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EX-32.2 - EX-32.2 - BIG 5 SPORTING GOODS Corpbgfv-ex322_30.htm
EX-32.1 - EX-32.1 - BIG 5 SPORTING GOODS Corpbgfv-ex321_31.htm
EX-31.2 - EX-31.2 - BIG 5 SPORTING GOODS Corpbgfv-ex312_32.htm
EX-31.1 - EX-31.1 - BIG 5 SPORTING GOODS Corpbgfv-ex311_33.htm
EX-15.1 - EX-15.1 - BIG 5 SPORTING GOODS Corpbgfv-ex151_6.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

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

For the transition period from _____________________ to ____________________

Commission file number:  000-49850

 

BIG 5 SPORTING GOODS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

95-4388794

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

2525 East El Segundo Boulevard

El Segundo, California

 

90245

(Address of Principal Executive Offices)

 

(Zip Code)

 

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

 

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

There were 21,428,274 shares of common stock, with a par value of $0.01 per share outstanding as of October 23, 2018.

 

 

 

 

 


 

BIG 5 SPORTING GOODS CORPORATION

INDEX

 

 

 

Page

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1

Financial Statements

3

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017

3

 

Unaudited Condensed Consolidated Statements of Operations for the Thirteen and Thirty-Nine Weeks Ended September 30, 2018 and October 1, 2017

4

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Thirty-Nine Weeks Ended September 30, 2018 and October 1, 2017

5

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended September 30, 2018 and October 1, 2017

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

 

Report of Independent Registered Public Accounting Firm

18

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4

Controls and Procedures

28

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1

Legal Proceedings

29

Item 1A

Risk Factors

29

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 3

Defaults Upon Senior Securities

29

Item 4

Mine Safety Disclosures

29

Item 5

Other Information

29

Item 6

Exhibits

29

 

 

SIGNATURES

30

 

 

 

 


 

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

BIG 5 SPORTING GOODS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 

 

 

September 30,

2018

 

 

December 31,

2017

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

5,018

 

 

$

7,170

 

Accounts receivable, net of allowances of $38 and $79, respectively

 

 

14,835

 

 

 

10,886

 

Merchandise inventories, net

 

 

314,837

 

 

 

313,905

 

Prepaid expenses

 

 

13,099

 

 

 

18,930

 

Total current assets

 

 

347,789

 

 

 

350,891

 

Property and equipment, net

 

 

75,587

 

 

 

77,265

 

Deferred income taxes

 

 

13,306

 

 

 

14,172

 

Other assets, net of accumulated amortization of $1,715 and $1,575, respectively

 

 

4,402

 

 

 

2,732

 

Total assets

 

$

441,084

 

 

$

445,060

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

83,340

 

 

$

113,740

 

Accrued expenses

 

 

61,475

 

 

 

68,226

 

Current portion of capital lease obligations

 

 

2,294

 

 

 

1,754

 

Total current liabilities

 

 

147,109

 

 

 

183,720

 

Deferred rent, less current portion

 

 

15,218

 

 

 

15,948

 

Capital lease obligations, less current portion

 

 

4,932

 

 

 

2,800

 

Long-term debt

 

 

83,523

 

 

 

45,000

 

Other long-term liabilities

 

 

9,772

 

 

 

10,523

 

Total liabilities

 

 

260,554

 

 

 

257,991

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, authorized 50,000,000 shares; issued 25,078,487 and

   24,919,624 shares, respectively; outstanding 21,428,274 and 21,345,159 shares, respectively

 

 

250

 

 

 

249

 

Additional paid-in capital

 

 

117,863

 

 

 

116,495

 

Retained earnings

 

 

104,944

 

 

 

112,424

 

Less: Treasury stock, at cost; 3,650,213 and 3,574,465 shares, respectively

 

 

(42,527

)

 

 

(42,099

)

Total stockholders' equity

 

 

180,530

 

 

 

187,069

 

Total liabilities and stockholders' equity

 

$

441,084

 

 

$

445,060

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

- 3 -


 

BIG 5 SPORTING GOODS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

 

 

13 Weeks Ended

 

 

39 Weeks Ended

 

 

 

September 30,

2018

 

 

October 1,

2017

 

 

September 30,

2018

 

 

October 1,

2017

 

Net sales

 

$

266,351

 

 

$

270,471

 

 

$

740,480

 

 

$

766,746

 

Cost of sales

 

 

183,852

 

 

 

182,923

 

 

 

509,984

 

 

 

516,268

 

Gross profit

 

 

82,499

 

 

 

87,548

 

 

 

230,496

 

 

 

250,478

 

Selling and administrative expense

 

 

77,680

 

 

 

77,358

 

 

 

225,824

 

 

 

226,190

 

Operating income

 

 

4,819

 

 

 

10,190

 

 

 

4,672

 

 

 

24,288

 

Interest expense

 

 

860

 

 

 

447

 

 

 

2,309

 

 

 

1,095

 

Income before income taxes

 

 

3,959

 

 

 

9,743

 

 

 

2,363

 

 

 

23,193

 

Income taxes

 

 

844

 

 

 

3,793

 

 

 

805

 

 

 

9,139

 

Net income

 

$

3,115

 

 

$

5,950

 

 

$

1,558

 

 

$

14,054

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.15

 

 

$

0.28

 

 

$

0.07

 

 

$

0.65

 

Diluted

 

$

0.15

 

 

$

0.28

 

 

$

0.07

 

 

$

0.65

 

Dividends per share

 

$

0.15

 

 

$

0.15

 

 

$

0.45

 

 

$

0.45

 

Weighted-average shares of common stock

   outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

20,990

 

 

 

21,324

 

 

 

20,972

 

 

 

21,584

 

Diluted

 

 

21,000

 

 

 

21,355

 

 

 

21,021

 

 

 

21,752

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

- 4 -


 

BIG 5 SPORTING GOODS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Treasury

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Stock,

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

At Cost

 

 

Total

 

Balance as of January 1, 2017

 

 

22,012,651

 

 

$

248

 

 

$

114,797

 

 

$

124,363

 

 

$

(34,371

)

 

$

205,037

 

Net income

 

 

 

 

 

 

 

 

 

 

 

14,054

 

 

 

 

 

 

14,054

 

Dividends on common stock ($0.45 per

   share)

 

 

 

 

 

 

 

 

 

 

 

(9,849

)

 

 

 

 

 

(9,849

)

Issuance of nonvested share awards

 

 

203,112

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Exercise of share option awards

 

 

11,086

 

 

 

 

 

 

67

 

 

 

 

 

 

 

 

 

67

 

Share-based compensation

 

 

 

 

 

 

 

 

1,750

 

 

 

 

 

 

 

 

 

1,750

 

Forfeiture of nonvested share awards

 

 

(21,555

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of common stock for payment

   of withholding tax

 

 

(54,012

)

 

 

(1

)

 

 

(804

)

 

 

 

 

 

 

 

 

(805

)

Net disgorgement of stockholder's

   short-swing profits

 

 

 

 

 

 

 

 

136

 

 

 

 

 

 

 

 

 

136

 

Purchases of treasury stock

 

 

(677,109

)

 

 

 

 

 

 

 

 

 

 

 

(6,904

)

 

 

(6,904

)

Balance as of October 1, 2017

 

 

21,474,173

 

 

$

249

 

 

$

115,944

 

 

$

128,568

 

 

$

(41,275

)

 

$

203,486

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2017

 

 

21,345,159

 

 

$

249

 

 

$

116,495

 

 

$

112,424

 

 

$

(42,099

)

 

$

187,069

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,558

 

 

 

 

 

 

1,558

 

Cumulative adjustment from change in

   accounting principle, net of tax

 

 

 

 

 

 

 

 

 

 

 

575

 

 

 

 

 

 

575

 

Dividends on common stock ($0.45 per

   share)

 

 

 

 

 

 

 

 

 

 

 

(9,613

)

 

 

 

 

 

(9,613

)

Issuance of nonvested share awards

 

 

213,062

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Exercise of share option awards

 

 

6,564

 

 

 

 

 

 

31

 

 

 

 

 

 

 

 

 

31

 

Share-based compensation

 

 

 

 

 

 

 

 

1,704

 

 

 

 

 

 

 

 

 

1,704

 

Forfeiture of nonvested share awards

 

 

(7,420

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of common stock for payment

   of withholding tax

 

 

(53,343

)

 

 

(1

)

 

 

(365

)

 

 

 

 

 

 

 

 

(366

)

Purchases of treasury stock

 

 

(75,748

)

 

 

 

 

 

 

 

 

 

 

 

(428

)

 

 

(428

)

Balance as of September 30, 2018

 

 

21,428,274

 

 

$

250

 

 

$

117,863

 

 

$

104,944

 

 

$

(42,527

)

 

$

180,530

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

- 5 -


 

BIG 5 SPORTING GOODS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

39 Weeks Ended

 

 

 

September 30,

2018

 

 

October 1,

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

1,558

 

 

$

14,054

 

  Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

14,374

 

 

 

14,324

 

Share-based compensation

 

 

1,704

 

 

 

1,750

 

Amortization of other assets

 

 

141

 

 

 

130

 

Deferred income taxes

 

 

659

 

 

 

2,140

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

1,404

 

 

 

3,599

 

Merchandise inventories, net

 

 

(932

)

 

 

(15,012

)

Prepaid expenses and other assets

 

 

381

 

 

 

(1,701

)

Accounts payable

 

 

(18,029

)

 

 

(12,033

)

Accrued expenses and other long-term liabilities

 

 

(9,319

)

 

 

(12,802

)

Net cash used in operating activities

 

 

(8,059

)

 

 

(5,551

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(8,448

)

 

 

(11,374

)

Net cash used in investing activities

 

 

(8,448

)

 

 

(11,374

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

167,213

 

 

 

177,785

 

Payments under revolving credit facility

 

 

(128,690

)

 

 

(141,358

)

Changes in book overdraft

 

 

(12,382

)

 

 

(3,671

)

Debt issuance costs paid

 

 

 

 

 

(140

)

Principal payments under capital lease obligations

 

 

(1,413

)

 

 

(1,181

)

Proceeds from exercise of share option awards

 

 

31

 

 

 

67

 

Proceeds from disgorgement of stockholder's short-swing profits

 

 

 

 

 

346

 

Purchases of treasury stock

 

 

(428

)

 

 

(6,829

)

Tax withholding payments for share-based compensation

 

 

(366

)

 

 

(805

)

Dividends paid

 

 

(9,610

)

 

 

(9,840

)

Net cash provided by financing activities

 

 

14,355

 

 

 

14,374

 

 

 

 

 

 

 

 

 

 

Net decrease in cash

 

 

(2,152

)

 

 

(2,551

)

 

 

 

 

 

 

 

 

 

Cash at beginning of period

 

 

7,170

 

 

 

7,895

 

 

 

 

 

 

 

 

 

 

Cash at end of period

 

$

5,018

 

 

$

5,344

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment acquired under capital leases

 

$

4,146

 

 

$

2,666

 

Property and equipment additions unpaid

 

$

2,036

 

 

$

1,734

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

2,130

 

 

$

972

 

Income taxes paid

 

$

20

 

 

$

10,003

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

 

- 6 -


 

BIG 5 SPORTING GOODS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(1)

Description of Business

Big 5 Sporting Goods Corporation (the “Company”) is a leading sporting goods retailer in the western United States, operating 436 stores and an e-commerce platform as of September 30, 2018. 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, winter and summer recreation and roller sports. The Company is a holding company that operates as one reportable segment through Big 5 Corp., its 100%-owned subsidiary, and Big 5 Services Corp., which is a 100%-owned subsidiary of Big 5 Corp. Big 5 Services Corp. provides a centralized operation for the issuance and administration of gift cards.

The accompanying interim unaudited condensed consolidated financial statements (“Interim Financial Statements”) of the Company and its 100%-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 December 31, 2017 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.

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.

 

 

(2)

Summary of Significant Accounting Policies

Consolidation

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.

Reporting Period

The Company follows the concept of a 52-53 week fiscal year, which ends on the Sunday nearest December 31. Fiscal year 2018 is comprised of 52 weeks and ends on December 30, 2018. Fiscal year 2017 was comprised of 52 weeks and ended on December 31, 2017. The fiscal interim periods in fiscal 2018 and 2017 are each comprised of 13 weeks.

Recently Adopted Accounting Updates

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was further clarified and amended in 2015 and 2016 and supersedes most preexisting revenue recognition guidance with a comprehensive new revenue recognition model. The core principle is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted this standard on January 1, 2018 using the modified retrospective approach. Further disclosures relative to the adoption of this standard are provided in the Revenue Recognition policy section of this Note 2 to the Interim Financial Statements.

- 7 -


BIG 5 SPORTING GOODS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(continued)

 

Recently Issued Accounting Updates

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on its classification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet—the new ASU will require both types of leases to be recognized on the balance sheet. The ASU will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This ASU can be applied at the beginning of the earliest period presented using the modified retrospective approach, which includes certain practical expedients that an entity may elect to apply, including an election to use certain transition relief. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11Leases (Topic 842): Targeted Improvements, which make improvements to Accounting Standards Codification (“ASC”) 842 and allow entities to not restate comparative periods in transition to ASC 842 and instead report the comparative periods under ASC 840. The Company plans to adopt this standard using the modified retrospective approach in the first quarter of fiscal 2019, coinciding with the standard’s effective date. While the Company is still evaluating this ASU and related updates, the Company has determined that the primary impact will be to recognize on the balance sheet material right-of-use assets and material lease obligations for all leases with lease terms greater than 12 months. The Company’s project team is finalizing the implementation of a new lease administration and accounting software. As part of this implementation, the project team is developing and mapping new and existing controls in the context of the Company’s control environment. In addition, the project team continues to evaluate the practical expedients offered and enhanced disclosures required in the ASU, as well as to identify arrangements that contain embedded leases, among other activities, to account for this standard upon adoption.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard removes, modifies, and adds certain disclosure requirements for fair value measurements. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. While the Company is currently in the process of evaluating the effects of this standard on its consolidated financial statements, the Company plans to adopt ASU No. 2018-13 in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and expects the impact from this standard to be immaterial.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company’s accounting for the service element of a hosting arrangement that is a service contract is not affected by the proposed amendments and will continue to be expensed as incurred in accordance with existing guidance. This standard does not expand on existing disclosure requirements except to require a description of the nature of hosting arrangements that are service contracts. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. Entities can choose to adopt the new guidance prospectively or retrospectively. Except for the updated disclosure requirements, the Company’s current accounting for the service element of a hosting arrangement that is a service contract is consistent with the prescribed treatment in this standard. The Company plans to adopt ASU No. 2018-15 prospectively in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and expects the impact from this standard to be immaterial.

Other recently issued accounting updates are not expected to have a material impact on the Company’s consolidated financial statements.

Use of Estimates

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 as of 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, and property and equipment; valuation allowances for receivables, sales returns and deferred income tax assets; estimates related to gift cards and returned merchandise credits (collectively, “stored-value cards”) and the valuation of share-based compensation awards; and obligations related to litigation, self-insurance liabilities and employee benefits. Actual results could differ significantly from these estimates under different assumptions and conditions.

 

- 8 -


BIG 5 SPORTING GOODS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(continued)

 

Revenue Recognition

On January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, using the modified retrospective approach for all contracts not completed as of the date of adoption. Results for the reporting periods beginning on January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with accounting under ASC 605, Revenue Recognition. As a result of adopting ASC 606, the Company recorded an increase to retained earnings of $0.6 million, net of tax, as of January 1, 2018, due to the cumulative effect related to the change in accounting for stored-value card breakage. In addition, the Company recorded estimated right-of-return merchandise cost of $1.3 million related to estimated sales returns, with a corresponding increase to the sales return reserve recorded in accrued expenses; and revenues related to online sales were recognized upon shipment rather than delivery to the customer, with the cumulative effect related to this change determined to be immaterial.

The Company operates solely as a sporting goods retailer, which includes both retail stores and an e-commerce platform, that offers a broad range of products in the western United States and online. Generally, all revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration in exchange for those goods. Accordingly, the Company implicitly enters into a contract with customers to deliver merchandise inventory at the point of sale. Collectibility is reasonably assured since the Company only extends immaterial credit purchases to certain municipalities and local school districts.

As noted in the segment information in the notes to the consolidated financial statements of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and Note 1 to these Interim Financial Statements, the Company’s business consists of one reportable segment. In accordance with ASC 606, the Company disaggregates net sales into the following major merchandise categories to depict the nature and amount of revenue and related cash flows:

 

 

 

13 Weeks Ended

 

 

39 Weeks Ended

 

 

 

September 30,

2018

 

 

October 1,

2017

 

 

September 30,

2018

 

 

October 1,

2017

 

 

 

(In thousands)

 

Hard goods

 

$

145,822

 

 

$

147,525

 

 

$

379,288

 

 

$

391,236

 

Athletic and sport apparel

 

 

45,111

 

 

 

44,425

 

 

 

146,147

 

 

 

151,503

 

Athletic and sport footwear

 

 

74,128

 

 

 

77,124

 

 

 

210,679

 

 

 

219,095

 

Other sales

 

 

1,290

 

 

 

1,397

 

 

 

4,366

 

 

 

4,912

 

Net sales

 

$

266,351

 

 

$

270,471

 

 

$

740,480

 

 

$

766,746

 

 

Substantially all of the Company’s revenue is for single performance obligations for the following distinct items:

 

Retail store sales

 

E-commerce sales

 

Stored-value cards

For performance obligations related to retail store and e-commerce sales contracts, the Company typically transfers control, for retail stores, upon consummation of the sale when the product is paid for and taken by the customer and, for e-commerce sales, when the product is tendered for delivery to the common carrier. For performance obligations related to stored-value cards, the Company typically transfers control at a point in time upon redemption of the stored-value card through consummation of a future sales transaction.

The transaction price for each contract is the stated price on the product, reduced by any stated discounts at that point in time. The Company does not engage in sales of products that attach a future material right which could result in a separate performance obligation for the purchase of goods in the future at a material discount. The implicit point-of-sale contract with the customer, as reflected in the transaction receipt, states the final terms of the sale, including the description, quantity, and price of each product purchased. Payment for the Company’s contracts is due in full upon delivery. The customer agrees to a stated price implicit in the contract.

 

- 9 -


BIG 5 SPORTING GOODS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(continued)

 

The transaction price relative to sales subject to a right of return reflects the amount of estimated consideration to which the Company expects to be entitled. This amount of variable consideration included in the transaction price, and measurement of net sales, is included in net sales only to the extent that it is probable that there will be no significant reversal in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. There were no material adjustments to the Company’s previous estimates. The allowance for sales returns is estimated based upon historical experience and a provision for estimated returns is recorded as a reduction in sales in the relevant period. The estimated right-of-return merchandise cost related to the sales returns is recorded as prepaid expense in the Company’s interim unaudited condensed consolidated balance sheet as of September 30, 2018. If actual results in the future vary from the Company’s estimates, the Company adjusts these estimates, which would affect net sales and earnings in the period such variances become known.

The Company has elected to apply the practical expedient, relative to e-commerce sales, which allows an entity to account for shipping and handling as fulfillment activities, and not a separate performance obligation. Accordingly, the Company recognizes revenue for only one performance obligation, the sale of the product, at shipping point (when the customer gains control). Revenue associated with e-commerce sales is not material.

Contract liabilities are recognized primarily for stored-value card sales. Cash received from the sale of stored-value cards is recorded as a contract liability in accrued expenses, and the Company recognizes revenue upon the customer’s redemption of the stored-value card. Stored-value card breakage is recognized as revenue in proportion to the pattern of customer redemptions by applying a historical breakage rate of five percent. The Company does not sell or provide stored-value cards that carry expiration dates.

The Company recognized approximately $1.6 million and $5.5 million in stored-value card redemption revenue for the 13 and 39 weeks ended September 30, 2018, respectively, and $1.6 million and $5.6 million for the 13 and 39 weeks ended October 1, 2017, respectively. The Company also recognized approximately $83,000 and $289,000 in stored-value card breakage revenue for the 13 and 39 weeks ended September 30, 2018, respectively, compared to approximately $111,000 and $334,000 in stored-value card breakage revenue for the 13 and 39 weeks ended October 1, 2017, respectively. The Company had outstanding stored-value card liabilities of $5.5 million and $7.4 million as of September 30, 2018 and December 31, 2017, respectively, which are included in accrued expenses. Stored-value card redemption and breakage revenue for the 13 and 39 weeks ended September 30, 2018 and stored-value card liability as of September 30, 2018 reported under ASC 606 were not materially different from amounts that would have been reported under the previous revenue guidance of ASC 605. The Company will continue to monitor future quarters for materiality. Based upon historical experience, stored-value cards are predominantly redeemed in the first two years following their issuance date.

The Company recorded, as prepaid expense, estimated right-of-return merchandise cost of $0.9 million related to estimated sales returns and recorded, as accrued expense, an allowance for sales returns reserve of $1.6 million as of September 30, 2018 under ASC 606, which would have been reported as a net liability of $0.7 million with no estimated right-of-return merchandise cost recorded as of September 30, 2018 under ASC 605.

Share-Based Compensation

The Company accounts for share-based compensation in accordance with ASC 718, Compensation—Stock Compensation. The Company recognizes compensation expense on a straight-line basis over the requisite service period using the fair-value method for share option awards, nonvested share awards and nonvested share unit awards granted with service-only conditions. See Note 10 to the Interim Financial Statements for a further discussion on share-based compensation.

Valuation of Merchandise Inventories, Net

The Company’s merchandise inventories are made up of finished goods and are valued at the lower of cost or net realizable value using the weighted-average cost method, which approximates the first-in, first-out (“FIFO”) method. Average cost includes the direct purchase price of merchandise inventory, net of certain vendor allowances and cash discounts, in-bound freight-related expense and allocated overhead expense associated with the Company’s distribution center.

Management regularly reviews inventories and records valuation reserves for damaged and defective merchandise, merchandise items with slow-moving or obsolescence exposure and merchandise that has a carrying value that exceeds net realizable value. Because of its merchandise mix, the Company has not historically experienced significant occurrences of obsolescence.

 

- 10 -


BIG 5 SPORTING GOODS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(continued)

 

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 primarily represents an estimate for inventory shrinkage for each store since the last physical inventory date through the reporting date.

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.

Valuation of Long-Lived Assets

The Company reviews long-lived assets for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset may be impaired.

Long-lived assets are reviewed for recoverability at the lowest level in which there are identifiable cash flows (“asset group”), usually at the store level. Each store typically requires net investments of approximately $0.5 million in long-lived assets to be held and used, subject to recoverability testing. The carrying amount of an asset group is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset group. If the asset group is determined not to be recoverable, then an impairment charge will be recognized in the amount by which the carrying amount of the asset group exceeds its fair value, determined using discounted cash flow valuation techniques, as defined in ASC 360, Property, Plant, and Equipment.

The Company determines the sum of the undiscounted cash flows expected to result from the asset group by projecting future revenue, gross margin and operating expense for each store under evaluation for impairment. The estimates of future cash flows involve management judgment and are based upon assumptions about expected future operating performance. Assumptions used in these forecasts are consistent with internal planning, and include assumptions about sales growth rates, gross margins and operating expense in relation to the current economic environment and future expectations, competitive factors in the various markets and inflation. The actual cash flows could differ from management’s estimates due to changes in business conditions, operating performance and economic conditions.

The Company recognized no impairment charges in the first nine months of fiscal 2018 or 2017.

Leases and Deferred Rent

The Company accounts for its leases under the provisions of ASC 840, Leases.

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, corporate office, IT systems hardware and distribution center delivery tractors. Capital lease obligations consist principally of leases for some of the Company’s IT systems hardware.

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.

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 begins on the possession date and extends through the “reasonably assured” lease term as defined in ASC 840 and may exceed the initial non-cancelable lease term.

Landlord allowances for tenant improvements, or lease incentives, are recorded as deferred rent and amortized on a straight-line basis over the “reasonably assured” lease term as a component of rent expense.

The Company evaluates its leases relative to asset retirement obligations, and determined these amounts to be immaterial.

 

 

 

- 11 -


BIG 5 SPORTING GOODS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(continued)

 

(3)

Fair Value Measurements

The carrying values of cash, 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. When the Company recognizes impairment on certain of its underperforming stores, the carrying values of these stores’ assets are reduced to their estimated fair values.

 

 

(4)

Accrued Expenses

The major components of accrued expenses are as follows:

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

 

(In thousands)

 

Payroll and related expense

 

$

20,961

 

 

$

23,670

 

Occupancy expense

 

 

11,462

 

 

 

10,005

 

Sales tax

 

 

7,581

 

 

 

9,674

 

Other

 

 

21,471

 

 

 

24,877

 

Accrued expenses

 

$

61,475

 

 

$

68,226

 

 

 

(5)

Long-Term Debt

On October 18, 2010, the Company, Big 5 Corp. and Big 5 Services Corp. entered into a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and a syndicate of other lenders, which was amended on October 31, 2011 and December 19, 2013 (as so amended, the “Credit Agreement”). On September 29, 2017, the parties amended certain provisions of the Credit Agreement (such amendment, the “Third Amendment”), as further discussed below. The amendment represented a modification and resulted in the payment and capitalization of $0.2 million in deferred financing fees.

The 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 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 Third Amendment includes a provision which permits the Company to elect to reduce the aggregate committed availability under the Credit Agreement to $100.0 million for a three-month period each calendar year. Prior to the Third Amendment, the Credit Facility included a $50.0 million sublimit for issuances of letters of credit. The Third Amendment reduced the letter of credit sublimit to $25.0 million. The Credit Facility includes a $20.0 million sublimit for swingline loans.

The Company may borrow under the Credit Facility from time to time, provided the amounts outstanding will not exceed the lesser of the then aggregate availability (as discussed above) and the Borrowing Base (such lesser amount being referred to as the “Loan Cap”). The “Borrowing Base” generally is comprised of the sum, at the time of calculation, of (a) 90.00% of eligible credit card receivables; plus (b) the cost of eligible inventory (other than eligible in-transit inventory), net of inventory reserves, multiplied by 90.00% of the appraised net orderly liquidation value of eligible inventory (expressed as a percentage of the cost of eligible inventory); plus (c) the lesser of (i) the cost of eligible in-transit inventory, net of inventory reserves, multiplied by 90.00% of the appraised net orderly liquidation value of eligible in-transit inventory (expressed as a percentage of the cost of eligible in-transit inventory), or (ii) $10.0 million, minus (d) certain reserves established by Wells Fargo in its role as the Administrative Agent in its reasonable discretion.

 

- 12 -


BIG 5 SPORTING GOODS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(continued)

 

Generally, the Company may designate specific borrowings under the Credit Facility as either base rate loans or LIBO rate loans. The applicable interest rate on the Company’s borrowings is a function of the daily average, over the preceding fiscal quarter, of the excess of the Loan Cap over amounts borrowed (such amount being referred to as the “Average Daily Availability”). Prior to the Third Amendment, those loans designated as LIBO rate loans bore interest at a rate equal to the then applicable LIBO rate plus an applicable margin as shown in the table below. Those loans designated as base rate loans bore interest at a rate equal to the applicable margin for base rate loans (as shown below) plus the highest of (a) the Federal funds rate, as in effect from time to time, plus one-half of one percent (0.50%), (b) the LIBO rate, as adjusted to account for statutory reserves, plus one percent (1.00%), or (c) the rate of interest in effect for such day as publicly announced from time to time by Wells Fargo as its “prime rate.” Prior to the Third Amendment, the applicable margin for all loans under the existing Credit Agreement was as set forth below as a function of Average Daily Availability for the preceding fiscal quarter.

 

Level

 

Average Daily Availability

 

LIBO Rate

Applicable Margin

 

 

Base Rate

Applicable Margin

 

I

 

Greater than or equal to $100,000,000

 

 

1.25%

 

 

 

0.25%

 

II

 

Less than $100,000,000 but greater than or equal to $40,000,000

 

 

1.50%

 

 

 

0.50%

 

III

 

Less than $40,000,000

 

 

1.75%

 

 

 

0.75%

 

 

Prior to the Third Amendment, the commitment fee assessed on the unused portion of the Credit Facility was 0.25% per annum.

After giving effect to the Third Amendment, those loans designated as LIBO rate loans bear interest at a rate equal to the applicable adjusted LIBO rate plus an applicable margin as shown in the table below. Those loans designated as base rate loans bear interest at a rate equal to the applicable margin for base rate loans (as shown below) plus the highest of (a) the Federal funds rate, as in effect from time to time, plus one-half of one percent (0.50%), (b) the LIBO rate, plus one percentage point (1.00%), or (c) the rate of interest in effect for such day as announced from time to time within Wells Fargo as its “prime rate.” The applicable margin for all loans are a function of Average Daily Availability for the preceding fiscal quarter as set forth below.

 

Level

 

Average Daily Availability

 

LIBO Rate

Applicable Margin

 

 

Base Rate

Applicable Margin

 

I

 

Greater than or equal to $70,000,000

 

 

1.25%

 

 

 

0.25%

 

II

 

Less than $70,000,000

 

 

1.375%

 

 

 

0.50%

 

 

After giving effect to the Third Amendment, the commitment fee assessed on the unused portion of the Credit Facility is 0.20% per annum.

Obligations under the Credit Facility are secured by a general lien and perfected security interest in substantially all of the Company’s assets. The 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 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. The Company may declare or pay cash dividends or repurchase stock only if, among other things, no default or event of default then exists or would arise from such dividend or repurchase of stock and, after giving effect to such dividend or repurchase, certain availability and/or fixed charge coverage ratio requirements are satisfied. The Credit Agreement contains customary events of default, including, without limitation, failure to pay when due principal amounts with respect to the Credit Facility, failure to pay any interest or other amounts under the Credit Facility for five days after becoming due, failure to comply with certain agreements or covenants contained in the Credit Agreement, failure to satisfy certain judgments against the Company, failure to pay when due (or any other default which does or may lead to the acceleration of) certain other material indebtedness in principal amount in excess of $5.0 million, and certain insolvency and bankruptcy events.

The Third Amendment extended the maturity date of the Credit Agreement from December 19, 2018 to September 29, 2022.  As of September 30, 2018, the Company had long-term revolving credit borrowings of $83.5 million and letter of credit commitments of $0.4 million outstanding, compared with borrowings of $45.0 million and letter of credit commitments of $0.5 million as of December 31, 2017. Total remaining borrowing availability, after subtracting letters of credit, was $56.1 million and $94.5 million as of September 30, 2018 and December 31, 2017, respectively.

 

 

 

- 13 -


BIG 5 SPORTING GOODS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(continued)

 

(6)

Income Taxes

Under the asset and liability method prescribed under ASC 740, Income Taxes, 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. As of September 30, 2018 and December 31, 2017, the Company had a valuation allowance for deferred income tax assets of $0.9 million related to unused California Enterprise Zone Tax Credits, which the Company will no longer be able to carry forward beyond 2024 as a result of California’s termination of this program.

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 2015 and after, and state and local income tax returns are open for fiscal years 2013 and after. 

The provision for income taxes for the 39 weeks ended September 30, 2018 reflects the write-off of deferred tax assets of $0.2 million related to share-based compensation.

As of September 30, 2018 and December 31, 2017, the Company had no unrecognized tax benefits including those 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. As of September 30, 2018 and December 31, 2017, the Company had no accrued interest or penalties.

 

 

(7)

Earnings Per Share

The Company calculates earnings per share in accordance with ASC 260, Earnings Per Share, 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 dilutive effect of outstanding share option awards, nonvested share awards and nonvested share unit awards.

The following table sets forth the computation of basic and diluted earnings per common share:

 

 

 

13 Weeks Ended

 

 

39 Weeks Ended

 

 

 

September 30,

2018

 

 

October 1,

2017

 

 

September 30,

2018

 

 

October 1,

2017

 

 

 

(In thousands, except per share data)

 

Net income

 

$

3,115

 

 

$

5,950

 

 

$

1,558

 

 

$

14,054

 

Weighted-average shares of common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

20,990

 

 

 

21,324

 

 

 

20,972

 

 

 

21,584

 

Dilutive effect of common stock equivalents arising

   from share option, nonvested share and nonvested

   share unit awards

 

 

10

 

 

 

31

 

 

 

49

 

 

 

168

 

Diluted

 

 

21,000

 

 

 

21,355

 

 

 

21,021

 

 

 

21,752

 

Basic earnings per share

 

$

0.15

 

 

$

0.28

 

 

$

0.07

 

 

$

0.65

 

Diluted earnings per share

 

$

0.15

 

 

$

0.28

 

 

$

0.07

 

 

$

0.65

 

Antidilutive share option awards excluded

   from diluted calculation

 

 

316

 

 

 

64

 

 

 

268

 

 

 

90

 

Antidilutive nonvested share and nonvested share unit

   awards excluded from diluted calculation

 

 

466

 

 

 

381

 

 

 

239

 

 

 

135

 

 

 

- 14 -


BIG 5 SPORTING GOODS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(continued)

 

The computation of diluted earnings per share for the 13 and 39 weeks ended September 30, 2018 and October 1, 2017 excludes share option awards 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. Additionally, the computation of diluted earnings per share for the periods presented excludes nonvested share awards and nonvested share unit awards that were outstanding and antidilutive, since the grant date fair values of these nonvested share awards and nonvested share unit awards exceeded the average market price of the Company’s common shares.

 

 

(8)

Related Party Transaction

In the third quarter of fiscal 2017, the Company recorded approximately $0.1 million related to the net recovery of short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company recognized these related party proceeds, net of $0.2 million of related legal fees and taxes, as an increase to additional paid-in capital in the accompanying interim unaudited condensed consolidated balance sheet as of October 1, 2017, as well as cash proceeds of approximately $0.3 million as cash provided by financing activities in the accompanying interim unaudited condensed consolidated statement of cash flows for the 39 weeks ended October 1, 2017.

 

 

(9)

Commitments and Contingencies

As disclosed in previous filings, in November 2017 the Company entered into an amendment to a lease for a parcel of land with an existing building adjacent to its corporate headquarters location, including a parking lot currently used by the Company (the “premises”), concurrently with entering into a purchase and sale agreement. Pursuant to the purchase and sale agreement, the Company had the right to purchase the premises for $4.5 million. The purchase and sale agreement’s due diligence period expired on March 2, 2018, and in connection therewith, the Company paid an escrow deposit of $300,000 applied towards the purchase price of the property. The closing of the sale was scheduled to occur on or before November 27, 2018, subject to seller’s right to elect an earlier closing date. On October 11, 2018, the Company completed the purchase of the premises for $4.5 million and terminated the lease concurrently therewith.

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 is not expected to have a material adverse effect on the Company’s results of operations or financial condition.

 

 

(10)

Share-based Compensation

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, Compensation—Stock Compensation, under the Company’s 2007 Equity and Performance Incentive Plan, as amended and restated in April 2011 and April 2016 (the “Amended 2007 Plan”), and accounts for its share-based compensation in accordance with ASC 718. The Company recognized $0.5 million and $1.7 million in share-based compensation expense for the 13 and 39 weeks ended September 30, 2018, respectively, compared to $0.6 million and $1.8 million in share-based compensation expense recognized for the 13 and 39 weeks ended October 1, 2017, respectively.

Share Option Awards

Share option awards granted by the Company generally vest and become exercisable in four equal annual installments of 25% per year with a maximum life of ten years. The exercise price of share option awards is equal to the quoted market price of the Company’s common stock on the date of grant. In the first nine months of fiscal 2018, the Company granted 254,900 share option awards with a weighted-average grant-date fair value of $1.23 per option. No share option awards were granted in the first nine months of fiscal 2017.

 


 

- 15 -


BIG 5 SPORTING GOODS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(continued)

 

A summary of the status of the Company’s share option awards is presented below:

 

 

 

Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Life

(In Years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding at December 31, 2017

 

 

144,293

 

 

$

10.11

 

 

 

 

 

 

 

 

 

Granted

 

 

254,900

 

 

 

6.22

 

 

 

 

 

 

 

 

 

Exercised

 

 

(6,564

)

 

 

4.82

 

 

 

 

 

 

 

 

 

Forfeited or Expired

 

 

(25,819

)

 

 

9.50

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2018

 

 

366,810

 

 

$

7.55

 

 

 

7.33

 

 

$

14,185

 

Exercisable at September 30, 2018

 

 

112,535

 

 

$

10.37

 

 

 

2.68

 

 

$

14,185

 

Vested and Expected to Vest at September 30, 2018

 

 

359,164

 

 

$

7.58

 

 

 

7.29

 

 

$

14,185

 

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s most recent closing stock price of $5.10 as of September 30, 2018, which would have been received by the option holders had all option holders exercised their option awards as of that date.

The total intrinsic value of share option awards exercised for the 39 weeks ended September 30, 2018 and October 1, 2017 was approximately $10,000 and $79,000, respectively. The total cash received from employees as a result of employee share option award exercises for the 39 weeks ended September 30, 2018 and October 1, 2017 was approximately $31,000 and $67,000, respectively. The actual tax benefit realized for the tax deduction from share option award exercises of share-based compensation awards in the 39 weeks ended September 30, 2018 and October 1, 2017 totaled $3,000 and $31,000, respectively.

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:

 

 

39 W