SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------------------- FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the thirteen week period ended August 26, 2000 --------------- 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 0-20184 The Finish Line, Inc. - -------------------------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 35-1537210 - -------------------------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer identification number) of incorporation or organization) 3308 North Mitthoeffer Road Indianapolis, Indiana 46235 - -------------------------------------------------------------------------------------------------- (Address of principal executive offices) (zip code) 317-899-1022 - -------------------------------------------------------------------------------------------------- (Registrant's telephone number, including area code) __________________________________________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- Shares of common stock outstanding at September 15, 2000: Class A 18,235,265 Class B 6,267,375 1 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE FINISH LINE, INC. CONSOLIDATED BALANCE SHEETS (In thousands) August 26, February 26, 2000 2000 ---------- ------------ (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 45,142 $ 13,061 Marketable securities 8,458 11,420 Accounts receivable 9,652 9,555 Merchandise inventories 162,676 148,979 Income taxes recoverable -- 756 Other 1,681 1,473 ---------- ------------ Total current assets 227,609 185,244 PROPERTY AND EQUIPMENT: Land 315 315 Building 10,385 10,391 Leasehold improvements 95,360 89,909 Furniture, fixtures, and equipment 43,292 40,737 Construction in progress 948 2,087 ---------- ------------ 150,300 143,439 Less accumulated depreciation 48,929 41,820 ---------- ------------ 101,371 101,619 OTHER ASSETS: Deferred income taxes 2,890 2,023 Other 172 209 ---------- ------------ 3,062 2,232 ---------- ------------ Total assets $332,042 $289,095 ========== ============ See accompanying notes. 2 THE FINISH LINE, INC. CONSOLIDATED BALANCE SHEETS (In thousands) August 26, February 26, 2000 2000 ---------- ------------ (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 68,036 $ 42,188 Employee compensation 4,765 4,637 Accrued income taxes 3,770 -- Accrued property and sales tax 5,627 4,097 Deferred income taxes 4,729 3,839 Other liabilities and accrued expenses 4,033 5,585 ---------- ------------ Total current liabilities 90,960 60,346 Long-term deferred rent payments 6,887 6,357 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 1,000 shares authorized; none issued -- -- Common stock, $.01 par value Class A: Shares authorized - 30,000 Shares issued (August 26, 2000 - 20,016; February 26, 2000 - 19,988) Shares outstanding (August 26, 2000 - 18,235; February 26, 2000 - 18,203) 200 200 Class B: Shares authorized - 12,000 Shares issued and outstanding (August 26, 2000 - 6,268; February 26, 2000 - 6,268) 63 63 Additional paid-in capital 122,717 122,269 Retained earnings 125,367 114,512 Accumulated other comprehensive loss (24) (41) Treasury stock (August 26, 2000 - 1,781; February 26, 2000- 1,785) (14,128) (14,611) ---------- ------------ Total stockholders' equity 234,195 222,392 ---------- ------------ Total liabilities and stockholders' equity $ 332,042 $ 289,095 ========== ============ See accompanying notes. 3 THE FINISH LINE, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Thirteen Weeks Ended Twenty-Six Weeks Ended August 26, August 28, August 26, August 28, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Net sales $190,542 $165,994 $337,199 $298,290 Cost of sales (including occupancy expense) 137,296 117,303 243,309 212,473 -------- -------- -------- -------- Gross profit 53,246 48,691 93,890 85,817 Selling, general, and administrative expenses 42,207 37,037 77,053 68,747 -------- -------- -------- -------- Operating income 11,039 11,654 16,837 17,070 Interest income - net 169 278 392 564 -------- -------- -------- -------- Income before income taxes 11,208 11,932 17,229 17,634 Provision for income taxes 4,147 4,176 6,375 6,172 -------- -------- -------- -------- Net income $ 7,061 $ 7,756 $ 10,854 $ 11,462 ======== ======== ======== ======== Basic net income per share $ .29 $ .31 $ .44 $ .46 ======== ======== ======== ======== Basic weighted average shares 24,492 24,917 24,453 24,901 ======== ======== ======== ======== Diluted net income per share $ .29 $ .31 $ .44 $ .46 ======== ======== ======== ======== Diluted weighted average shares 24,703 25,149 24,684 25,173 ======== ======== ======== ======== See accompanying notes. 4 THE FINISH LINE, INC. CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) (Unaudited) Twenty-Six Weeks Ended August 26, 2000 August 28, 1999 ---------------- --------------- Net Income $ 10,854 $ 11,462 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,261 6,767 Contribution of treasury stock to profit sharing plan 1,758 683 Deferred income taxes 23 (678) Loss on disposals of property and equipment 137 150 Changes in operating assets and liabilities: Accounts receivable (97) (1,435) Merchandise inventories (13,697) (18,458) Other current assets (208) (241) Other assets 37 2 Accounts payable 25,848 16,745 Employee compensation 128 225 Accrued income taxes 4,526 2,971 Other liabilities and accrued expenses (22) 1,427 Deferred rent payments 530 550 --------- --------- Net cash provided by operating activities 38,078 20,170 INVESTING ACTIVITIES: Purchases of property and equipment (8,215) (10,772) Proceeds from disposals of property and equipment 65 163 Proceeds from maturity of held-to-maturity marketable securities -- 1,655 Proceeds from maturity of available-for-sale marketable securities 500 -- Proceeds from sale of available-for-sale marketable securities 2,479 -- --------- --------- Net cash used in investing activities (5,171) (8,954) FINANCING ACTIVITIES: Proceeds from short-term debt 47,415 2,800 Principal payments on short-term and long-term debt (47,415) (2,800) Proceeds and tax benefit from exercise of stock options 162 209 Common stock repurchased (988) -- --------- --------- Net cash provided by (used in) financing activities (826) 209 --------- --------- Net increase in cash and cash equivalents 32,081 11,425 Cash and cash equivalents at beginning of period 13,061 23,113 --------- --------- Cash and cash equivalents at end of period $ 45,142 $ 34,538 ========= ========= See accompanying notes. 5 The Finish Line, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying unaudited consolidated financial statements of The Finish Line, Inc. and its wholly-owned subsidiary Spike's Holding, Inc. (collectively the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included. The Company has experienced, and expects to continue to experience, significant variability in sales and net income from quarter to quarter. Therefore, the results 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. Except for the historical information contained herein, the matters discussed in this filing are forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from those expressed in any of the forward looking statements. Such risks and uncertainties include, but are not limited to, product demand and market acceptance risks, the effect of economic conditions, the effect of competitive products and pricing, the availability of products, management of growth, and the other risks detailed in the Company's Securities and Exchange Commission filings. These financial statements should be read in conjunction with the financial statements and notes thereto for the year ended February 26, 2000. Throughout this document, the term "fiscal 2001" refers to the Company's current fiscal year which ends March 3, 2001. 2. Notes Payable to Bank The Company prior to September 20, 2000 was party to a $75,000,000 revolving line of credit with a syndicate of banks which the Company terminated effective September 20, 2000. There were no borrowings outstanding under the line at August 26, 2000 or at the time of termination. The Company entered into a new unsecured committed Credit Agreement (the "Facility") as of September 20, 2000 with a syndicate of commercial banks. The Facility, with available credit of $60,000,000, matures on September 20, 2003. The Facility contains restrictive covenants, which limit, among other things, the Company's ability to declare or pay dividends, incur or guarantee debt, redeem shares of its capital stock, be a part to a merger, acquire or dispose of assets or engage in any other transactions outside the ordinary course of business. In addition, the Company must maintain a leverage ratio (as defined) of not more than 4.0 to 1.0, and consolidated tangible net worth (as defined and adjusted annually) of not less than $211,000,000. In addition, the Company is subject to a liquidity test and an annual capital expenditure limitation. The interest rate on the facility is, at the Company's election, either a negotiated rate approximating the federal funds effective rate plus 1.0% (this rate is available on the first $5,000,000 of borrowings), the bank's libor rate plus 1.0%, or the bank's prime commercial lending rate. The margin percentage 6 added to the libor rate is subject to adjustment quarterly based on the leverage ratio (as defined). ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table and subsequent discussion sets forth operating data of the Company as a percentage of net sales for the periods indicated below. The following discussion and analysis should be read in conjunction with the unaudited Financial Statements included elsewhere herein. Thirteen Weeks Ended Twenty-Six Weeks Ended August 26, August 28, August 26, August 28, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- (Unaudited) (Unaudited) Income Statement Data: Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales (including occupancy expenses) 72.1 70.7 72.2 71.2 --------- --------- --------- --------- Gross profit 27.9 29.3 27.8 28.8 Selling, general and administrative expenses 22.1 22.3 22.8 23.1 --------- --------- --------- --------- Operating income 5.8 7.0 5.0 5.7 Interest income - net .1 .2 .1 .2 --------- --------- --------- --------- Income before income taxes 5.9 7.2 5.1 5.9 Provision for income taxes 2.2 2.5 1.9 2.1 --------- --------- --------- --------- Net income 3.7% 4.7% 3.2% 3.8% ========= ========= ========= ========= Thirteen Weeks Ended 8/26/00 Compared to Thirteen Weeks Ended 8/28/99 Net sales increased 14.8% to $190.5 million for the thirteen weeks ended August 26, 2000 from $166.0 million for the thirteen weeks ended August 28, 1999. This increase in net sales was primarily attributable to sales from new stores. As of August 26, 2000, the number of stores in operation increased 12.8% to 433 from 384 at August 28, 1999. During the thirteen weeks ended August 26, 2000, the Company's comparable store sales increased 3.3% compared to the same period in the prior year. Comparable net footwear sales for the thirteen weeks ended August 26, 2000 increased approximately 6.2%. Comparable net activewear and accessories sales for the comparable period decreased approximately 8.1%. Activewear and accessories continue to be negatively affected by a decrease in the average unit selling price of product in the category. Gross profit for the thirteen weeks ended August 26, 2000 was $53.2 million, an increase of $4.6 million over the thirteen weeks ended August 28, 1999. During this same period, gross profit decreased to 27.9% of net sales versus 29.3% for the prior year. Of this 1.4% decrease, .9% was due to decreased margin for products sold and .5% was due to an increase in occupancy costs as a percentage of net sales. 7 Selling, general and administrative expenses increased $5.2 million (14.0%) to $42.2 million (22.1% of net sales) for the thirteen weeks ended August 26, 2000 from $37.0 million (22.3% of net sales) for the thirteen weeks ended August 28, 1999. This dollar increase was primarily attributable to the operating costs related to operating 49 additional stores at August 26, 2000 versus August 28, 1999. Net interest income was $169,000 (.1% of net sales) for the thirteen weeks ended August 26, 2000, compared to net interest income of $278,000 (.2% of net sales) for the thirteen weeks ended August 28, 1999, a decrease of $109,000. This decrease was the result of reduced invested cash balances due to the Company's funding of fiscal 2001 expansion. The Company's provision for federal and state income taxes decreased $29,000 for the thirteen weeks ended August 26, 2000. The decrease is due to the decreased level of income before income taxes for the thirteen weeks ended August 26, 2000, offset by an increase in the effective tax rate to 37.0% for the thirteen weeks ended August 26, 2000 from 35.0% for the thirteen weeks ended August 28, 1999. Net income decreased 9.0% to $7.1 million for the thirteen weeks ended August 26, 2000 compared to $7.8 million for the thirteen weeks ended August 28, 1999. Diluted net income per share decreased 6.5% to $.29 for the thirteen weeks ended August 26, 2000 compared to diluted net income per share of $.31 for the thirteen weeks ended August 28, 1999. Diluted weighted average shares outstanding were 24,703,000 and 25,149,000 respectively, for the thirteen weeks ended August 26, 2000 and August 28, 1999. The decrease of 1.8% in diluted average shares outstanding reflects the repurchase of 633,000 shares of Class A Common Stock through the stock buyback program authorized by the Board of Directors in September 1998. Twenty-Six Weeks Ended 8/26/00 Compared to Twenty-Six Weeks Ended 8/28/99 Net sales increased 13.0% ($38.9 million) to $337.2 million for the twenty-six weeks ended August 26, 2000 from $298.3 million for the twenty-six weeks ended August 28, 1999. Of this increase, $28.3 million was attributable to a 12.8% increase in the number of stores open (53 stores opened less 4 stores closed) during the period from 384 at August 28, 1999 to 433 at August 26, 2000. The balance of the increase was due to a $6.9 million increase in net sales from the 24 stores open only part of the twenty-six weeks of last year, along with a comparable store sales increase of 1.5% for the twenty-six weeks ended August 26, 2000. Comparable net footwear sales for the twenty-six weeks ended August 26, 2000 increased approximately 4.6%. Comparable net activewear and accessories decreased approximately 10.5% for the comparable period. Activewear and accessories continue to be negatively affected by a fashion shift by customers to contemporary non-athletic brands and a decrease in the average unit selling price. Net sales per square foot decreased to $136 from $145 for the same period of the prior year. Sales per square foot have been negatively impacted by the decrease in activewear sales along with a 1.8% increase in the average store size from 5,966 square feet at August 28, 1999 to 6,071 square feet at August 26, 2000. Gross profit for the twenty-six weeks ended August 26, 2000 was $93.9 million, an increase of $8.1 million over the twenty-six weeks ended August 28, 1999. During this same period, gross profit decreased to 27.8% of net sales versus 28.8% for the prior year. Of this 1.0% decrease, .6% was due to an increase in occupancy costs as a percentage of net sales. Additionally, margin for product sold decreased .5%, however it was offset by a .1% decrease in inventory shrink expense. Selling, general and administrative expenses increased $8.4 million (12.1%) to $77.1 million (22.8% of net sales) for the twenty-six weeks ended August 26, 2000 from $68.7 million (23.1% of net sales) for the twenty-six weeks ended August 28, 1999. This dollar increase was primarily attributable to the operating 8 costs related to operating 49 additional stores at August 26, 2000 versus August 28, 1999. Net interest income was $392,000 (.1% of net sales) for the twenty-six weeks ended August 26, 2000, compared to net interest income of $564,000 (.2% of net sales) for the twenty-six weeks ended August 28, 1999, a decrease of $172,000. This decrease was the result of reduced invested cash balances due to the Company's funding of fiscal 2001 expansion. The Company's provision for federal and state income taxes increased $203,000 to $6.4 million for the twenty-six weeks ended August 26, 2000 from $6.2 million for the twenty-six weeks ended August 28, 1999. The increase is due to an increase in the effective tax rate to 37.0% for the twenty-six weeks ended August 26, 2000 from 35.0% for the twenty-six weeks ended August 28, 1999 partially offset by the decreased level of income before income taxes for the twenty-six weeks ended August 26, 2000. Net income decreased 5.3% to $10.9 million for the twenty-six weeks ended August 26, 2000 compared to $11.5 million for the twenty-six weeks ended August 28, 1999. Diluted net income per share decreased 4.3% to $.44 for the twenty six weeks ended August 26, 2000 compared to diluted net income per share of $.46 for the twenty six weeks ended August 28, 1999. Diluted weighted average shares outstanding were 24,684,000 and 25,173,000, respectively, for the periods ended August 26, 2000 and August 28, 1999. The decrease of 1.9% in diluted average shares outstanding reflects the repurchase of 633,000 shares of Class A Common Stock through the stock buyback program authorized by the Board of Directors in September 1998. Liquidity and Capital Resources The Company generated cash of $38.1 million from its operating activities during the twenty-six weeks ended August 26, 2000 as compared to $20.2 million during the twenty-six weeks ended August 28, 1999. The Company had a net use of cash from its investing activities of $5.2 million and $9.0 million for the twenty-six weeks ended August 26, 2000 and August 28, 1999, respectively. In fiscal 2001, $8.2 million was used primarily for construction of new stores and remodeling of existing stores. This was partially offset by $3.0 million net maturities of marketable securities. The Company had working capital of $136.6 million at August 26, 2000, an increase of $11.7 million from the working capital of $124.9 million at February 26, 2000. At August 26, 2000 the Company had cash and cash equivalents of $45.1 million, marketable securities of $8.5 million and no interest bearing debt. Cash equivalents are primarily invested in tax exempt instruments with maturities of one to twenty-eight days. Marketable securities range in maturity from 90 days to four years from date of purchase and are primarily invested in tax exempt municipal obligations. Marketable securities are classified as available-for- sale and are available to support current operations. The Company prior to September 20, 2000 was party to a $75,000,000 revolving line of credit with a syndicate of banks which the Company terminated effective September 20, 2000. There were no borrowings outstanding under the line at August 26, 2000 or at the time of termination. Effective September 20, 2000, the Company entered into a new unsecured committed $60,000,000 revolving line of credit which expires September 2003. The line of credit contains restrictive covenants that limit, among other things, the Company's ability to declare or pay dividends, incur or guarantee debt, redeem shares of its capital stock, be a part to a merger, acquire or dispose of assets or engage in any other transactions outside the ordinary course of business. See Note 2 to the Financial Statements for further details. 9 Merchandise inventories were $162.7 million at August 26, 2000 compared to $149.0 million at February 26, 2000 and $153.8 million at August 28, 1999. On a per square foot basis, merchandise inventories at August 26, 2000 decreased 7.8% compared to August 28, 1999. The Company believes present levels are appropriate for the selling season. The Company's previously announced expansion plans are to increase its retail square footage by approximately 7-8% for fiscal 2001. Management believes that cash on hand, operating cash flow and the Company's new bank facility will provide sufficient capital to complete the Company's fiscal 2001 store expansion program and to satisfy the Company's other capital requirements through fiscal 2001. 10 PART II - OTHER INFORMATION ITEM 1: Legal Proceedings ----------------- None. ITEM 2: Changes in Securities --------------------- None. ITEM 3: Defaults Upon Senior Securities ------------------------------- None. ITEM 4: Submission of Matters to a Vote of Security-Holders --------------------------------------------------- (a) The Annual Meeting of Stockholders was held on July 20, 2000. (b) The following directors were elected to serve until the 2001 Annual Meeting of Stockholders or until their successors have been duly elected and qualified. Of the 17,157,895 shares (1 vote per share) of Class A common stock and the 6,267,375 shares (10 votes per share) of Class B common stock represented at the meeting, the directors were elected by the following votes: Number Of Votes Received ----------------------------------- Name For Against ------------- -------- ------- Alan H. Cohen 79,350,108 481,537 David I. Klapper 79,652,101 179,544 Larry J. Sablosky 79,651,726 179,919 Jonathan K. Layne 79,645,096 186,549 Jeffrey H. Smulyan 79,642,396 189,249 Stephen Goldsmith 79,645,172 186,473 ITEM 5: Other Information ----------------- None. ITEM 6: Exhibits and Reports on Form 8-K: --------------------------------- (a) Exhibits 27 - Financial Data Schedule (b) Reports on Form 8-K There were no reports filed on Form 8-K during the thirteen week period ending August 26, 2000. 11 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE FINISH LINE, INC. Date: September 20, 2000 By: /s/ Steven J. Schneider ----------------------------- Steven J. Schneider Executive Vice President - Finance, Chief Financial Officer and Assistant Secretary 12