      2000              1999               1997
                                    ---------        ----------        -------------
<S>                                 <C>               <C>              <C>
Cash rental payments                $ 27,179           25,711             23,119
Noncash rentals                          625              546              1,552
Contingent rentals                     1,360            1,506              1,259
                                    --------           ------             ------

           Rental expense           $ 29,164           27,763             25,930
</TABLE>



                                      F-14
<PAGE>   44
        Future minimum lease payments (cash rentals) under noncancelable
        operating leases (with initial or remaining lease terms in excess of one
        year) as of January 2, 2000 are:

<TABLE>
<CAPTION>
               Year ending:
               ------------
               <S>                                     <C>
                   2000                                $ 28,438
                   2001                                  27,018
                   2002                                  26,161
                   2003                                  25,979
                   Thereafter                           129,662
                                                       ========
</TABLE>



(6)     ACCRUED EXPENSES

        Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                             JANUARY 2, 2000      JANUARY 3, 1999
                                             ---------------      ---------------
     <S>                                     <C>                  <C>
     Payroll and related expenses                $ 11,651               10,132
     Advertising                                    4,973                3,916
     Self-insurance reserves                        3,423                3,439
     Sales tax                                      5,946                5,569
     Income tax                                     3,313                   --
     Interest                                       2,116                2,476
     Other                                          8,533                5,726
                                                 --------               ------

                                                 $ 39,955               31,258
                                                 ========               ======
</TABLE>

(7)     INCOME TAXES

        Total income tax expense consists of the following:

<TABLE>
<CAPTION>
                                    JANUARY 2, 2000    JANUARY 3, 1999  DECEMBER 28, 1997
                                    ---------------    ---------------  -----------------
<S>                                 <C>                <C>              <C>
Income tax before
    extraordinary loss                  $ 5,829              4,604              1,436
Extraordinary item                         (265)                --             (1,110)
                                        -------             ------             ------

    Total income tax expense            $ 5,564              4,604                326
                                        =======             ======             ======
</TABLE>

<TABLE>
<CAPTION>
                                        CURRENT            DEFERRED            TOTAL
                                        -------            --------            -----
<S>                                     <C>                 <C>                 <C>
1999:
    Federal                             $ 6,161             (1,416)             4,745
    State                                 1,334               (250)             1,084
                                        -------             ------             ------

                                        $ 7,495             (1,666)             5,829
                                        =======             ======             ======
</TABLE>



                                      F-15
<PAGE>   45

<TABLE>
<S>                                     <C>                 <C>                 <C>
1998:
    Federal                             $ 3,991               (275)             3,716
    State                                   514                374                888
                                        -------             ------             ------

                                        $ 4,505                 99              4,604
                                        =======             ======             ======

1997:
    Federal                             $ 5,117             (3,890)             1,227
    State                                   876               (667)               209
                                        -------             ------             ------

                                        $ 5,993             (4,557)             1,436
                                        =======             ======             ======
</TABLE>

        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:

<TABLE>
<CAPTION>
                                                             YEAR ENDED          YEAR ENDED         YEAR ENDED
                                                             JANUARY 3,          JANUARY 3,         DECEMBER 28,
                                                                1999                1999                1997
                                                             ----------          ----------         ------------
        <S>                                                  <C>                 <C>                <C>
        Tax expense at statutory rate                          $ 5,145              3,979              4,865
        State taxes, net of Federal benefit                        713                551                835
        Increase (decrease) in valuation allowance,
            net of IRS adjustment in 1998                           --               (157)            (3,937)
        Other                                                      (29)               231               (327)
                                                               -------             ------             ------

                                                               $ 5,829              4,604              1,436
                                                               =======             ======             ======
</TABLE>


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

<TABLE>
<CAPTION>
                                                                    JANUARY 2,        JANUARY 3,
                                                                       2000              1999
                                                                    ----------        ----------
        <S>                                                         <C>               <C>
        Deferred assets:
            Self-insurance reserves                                   $1,401            1,476
            Employee benefits                                          1,476            1,243
            State taxes                                                  455              180
            Noncash rentals                                            2,852            2,634
            Amortization of tangible and intangible assets               827              969
            Other                                                        857              473
                                                                      ------            -----

                     Deferred tax assets                              $7,868            6,975

        Deferred liabilities - basis in fixed assets                  $   44              817
                                                                      ------            -----

                     Net deferred tax assets                          $7,824            6,158
                                                                      ======            =====
</TABLE>



                                      F-16
<PAGE>   46

        In 1998 and 1997, the Company reduced the valuation allowance to reflect
        realizability of its deferred tax assets. In doing so, 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

        Effective January 4, 1993, the Company established 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, $1,411 for the year ended January 3,
        1999 and $1,269 for the year ended December 28, 1997 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, which was in turn a wholly owned subsidiary of Pacific
        Enterprises (PE). In December 1996, Thrifty was acquired by Rite Aid
        Corporation.

        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 unitary tax returns of PE; and subleases described
        as follows.

        The Company leases certain property and equipment from Thrifty, which
        leases this property and equipment from an outside party. Charges
        related to these leases totaled $114 for the year ended January 2,
        2000, $435 for the year ended January 3, 1999 and $655 for the year
        ended December 28, 1997.

        In 1997, Parent, and the Company, entered into a new Management
        Services Agreement with an investment advisor group that is a
        shareholder of the Parent for a term of seven and one-half years, 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 and January 3, 1999, 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.

        The 1997 Management Equity Plan (the "1997 Plan") provides for the
        granting of incentive stock options or nonqualified options to officers,
        directors and selected key employees of the Company to purchase shares
        of the Parent's common stock. The 1997 Plan is administered by the Board
        of Directors of the Parent and the granting of awards under the Plan is
        discretionary with respect to the



                                      F-17
<PAGE>   47

        individuals to whom and the times at which awards are made, the number
        of options awarded, and the vesting and exercise period of such awards.
        The options granted under the Plan must have an exercise price that is
        no less than 85% of the fair value of the Parent common stock at the
        time the stock option is granted. The aggregate number of Parent common
        shares that may be allocated to awards under the Plan is 560,000 shares.

        The Company has elected to follow Accounting Principles Board Opinion
        No. 25, Accounting for Stock Issued to Employees (APB 25) and related
        interpretation in accounting for its employee stock options under the
        Plan. No awards have been granted under the Plan as of January 2, 2000.


 (10)   CONTINGENCIES

        The Company is 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.


 (11)   BUSINESS CONCENTRATIONS

        The Company operates specialty 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.



                                      F-18
<PAGE>   48


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



<TABLE>
<CAPTION>
                                                 BALANCE AT                           DEDUCTIONS
                                                  BEGINNING     ADDITIONS CHARGES        FROM              BALANCE
                                                   OF YEAR        TO OPERATIONS        ALLOWANCE        AT END OF YEAR
                                                 ----------     -----------------     -----------       --------------
<S>                                              <C>            <C>                    <C>              <C>
December 28, 1997

        Allowance for doubtful receivables           464                 61               (407)               118


January 3, 1999

        Allowance for doubtful receivables           118                120                (37)               201


January 2, 2000

        Allowance for doubtful receivables           201                120              (228)                 93
</TABLE>



                                      II-1