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BIG 5 SPORTING GOODS CORP
0001156388
--01-01
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<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 1 - us-gaap:BusinessDescriptionAndBasisOfPresentationTextBlock-->
<!-- xbrl,ns -->
<!-- xbrl,nx -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 12pt; margin-top: 0pt"><b></b>
</div>
<div align="left">
</div>
<div align="center" style="font-size: 12pt"><b></b></div>
<div align="left" style="margin-top: 12pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; background: transparent; color: #000000; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><b>(1)</b></td>
<td> </td>
<td>
<div style="text-align: justify"><b>Description of Business</b>
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 12pt"><i>Business</i>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Big 5 Sporting Goods Corporation (the “Company”) is a leading sporting
goods retailer in the western United States, operating 395 stores in 12 states at July 3, 2011. The
Company provides a full-line product offering in a traditional sporting goods store format that
averages approximately 11,000 square feet. The Company’s product mix includes athletic shoes,
apparel and accessories, as well as a broad selection of outdoor and athletic equipment for team
sports, fitness, camping, hunting, fishing, tennis, golf, snowboarding and roller sports. The
Company is a holding company that operates as one business segment through Big 5 Corp., its
wholly-owned subsidiary, and Big 5 Services Corp., which is a wholly-owned subsidiary of Big 5
Corp. Big 5 Services Corp. provides a centralized operation for the issuance and administration of
gift cards.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The accompanying interim unaudited condensed consolidated financial statements (“Interim
Financial Statements”) of the Company and its wholly-owned subsidiaries have been prepared in
accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information and are presented in accordance with the requirements of Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, these Interim Financial Statements do not
include all of the information and notes required by GAAP for complete financial statements. These
Interim Financial Statements should be read in conjunction with the consolidated financial
statements and notes thereto for the fiscal year ended January 2, 2011 included in the Company’s
Annual Report on Form 10-K. In the opinion of management, the Interim Financial Statements
included herein contain all adjustments, including normal recurring adjustments, considered
necessary to present fairly the Company’s financial position, the results of operations and cash
flows for the periods presented.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The operating results and cash flows of the interim periods presented herein are not
necessarily indicative of the results to be expected for any other interim period or the full year.
</div>
</div>
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<!-- Begin Block Tagged Note 2 - us-gaap:SignificantAccountingPoliciesTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="margin-top: 12pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; background: transparent; color: #000000; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><b>(2)</b></td>
<td> </td>
<td>
<div style="text-align: justify"><b>Summary of Significant Accounting Policies</b>
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 12pt"><i>Consolidation</i>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The accompanying Interim Financial Statements include the accounts of Big 5 Sporting Goods
Corporation, Big 5 Corp. and Big 5 Services Corp. Intercompany balances and transactions have been
eliminated in consolidation.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 12pt"><i>Reporting Period</i>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The Company follows the concept of a 52-53 week fiscal year, which ends on the Sunday nearest
December 31. Fiscal year 2011 is comprised of 52 weeks and ends on January 1, 2012. Fiscal year
2010 was comprised of 52 weeks and ended on January 2, 2011. The fiscal interim periods in fiscal
2011 and 2010 are each comprised of 13 weeks.
</div>
<!-- Folio -->
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</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 12pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 12pt"><i>Recently Issued Accounting Updates</i>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     There have been no recently issued accounting updates that are expected to have a material
impact on the Company’s Interim Financial Statements.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 12pt"><i>Use of Estimates</i>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Management has made a number of estimates and assumptions relating to the reporting of assets,
liabilities and stockholders’ equity and the disclosure of contingent assets and liabilities at the
date of the Interim Financial Statements and reported amounts of revenue and expense during the
reporting period to prepare these Interim Financial Statements in conformity with GAAP. Certain
items subject to such estimates and assumptions include the carrying amount of merchandise
inventories, property and equipment, and goodwill; valuation allowances for receivables, sales
returns and deferred income tax assets; estimates related to gift card breakage and the valuation
of share-based compensation awards; and obligations related to asset retirements, litigation,
self-insurance liabilities and employee benefits. Actual results could differ significantly from
these estimates under different assumptions and conditions.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 12pt"><i>Revenue Recognition</i>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The Company earns revenue by selling merchandise primarily through its retail stores. Revenue
is recognized when merchandise is purchased by and delivered to the customer and is shown net of
estimated returns during the relevant period. The allowance for sales returns is estimated based
upon historical experience.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Cash received from the sale of gift cards is recorded as a liability, and revenue is
recognized upon the redemption of the gift card or when it is determined that the likelihood of
redemption is remote (“gift card breakage”) and no liability to relevant jurisdictions exists. The
Company determines the gift card breakage rate based upon historical redemption patterns and
recognizes gift card breakage on a straight-line basis over the estimated gift card redemption
period (20 quarters as of the end of the second quarter of fiscal 2011). The Company recognized
approximately $105,000 and $210,000 in gift card breakage revenue for the 13 and 26 weeks ended
July 3, 2011 compared to approximately $108,000 and $217,000 for the 13 and 26 weeks ended July 4,
2010, respectively.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The Company records sales tax collected from its customers on a net basis, and therefore
excludes it from revenue as defined in Accounting Standards Codification (“ASC”) 605, <i>Revenue
Recognition</i>.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Included in revenue are sales of returned merchandise to vendors specializing in the resale of
defective or used products, which accounted for less than 1% of net sales in each of the periods
reported.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 12pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 12pt"><i>Valuation of Merchandise Inventories</i>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The Company’s merchandise inventories are made up of finished goods and are valued at the
lower of cost or market using the weighted-average cost method that approximates the first-in,
first-out (“FIFO”) method. Average cost includes the direct purchase price of merchandise
inventory, net of vendor allowances and cash discounts, and allocated overhead costs associated
with the Company’s distribution center.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Management regularly reviews inventories and records valuation reserves for merchandise damage
and defective returns, merchandise items with slow-moving or obsolescence exposure and merchandise
that has a carrying value that exceeds market value. Because of its merchandise mix, the Company
has not historically experienced significant occurrences of obsolescence.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Inventory shrinkage is accrued as a percentage of merchandise sales based on historical
inventory shrinkage trends. The Company performs physical inventories of its stores at least once
per year and cycle counts inventories at its distribution center throughout the year. The reserve
for inventory shrinkage represents an estimate for inventory shrinkage for each store since the
last physical inventory date through the reporting date.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     These reserves are estimates, which could vary significantly, either favorably or unfavorably,
from actual results if future economic conditions, consumer demand and competitive environments
differ from expectations.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 12pt"><i>Leases and Deferred Rent</i>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The Company accounts for its leases under the provisions of ASC 840, <i>Leases</i>.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The Company evaluates and classifies its leases as either operating or capital leases for
financial reporting purposes. Operating lease commitments consist principally of leases for the
Company’s retail store facilities, distribution center and corporate office. Capital lease
obligations consist principally of leases for some of the Company’s distribution center delivery
tractors, management information systems hardware and point-of-sale equipment for the Company’s
stores.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Certain of the leases for the Company’s retail store facilities provide for payments based on
future sales volumes at the leased location, which are not measurable at the inception of the
lease. These contingent rents are expensed as they accrue.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Deferred rent represents the difference between rent paid and the amounts expensed for
operating leases. Certain leases have scheduled rent increases, and certain leases include an
initial period of free or reduced rent as an inducement to enter into the lease agreement (“rent
holidays”). The Company recognizes rent expense for rent increases and rent holidays on a
straight-line basis over the term of the underlying leases, without regard to when rent payments
are made. The calculation of straight-line rent is based on the “reasonably assured” lease term as
defined in ASC 840 and may exceed the initial non-cancelable lease term.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Landlord allowances for tenant improvements, or lease incentives, are recorded as deferred
rent and amortized on a straight-line basis over the lease term as a component of rent expense.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 12pt; margin-top: 0pt">
<b>
</b>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 3 - us-gaap:FairValueDisclosuresTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="margin-top: 12pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; background: transparent; color: #000000; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><b>(3)</b></td>
<td> </td>
<td>
<div style="text-align: justify"><b>Fair Value Measurements</b>
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The carrying values of cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses approximate the fair values of these instruments due to their short-term nature.
The carrying amount for borrowings under the revolving credit facility approximates fair value
because of the variable market interest rate charged to the Company for these borrowings.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 4 - us-gaap:AssetImpairmentChargesTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="margin-top: 12pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; background: transparent; color: #000000; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><b>(4)</b></td>
<td> </td>
<td>
<div style="text-align: justify"><b>Impairment of Long-Lived Assets</b>
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Long-lived assets are reviewed for impairment annually or whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. In the second
quarter of fiscal 2011, the Company recognized a pre-tax non-cash impairment charge of $0.6 million
related to certain underperforming stores. The weakening sales performance, coupled with future
undiscounted cash flow projections, indicated that the carrying value of these stores’ assets
exceeded their estimated fair values as determined by their future discounted cash flow
projections. When projecting the stream of future undiscounted cash flows associated with an
individual store for purposes of determining long-lived asset recoverability, management makes
assumptions, incorporating local market conditions, about key store variables including sales
growth rates, gross margin and operating expenses. After the impairment charge, the fair
values of any remaining assets of these stores are not material. This impairment charge was
recorded in selling and administrative expense in the interim unaudited condensed consolidated
statement of operations. No impairment charges were recognized in fiscal 2010.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 5 - us-gaap:AccountsPayableAndAccruedLiabilitiesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="margin-top: 12pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; background: transparent; color: #000000; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><b>(5)</b></td>
<td> </td>
<td>
<div style="text-align: justify"><b>Accrued Expenses</b>
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Accrued expenses consist of the following:
</div>
<div align="center">
<table style="font-size: 12pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="66%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>     July 3,     </b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>January 2,</b></td>
<td> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="line-height: 5pt"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Payroll and related expense
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">17,711</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">18,920</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Occupancy costs
</div></td>
<td> </td>
<td> </td>
<td align="right">8,101</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8,573</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Sales tax
</div></td>
<td> </td>
<td> </td>
<td align="right">6,407</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">10,359</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Advertising
</div></td>
<td> </td>
<td> </td>
<td align="right">4,949</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,603</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Other
</div></td>
<td> </td>
<td> </td>
<td align="right">16,678</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">19,937</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Accrued expenses
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">53,846</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">64,392</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 12pt; margin-top: 0pt">
<b>
</b>
</div>
</div>
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<!-- Begin Block Tagged Note 6 - us-gaap:LongTermDebtTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="margin-top: 12pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; background: transparent; color: #000000; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><b>(6)</b></td>
<td> </td>
<td>
<div style="text-align: justify"><b>Long-Term Debt</b>
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     On October 18, 2010, the Company terminated its prior financing agreement with The CIT
Group/Business Credit, Inc. (“CIT”) and a syndicate of other lenders, as amended (the “Prior
Financing Agreement”) and replaced it with a new credit agreement (the “New Credit Agreement”)
with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and a
syndicate of other lenders. Initial borrowings under the New Credit Agreement on October 18, 2010
were used to, among other things, repay all of the Company’s outstanding indebtedness under the
Prior Financing Agreement with CIT, at which time the Prior Financing Agreement was terminated.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The New Credit Agreement provides for a revolving credit facility (the “Credit Facility”)
with an aggregate committed availability of up to $140.0 million, which amount may be increased at
the Company’s option up to a maximum of $165.0 million. The Company may also request additional
increases in aggregate availability, up to a maximum of $200.0 million, in which case the existing
lenders under the New Credit Agreement will have the option to increase their commitments to
accommodate the requested increase. If such existing lenders do not exercise that option, the
Company may (with the consent of Wells Fargo, not to be unreasonably withheld) seek other lenders
willing to provide such commitments. The Credit Facility includes a $50.0 million sublimit for
issuances of letters of credit and a $20.0 million sublimit for swingline loans. All amounts
outstanding under the Credit Facility will mature and become due on October 18, 2014.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The Company had long-term revolving credit borrowings of $64.0 million at July 3, 2011 and
$48.3 million at January 2, 2011. Total remaining borrowing availability, after subtracting
letters of credit, was $72.4 million and $90.9 million as of July 3, 2011 and January 2, 2011,
respectively.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Obligations under the New Credit Agreement are secured by a general lien and perfected
security interest in substantially all of the Company’s assets. The New Credit Agreement contains
covenants that require the Company to maintain a fixed charge coverage ratio of not less than
1.0:1.0 in certain circumstances, and limit the Company’s ability to, among other things, incur
liens, incur additional indebtedness, transfer or dispose of assets, change the nature of the
business, guarantee obligations, pay dividends or make other distributions or repurchase stock, and
make advances, loans or investments.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Based on terms of the New Credit Agreement as of October 2010, the Company has presented its
cash flows related to borrowing and repayment activities under the revolving credit facility on a
gross basis for the 26 weeks ended July 3, 2011.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 12pt; margin-top: 0pt">
<b>
</b>
</div>
</div>
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<!-- Begin Block Tagged Note 7 - us-gaap:IncomeTaxDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="margin-top: 12pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; background: transparent; color: #000000; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><b>(7)</b></td>
<td> </td>
<td>
<div style="text-align: justify"><b>Income Taxes</b>
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Under the asset and liability method prescribed under ASC 740, <i>Income Taxes</i>, the Company
recognizes deferred tax assets and liabilities for the future tax consequences attributable to
differences between financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected
to be realized or settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes the enactment date. The
realizability of deferred tax assets is assessed throughout the year and a valuation allowance is
recorded if necessary to reduce net deferred tax assets to the amount more likely than not to be
realized.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The Company files a consolidated federal income tax return and files tax returns in various
state and local jurisdictions. The statutes of limitations for consolidated federal income tax
returns are open for fiscal years 2007 and after, and state and local income tax returns are open
for fiscal years 2006 and after.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     At July 3, 2011 and January 2, 2011, the Company had no unrecognized tax benefits that, if
recognized, would affect the Company’s effective income tax rate over the next 12 months. The
Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest
expense and penalties in operating expense. At July 3, 2011 and January 2, 2011, the Company had no
accrued interest or penalties.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 8 - us-gaap:DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="margin-top: 12pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; background: transparent; color: #000000; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><b>(8)</b></td>
<td> </td>
<td>
<div style="text-align: justify"><b>Share-based Compensation</b>
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     At its discretion, the Company grants share option awards, nonvested share awards and
nonvested share unit awards to certain employees, as defined by ASC 718, <i>Compensation—Stock
Compensation</i>, under the Company’s 2007 Equity and Performance Incentive Plan, as amended and
restated on June 14, 2011 (the “Plan”), and accounts for its share-based compensation in accordance
with ASC 718. The Company recognized approximately $0.5 million and $0.9 million in share-based
compensation expense for the 13 weeks and 26 weeks ended July 3, 2011, respectively, compared to
$0.5 million and $0.9 million for the 13 weeks and 26 weeks ended July 4, 2010, respectively.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 12pt"><i>Share Option Awards</i>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Share option awards granted by the Company generally vest and become exercisable at the rate
of 25% per year with a maximum life of ten years. The exercise price of the share option awards is
equal to the quoted market price of the Company’s common stock on the date of grant. In the 26
weeks ended July 3, 2011, the Company granted 12,000 share option awards. The weighted-average
grant-date fair value per option for share option awards granted in the 26 weeks ended July 3, 2011
and July 4, 2010 was $3.12 and $6.26, respectively.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 12pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The fair value of each share option award on the date of grant is estimated using the
Black-Scholes method based on the following weighted-average assumptions:
</div>
<div align="center">
<table style="font-size: 12pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="32%"> </td>
<td width="5%"> </td>
<td width="4%"> </td>
<td width="4%"> </td>
<td width="4%"> </td>
<td width="5%"> </td>
<td width="4%"> </td>
<td width="4%"> </td>
<td width="4%"> </td>
<td width="5%"> </td>
<td width="4%"> </td>
<td width="4%"> </td>
<td width="4%"> </td>
<td width="5%"> </td>
<td width="4%"> </td>
<td width="4%"> </td>
<td width="4%"> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>13 Weeks Ended</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>26 Weeks Ended</b></td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>July 3,</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>July 4,</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>July 3,</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>July 4,</b></td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="line-height: 5pt"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Risk-free interest rate
</div></td>
<td> </td>
<td align="center" colspan="3">2.5%</td>
<td> </td>
<td align="center" colspan="3">2.4%</td>
<td> </td>
<td align="center" colspan="3">2.5%</td>
<td> </td>
<td align="center" colspan="3">2.4%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected term
</div></td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center">7.30 years</td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center">6.50 years</td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center">7.30 years</td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center">6.50 years</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected volatility
</div></td>
<td> </td>
<td align="center" colspan="3">51.0%</td>
<td> </td>
<td align="center" colspan="3">55.2%</td>
<td> </td>
<td align="center" colspan="3">51.0%</td>
<td> </td>
<td align="center" colspan="3">55.2%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected dividend yield
</div></td>
<td> </td>
<td align="center" colspan="3">3.62%</td>
<td> </td>
<td align="center" colspan="3">1.54%</td>
<td> </td>
<td align="center" colspan="3">3.62%</td>
<td> </td>
<td align="center" colspan="3">1.54%</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of
grant for periods corresponding with the expected term of the share option award; the expected term
represents the weighted-average period of time that share option awards granted are expected to be
outstanding giving consideration to vesting schedules and historical participant exercise behavior;
the expected volatility is based upon historical volatility of the Company’s common stock; and the
expected dividend yield is based upon the Company’s current dividend rate and future expectations.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     As of July 3, 2011, there was $0.7 million of total unrecognized compensation cost related to
nonvested share option awards granted. That cost is expected to be recognized over a
weighted-average period of 1.6 years.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 12pt"><i>Nonvested Share Awards and Nonvested Share Unit Awards</i>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     Nonvested share awards and nonvested share unit awards granted by the Company vest from the
date of grant in four equal annual installments of 25% per year. Nonvested share awards are
delivered to the recipient upon their vesting. With respect to nonvested share unit awards, vested
shares will be delivered to the recipient on the tenth business day of January following the year
in which the recipient’s service to the Company is terminated.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     In the 26 weeks ended July 3, 2011, the Company granted 152,100 nonvested share awards. The
weighted-average grant-date fair value per share of the Company’s nonvested share awards granted in
the 26 weeks ended July 3, 2011 and July 4, 2010 was $11.84 and $15.52, respectively.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The following table details the Company’s nonvested share awards activity for the 26 weeks
ended July 3, 2011:
</div>
<div align="center">
<table style="font-size: 12pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="66%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Weighted-</b></td>
<td> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Average</b></td>
<td> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Grant-Date</b></td>
<td> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Shares</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Fair Value</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="line-height: 5pt"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at January 2, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">233,750</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">13.69</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Granted
</div></td>
<td> </td>
<td> </td>
<td align="right">152,100</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">11.84</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Vested
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(72,525</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">12.62</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Forfeited
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,950</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">13.38</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at July 3, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">310,375</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">13.04</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 12pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     To satisfy employee minimum statutory tax withholding requirements for nonvested share awards
that vest, the Company withholds and retires a portion of the vesting common shares, unless an
employee elects to pay cash. In the 26 weeks ended July 3, 2011, the Company withheld 23,754 common
shares with a total value of $0.3 million. This amount is presented as a cash outflow from
financing activities in the accompanying interim unaudited condensed consolidated statements of
cash flows.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     In the 26 weeks ended July 3, 2011, the Company granted 9,000 nonvested share unit awards. The
weighted-average grant-date fair value per share of the Company’s nonvested share unit awards
granted in the 26 weeks ended July 3, 2011 was $8.26.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The following table details the Company’s nonvested share unit awards activity for the 26
weeks ended July 3, 2011:
</div>
<div align="center">
<table style="font-size: 12pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="66%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Weighted-</b></td>
<td> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Average</b></td>
<td> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Grant-Date</b></td>
<td> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Units</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Fair Value</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="line-height: 5pt"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at January 2, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Granted
</div></td>
<td> </td>
<td> </td>
<td align="right">9,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8.26</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Vested
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Forfeited
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at July 3, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">9,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8.26</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     As of July 3, 2011, there was $3.5 million and $0.1 million of total unrecognized compensation
cost related to nonvested share awards and nonvested share unit awards, respectively. That cost is
expected to be recognized over a weighted-average period of approximately 3.0 years and 4.0 years
for nonvested share awards and nonvested share unit awards, respectively.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The weighted-average grant-date fair value of nonvested share awards and nonvested share unit
awards is the quoted market price of the Company’s common stock on the date of grant, as shown in
the tables above.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 12pt; margin-top: 0pt">
<b>
</b>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 9 - us-gaap:EarningsPerShareTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="margin-top: 12pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; background: transparent; color: #000000; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><b>(9)</b></td>
<td> </td>
<td>
<div style="text-align: justify"><b>Earnings Per Share</b>
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The Company calculates earnings per share in accordance with ASC 260, <i>Earnings Per Share</i>,
which requires a dual presentation of basic and diluted earnings per share. Basic earnings per
share is calculated by dividing net income by the weighted-average shares of common stock
outstanding, reduced by shares repurchased and held in treasury, during the period. Diluted
earnings per share represents basic earnings per share adjusted to include the potentially dilutive
effect of outstanding share option awards and nonvested share awards.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The following table sets forth the computation of basic and diluted net income per common
share:
</div>
<div align="center">
<table style="font-size: 12pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="32%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>13 Weeks Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>26 Weeks Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>July 3,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>July 4,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>July 3,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>July 4,</b></td>
<td> </td>
</tr>
<tr style="font-size: 12pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands, except per share amounts)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="line-height: 5pt"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,105</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,752</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,865</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">9,785</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted-average shares
of common stock
outstanding:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Basic
</div></td>
<td> </td>
<td> </td>
<td align="right">21,672</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,554</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,645</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,519</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Dilutive
effect of
common stock
equivalents
arising from
share
option,
nonvested
share and
nonvested
share unit
awards
</div></td>
<td> </td>
<td> </td>
<td align="right">178</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">339</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">278</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">354</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Diluted
</div></td>
<td> </td>
<td> </td>
<td align="right">21,850</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,893</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,923</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,873</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Basic earnings per share
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">0.14</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.22</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.27</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.45</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Diluted earnings per share
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">0.14</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.22</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.27</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.45</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The computation of diluted earnings per share for the 13 weeks ended July 3, 2011, the 26
weeks ended July 3, 2011, the 13 weeks ended July 4, 2010 and the 26 weeks ended July 4, 2010 does
not include share option awards in the amounts of 1,041,686, 911,941, 890,462 and 890,763 shares,
respectively, that were outstanding and antidilutive (i.e., including such share option awards
would result in higher earnings per share), since the exercise prices of these share option awards
exceeded the average market price of the Company’s common shares.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The computation of diluted earnings per share for the 13 weeks and the 26 weeks ended July 3,
2011 does not include nonvested share awards in the amounts of 266,965 and 117 shares,
respectively, that were outstanding and antidilutive, since the average market prices of these
nonvested share awards exceeded their grant date fair values. No nonvested share awards were
antidilutive for the 13 weeks and 26 weeks ended July 4, 2010.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 12pt; margin-top: 0pt">
<b>
</b>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 10 - us-gaap:CommitmentsAndContingenciesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="margin-top: 12pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; background: transparent; color: #000000; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><b>(10)</b></td>
<td> </td>
<td>
<div style="text-align: justify"><b>Commitments and Contingencies</b>
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     On August 6, 2009, the Company was served with a complaint filed in the California Superior
Court for the County of San Diego, entitled Shane Weyl v. Big 5 Corp., et al., Case No.
37-2009-00093109-CU-OE-CTL, alleging violations of the California Labor Code and the California
Business and Professions Code. The complaint was brought as a purported class action on behalf of
the Company’s hourly employees in California for the four years prior to the filing of the
complaint. The plaintiff alleges, among other things, that the Company failed to provide hourly
employees with meal and rest periods and failed to pay wages within required time periods during
employment and upon termination of employment. The plaintiff seeks, on behalf of the class members,
an award of one hour of pay (wages) for each workday that a meal or rest period was not provided;
restitution of unpaid wages; actual, consequential and incidental losses and damages; pre-judgment
interest; statutory penalties including an additional thirty days’ wages for each hourly employee
in California whose employment terminated in the four years preceding the filing of the complaint;
civil penalties; an award of attorneys’ fees and costs; and injunctive and declaratory relief. On
December 14, 2009, the parties engaged in mediation and agreed to settle the lawsuit. On February
4, 2010, the parties filed a joint settlement and a motion to preliminarily approve the settlement
with the court. On July 16, 2010, the court granted preliminary approval of the settlement. On
November 9, 2010, the plaintiff filed a motion for final approval of the settlement with the court.
On January 24, 2011, the court granted final approval of the settlement, reduced the award of
plaintiff’s attorneys’ fees, and instructed plaintiff’s counsel to prepare a written order on final
approval of the settlement. The plaintiff filed a renewed motion for an award of attorneys’ fees
and costs, and the court granted the motion in part. On June 2, 2011, the court issued a written
order granting final approval of the settlement and entered judgment on the settlement. The Company
admitted no liability or wrongdoing with respect to the claims set forth in the lawsuit. The
settlement constitutes a full and complete settlement and release of all claims related to the
lawsuit. The Company previously recorded an estimated liability of $1.4 million under the
settlement, inclusive of payments to class members, plaintiff’s attorneys’ fees and expenses, an
enhancement payment to the class representative, claims administrator fees and payment to the
California Labor and Workforce Development Agency, which was included within the Company’s accrued
liabilities. During the second quarter of fiscal 2011, the Company paid $1.2 million, representing
all payments required under the settlement.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     On August 13, 2009, the Company was served with a complaint filed in the California Superior
Court for the County of San Diego, entitled Michael Kelly v. Big 5 Sporting Goods Corporation, et
al., Case No. 37-2009-00095594-CU-MC-CTL, alleging violations of the California Business and
Professions Code and California Civil Code. The complaint was brought as a purported class action
on behalf of persons who purchased certain tennis, racquetball and squash rackets from the Company.
The plaintiff alleges, among other things, that the Company employed deceptive pricing, marketing
and advertising practices with respect to the sale of such rackets. The plaintiff seeks, on behalf
of the class members, unspecified amounts of damages and/or restitution; attorneys’ fees and costs;
and injunctive relief to require the Company to
discontinue the allegedly improper conduct. On July 20, 2010, the plaintiff filed with the
court a Motion for Class Certification. The plaintiff and the Company engaged in mediation on
September 1,
2010 and again on November 22, 2010. During mediation, the parties agreed to settle
the lawsuit. On January 27, 2011, the plaintiff filed a motion to preliminarily approve the
settlement with the court. On March 21, 2011, the court granted
preliminary approval of the settlement. On July 15, 2011, the
plaintiff filed with the court a motion for final approval of the
settlement. On July 29, 2011, the court granted final approval
of the settlement and entered judgment on the settlement. Under the terms of the settlement, the Company agreed that class
members who submit valid and timely claim forms will receive a refund of the purchase price of a
class racket, up to $50 per racket, in the form of either a gift card or a check. Additionally,
the Company agreed to pay plaintiff’s attorneys’ fees and costs, an enhancement payment to the
class representative and claims administrator’s fees. Furthermore, if the total
amount paid by the Company for the class payout, plaintiff’s attorneys’ fees and costs, class
representative enhancement payment and claims administrator’s fees is less than $4.0 million, then
the Company will issue merchandise vouchers to a charity for the balance of the deficiency in the
manner provided in the settlement agreement. The Company’s estimated total cost pursuant to this
settlement is reflected in a legal settlement accrual recorded in the fourth quarter of fiscal
2010. The Company admitted no liability or wrongdoing with respect to the claims set forth in the
lawsuit. The settlement constitutes a full and complete
settlement and release of all claims related to the lawsuit.
</div>
<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The Company was served on the following dates with the following nine complaints, each of
which was brought as a purported class action on behalf of persons who made purchases at the
Company’s stores in California using credit cards and were requested or required to provide
personal identification information at the time of the transaction: (1) on February 22, 2011, a
complaint filed in the California Superior Court in the County of Los Angeles, entitled Maria
Eugenia Saenz Valiente v. Big 5 Sporting Goods Corporation, et al., Case No. BC455049, alleging
violations of the California Civil Code and Business and Professions Code; (2) on February 22,
2011, a complaint filed in the California Superior Court in the County of Los Angeles, entitled
Scott Mossler v. Big 5 Sporting Goods Corporation, et al., Case No. BC455477, alleging violations
of the California Civil Code; (3) on February 28, 2011, a complaint filed in the California
Superior Court in the County of Los Angeles, entitled Yelena Matatova v. Big 5 Sporting Goods
Corporation, et al., Case No. BC455459, alleging violations of the California Civil Code; (4) on
March 8, 2011, a complaint filed in the California Superior Court in the County of Los Angeles,
entitled Neal T. Wiener v. Big 5 Sporting Goods Corporation, et al., Case No. BC456300, alleging
violations of the California Civil Code; (5) on March 22, 2011, a complaint filed in the California
Superior Court in the County of San Francisco, entitled Donna Motta v. Big 5 Sporting Goods
Corporation, et al., Case No. CGC-11-509228,
alleging violations of the California Civil Code,
negligence, invasion of privacy and unlawful intrusion; (6) on March 30, 2011, a complaint filed in
the California Superior Court in the County of Alameda, entitled Steve Holmes v. Big 5 Sporting
Goods Corporation, et al., Case No. RG11563123, alleging violations of the California Civil Code;
(7) on March 30, 2011, a complaint filed in the California Superior Court in the County of San
Francisco, entitled Robin Nelson v. Big 5 Sporting Goods Corporation, et al., Case No.
CGC-11-508829, alleging violations of the California Civil Code, negligence, invasion of privacy
and unlawful intrusion; (8) on April 8, 2011, a complaint filed in the California Superior Court in
the County of San Joaquin, entitled Pamela B. Smith v. Big 5 Sporting Goods Corporation, et al.,
Case No. 39-2011-00261014-CU-BT-STK, alleging violations of the California Civil Code; and (9) on
May 31, 2011, a complaint filed in the California Superior Court in the County of Los Angeles,
entitled Deena Gabriel v. Big 5 Sporting Goods Corporation, et al., Case No. BC462213, alleging
violations of the California Civil Code. Each plaintiff alleges, among other things, that customers
making purchases with credit cards at the Company’s stores in California were improperly requested
to provide their zip code at the time of such purchases. Each plaintiff seeks, on behalf of the
class members, some or all of the following: statutory penalties; attorneys’ fees; costs;
restitution of property; disgorgement of profits; and injunctive relief. On June 16, 2011, the
Judicial Council of California issued an Order Assigning Coordination Trial Judge designating the
California Superior Court in the County of Los Angeles as having jurisdiction to coordinate and to
hear all nine of the cases. The Company intends to defend each suit vigorously. Because these
disputes remain in the preliminary stages and, among other things, discovery is still ongoing, the
Company is not able to estimate a range of potential loss in the event of an unfavorable outcome in
any of these cases at the present time. If any of these cases are resolved unfavorably to the
Company, such litigation, the costs of defending it and any resulting required change in the
business practices of the Company could have a material negative impact on the Company’s results of
operations and financial condition.
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<div align="justify" style="font-size: 12pt; margin-top: 6pt">     The Company is involved in various other claims and legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of these matters is not
expected to have a material adverse effect on the Company’s financial condition, results of
operations or liquidity.
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<div style="text-align: justify"><b>Subsequent Event</b>
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<div align="justify" style="font-size: 12pt; margin-top: 6pt">     In the third quarter of fiscal 2011, the Company’s Board of Directors declared a quarterly
cash dividend of $0.075 per share of outstanding common stock, which will be paid on September 15,
2011 to stockholders of record as of September 1, 2011.
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