January 26, 2018
United States Securities and Exchange Commission
Division of Corporate Finance
100 F Street, N.E.
Washington, D.C. 20549
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| Attn: | |
| | Craig Arakawa |
| | Accounting Branch Chief |
| | Office of Beverages, Apparel and Mining |
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| Re: | The Finish Line, Inc. |
| | Form 10-K for the Fiscal Year Ended February 25, 2017 |
| | Filed April 25, 2017 |
| | File No. 000-20184 |
| | Form 8-K Filed December 21, 2017 |
| | File No. 000-38194 |
Dear Mr. Arakawa,
On behalf of The Finish Line, Inc. (which we refer to as “we,” “our,” or the “Company”), this letter respectfully sets forth the Company’s responses to the comments of the staff of the Securities and Exchange Commission (“SEC”) (the “Staff”) set forth in your letter dated January 17, 2018, regarding the Company’s above-referenced Form 10-K and Form 8-K. Set forth below is the Company’s response to the Staff’s comments. For your convenience, the Staff’s comments are duplicated below in italicized text and precede the corresponding response.
Form 10-K for the Fiscal Year Ended February 25, 2017
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Cost of Sales, page 45
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| 1. | We note your disclosure that you do not include the costs associated with operating distribution center and freight within cost of sales. To enhance an investor’s understanding, please revise to further describe the nature of these costs and the related amounts for the periods presented. |
In response to the Staff’s comment, the Company considered Rule 5-03 of Regulation S-X and other applicable accounting and disclosure guidance available, as well as disclosures describing costs included within cost of sales among our peer group’s filings with the SEC. Based upon this review, we believe the accounting policy used to report the Company’s cost of sales, and the recording
of distribution center and freight costs within selling, general, and administrative expenses, as well as our related disclosures, are in compliance with Rule 5-03 of Regulation S-X and applicable authoritative accounting guidance. The application of what is appropriate takes careful judgment, which we have applied in forming our policy on expenses recorded within cost of sales. We also believe our disclosure adequately describes the expenses that we include within cost of sales. There is wide-ranging diversity in practice among our peer group as to which expenses are included and not included in cost of sales. The intention with our disclosure was to ensure that readers of our Form 10-K for the fiscal year ended February 25, 2017 understand the diversity in practice when analyzing our financial statements to other company’s financial statements. Lastly, because the costs the Staff referenced are not made available to the public by our peer group, it would put us at a competitive disadvantage to the group if we were to disclose the amounts of these costs.
Despite our intention to ensure that readers of our Form 10-K understand the diversity in practice on what expenses are included within cost of sales among our peer group, we believe that we may have made the unintentional implication that the inclusion or exclusion of certain costs within costs of sales is preferential. To alleviate this issue, while still ensuring investors understand the diversity in practice, we will update our disclosure in future filings similar to the following:
Cost of sales includes the cost associated with acquiring merchandise from suppliers, occupancy costs, license fees, provision for inventory shortages, and credits and allowances from merchandise suppliers. Cash consideration received from merchandise suppliers after the related merchandise has been sold is recorded as an offset to cost of sales in the period negotiations are finalized. For cash consideration received on merchandise still in inventory, the allowance is recorded as a reduction to the cost of on-hand inventory and recorded as a reduction of cost of sales at the time of sale.
Because of the diversity in practice in what is included within cost of sales, the Company’s cost of sales and gross profit may not be comparable to those of other retailers.
Form 8-K filed December 21, 2017
Exhibit 99.1
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| 2. | We note you have provided forward looking non-GAAP financial measures for the fourth quarter and 53-week fiscal year ending March 3, 2018. Please tell us why you have not presented the most directly comparable GAAP measure and the quantitative reconciliation with respect to the forward-looking non-GAAP measure as required by Item 10(e)(1)(i) of the Regulation S-K. Refer to Question 102.10 of the Non-GAAP Compliance and Disclosure Interpretations updated on October 17, 2017. |
In response to the Staff’s comment, the Company will include in its future filings that provide forward-looking non-GAAP financial measures a quantitative reconciliation of such measures to the most directly comparable forward-looking GAAP financial measure. The Company will include this quantitative reconciliation when the information is available without unreasonable efforts, or if it is unable to do so, the Company will disclose the fact and will identify the unavailable information
preventing the Company from presenting such reconciliation in accordance with the “unreasonable efforts” exception in Item 10(e)(1)(i)(B) of Regulation S-K. We note that the non-GAAP adjustments included in our forward-looking non-GAAP financial measures for the fourth quarter and 53-week fiscal year ending March 3, 2018 were previously recorded during the thirty-nine weeks ended November 25, 2017, and at the time of the filing, there was no reasonable way to predict additional non-GAAP adjustments nor were any such non-GAAP adjustments included, such as future impairment charges and store closing costs, employee severance, retirement, and other costs, based on the nature of such charges for the fourteen weeks ending March 3, 2018.
For these forward-looking measures, the Company is typically not able to predict future impairment charges and store closing costs outside of what has already been recorded in the Company’s financial statements. Per our Critical Accounting Policies and U.S. GAAP, the Company reviews our property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and if an asset is considered to be impaired, the impairment is recognized at that time. For employee severance, retirement, and other costs, the Company is not able to predict future actions of our employees.
The following is the proposed quantitative reconciliation as if the Company had provided the requested information in its Exhibit 99.1 included in its Form 8-K filed on December 21, 2017:
Reconciliation of Diluted Earnings Per Share From Continuing Operations Outlook, GAAP to Diluted Earnings Per Share from Continuing Operations Outlook, Non-GAAP (Unaudited)
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| | | | | | |
| | | Fourteen Weeks Ending March 3, 2018 | | Fifty-Three Weeks Ending March 3, 2018 |
| Diluted earnings per share from continuing operations, GAAP | | $0.50 to $0.58 |
| | $0.45 to $0.53 |
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Employee severance, retirement, and other costs, net of income taxes1 | | — |
| | — |
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Impairment charges and store closing costs, net of income taxes1 | | — |
| | 0.14 |
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| Diluted earnings per share from continuing operations, Non-GAAP | | $0.50 to $0.58 |
| | $0.59 to $0.67 |
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Notes:
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1 | The information related to (i) impairment charges and store closing costs, net of income taxes, and (ii) employee severance, retirement, and other costs, net of income taxes represents historical non-GAAP adjustments for the thirty-nine weeks ended November 25, 2017. At this time, the Company is unable to predict, without unreasonable effort, additional non-GAAP adjustments for the fourteen and fifty-three weeks ending March 3, 2018. These items, which could materially affect the computation of diluted earnings per share from continuing operations, GAAP, are inherently uncertain and dependent on various factors, many of which are outside of the Company’s control. |
We appreciate the Staff’s comments, and if the Staff would like additional information, or if the Staff has any questions or comments regarding this letter, please contact the undersigned by phone at (317) 613-6914.
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| Very truly yours, | |
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| /s/ Edward W. Wilhelm | |
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| Edward W. Wilhelm | |
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| Executive Vice President, | |
| Chief Financial Officer | |
