SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the thirteen week period ended June 2, 2001
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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.
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(Exact name of registrant as specified in its charter)
Delaware 35-1537210
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(State or other jurisdiction (I.R.S. Employer identification number)
of incorporation or organization)
3308 North Mitthoeffer Road Indianapolis, Indiana 46235
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(Address of principal executive offices) (zip code)
317-899-1022
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(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___
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Shares of common stock outstanding at June 22, 2001:
Class A 18,113,135
Class B 6,627,375
1
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 2, March 3,
2001 2001
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ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 40,682 $ 45,422
Marketable securities 6,525 6,513
Accounts receivable 8,183 3,476
Merchandise inventories 138,054 145,503
Other 9,252 7,233
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Total current assets 202,696 208,147
PROPERTY AND EQUIPMENT:
Land 315 315
Building 10,536 10,486
Leasehold improvements 93,062 91,657
Furniture, fixtures, and equipment 44,121 41,515
Construction in progress 980 2,849
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149,014 146,822
Less accumulated depreciation 56,391 52,348
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92,623 94,474
OTHER ASSETS:
Deferred income taxes 6,624 6,247
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$301,943 $308,868
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See accompanying notes.
2
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 2, March 3,
2001 2001
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LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
CURRENT LIABILITIES:
Accounts payable $ 48,551 $ 53,450
Employee compensation 3,963 6,640
Accrued property and sales taxes 4,192 3,914
Deferred income taxes 2,060 906
Other liabilities and accrued expenses 8,012 9,597
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Total current liabilities 66,778 74,507
Long-term deferred rent payments 7,884 7,614
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 and outstanding - (June 2, 2001 - 20,023;
March 3, 2001 - 20,022) 200 200
Class B:
Shares authorized - 12,000
Shares issued and outstanding - (June 2, 2001 - 6,268;
March 3, 2001 - 6,268) 63 63
Additional paid-in capital 122,751 122,748
Retained earnings 119,407 118,257
Accumulated other comprehensive loss 19 12
Treasury stock - (June 2, 2001 - 1,920; March 3, 2001 - 1,841) (15,159) (14,533)
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Total stockholders' equity 227,281 226,747
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Total liabilities and stockholders' equity $301,943 $308,868
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See accompanying notes.
3
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Thirteen Weeks Ended
June 2, May 27,
2001 2000
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Net sales $160,825 $146,657
Cost of sales (including occupancy expense) 120,370 106,013
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Gross profit 40,455 40,644
Selling, general, and administrative expenses 39,796 34,846
Repositioning charge reversal (660) --
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Operating income 1,319 5,798
Interest income - net 480 223
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Income before income taxes 1,799 6,021
Provision for income taxes 648 2,228
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Net income $ 1,151 $ 3,793
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Basic net income per share $ .05 $ .16
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Basic weighted average shares 24,443 24,413
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Diluted net income per share $.05 $.15
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Diluted weighted average shares 24,655 24,665
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See accompanying notes.
4
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) - (Unaudited)
Thirteen Weeks Ended
June 2, May 27,
2001 2000
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OPERATING ACTIVITIES:
Net Income $ 1,151 $ 3,793
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 4,056 4,074
Contribution of treasury stock to pension plan -- 1,758
Deferred income taxes 772 524
Repositioning charge reversal (893) --
Loss on disposal of property and equipment 6 18
Changes in operating assets and liabilities:
Accounts receivable (4,707) (3,028)
Merchandise inventories 7,449 (20,034)
Other current assets (2,019) (598)
Other assets -- 19
Accounts payable (4,899) 14,676
Employee compensation (2,677) (1,731)
Other liabilities and accrued expenses (414) (855)
Deferred rent payments 270 215
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Net cash used in operating activities (1,905) (1,169)
INVESTING ACTIVITIES:
Purchases of property and equipment (2,211) (3,878)
Proceeds from disposal of property and equipment -- 49
Proceeds from sale of marketable securities -- 2,509
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Net cash used in investing activities (2,211) (1,320)
FINANCING ACTIVITIES:
Proceeds and tax benefits from exercise of stock options 2 37
Purchase of treasury stock (626) (988)
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Net cash used in financing activities (624) (951)
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Net decrease in cash and cash equivalents (4,740) (3,440)
Cash and cash equivalents at beginning of period 45,422 13,061
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Cash and cash equivalents at end of period $40,682 $ 9,621
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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 accounting
principles generally accepted in the United States 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
accounting principles generally accepted in the United States 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 reporting period to
reporting period. 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, the
Company's ability to successfully execute and benefit from its repositioning
plan, 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 March 3, 2001.
2. Repositioning Reserves
In the 4th quarter of 2001 the Company approved a repositioning plan
and recorded a pre-tax non-recurring charge totaling $19,809,000. Those charges
included inventory markdowns, lease buyouts and asset impairment charges for 17
planned store closings, and asset impairment charges for 14 identified under-
performing stores.
During the quarter ended June 2, 2001, the Company closed 2 stores and
has now completed 6 of the 17 planned store closures. The Company made payments
of $233,000 against the lease obligation reserve in the first quarter and
recorded a reduction of the lease obligation reserve of $660,000 as a change in
estimate as a result of the successful negotiation of lease termination costs on
two stores. The remaining $2,913,000 lease obligation reserve represents
expected future lease obligations after store closure for the 11 stores that are
to be closed in fiscal 2002.
The reserve for inventory markdowns was reduced by a net of $7,637,000 in the
first quarter as the Company sold and liquidated aged inventory below cost.
This reduction to the reserve is net of an additional $502,000 charge to cost of
sales to record additional markdowns on inventory to reflect it at its net
realizable value.
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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.
Thirteen Weeks Ended
June 2, May 27,
2001 2000
__________ ___________
(Unaudited)
Net Sales 100.0% 100.0%
Cost of sales (including occupancy expenses) 74.9 72.3
__________ __________
Gross profit 25.1 27.7
Selling, general and administrative expenses 24.7 23.8
Repositioning charge reversal (.4) --
__________ __________
Operating income .8 3.9
Interest income - net .3 .2
__________ __________
Income before income taxes 1.1 4.1
Provision for income taxes .4 1.5
__________ __________
Net income .7% 2.6%
========== ==========
THIRTEEN WEEKS ENDED JUNE 2, 2001 COMPARED TO THIRTEEN WEEKS ENDED MAY 27, 2000
Net sales increased 9.7% to $160.8 million for the thirteen weeks ended
June 2, 2001 from $146.7 million for the thirteen weeks ended May 27, 2000. Of
this increase, $6.4 million was attributable to a 4.5% increase in the number of
stores open during the period from 423 at May 27, 2000 to 442 at June 2, 2001.
The balance of the increase was attributable to a $2.3 million increase in net
sales from the fourteen existing stores open only part of the first thirteen
weeks of last year and a comparable store sales increase of 5.8% for the
thirteen weeks ended June 2, 2001 for those stores opened during the entire
thirteen weeks of last year. Comparable net footwear sales for the thirteen
weeks ended June 2, 2001 increased 8.4% while comparable net activewear and
accessories sales decreased 6.3% for the comparable period. Activewear and
accessories continue to be negatively effected by a significant reduction in the
average unit selling price. Net sales per square foot remained unchanged from
$60 for the thirteen weeks ended June 2, 2001 compared to the comparable period
of the prior year.
7
Gross profit for the thirteen weeks ended June 2, 2001 was $40.5 million,
a decrease of $189,000 over the thirteen weeks ended May 27, 2000. During this
same period, gross profit decreased to 25.1% of net sales versus 27.7% for the
prior year. Of this 2.6% decrease, 2.4% was due to a decrease in margin for
products sold as the Company liquidated aged product in conjunction with the
previously announced repositioning plan. The product margin was also negatively
effected by a charge of $502,000 to cost of sales representing additional
inventory writedowns associated with the repositioning plan. In addition,
occupancy costs increased .2% as a percentage of net sales. Margins are
expected to continue to be negatively effected through the conclusion of the
inventory liquidation process of the repositioning plan , which is expected to
be completed by the end of the second quarter.
Selling, general and administrative expenses increased $5.0 million
(14.2%) to $39.8 million (24.7% of net sales) for the thirteen weeks ended June
2, 2001 from $34.8 million (23.8% of net sales) for the thirteen weeks ended May
27, 2000. This dollar increase was primarily attributable to the operating
costs related to operating 19 additional stores at June 2, 2001 versus May 27,
2000 and increased telecommunication and marketing costs. In addition, prior
year selling, general and administrative expenses were net of a $493,000
settlement of an insurance claim related to a store fire.
In connection with the repositioning plan the Company established a
reserve for future lease payments for store closures of $3.8 million which was
included in accrued expenses at March 3, 2001. The accrued expense was reduced
$893,000 in the first quarter ended June 2, 2001 which represented payments of
$233,000 and a decrease in the expected future lease store closure obligation of
$660,000. The reserve is reviewed periodically to determine its adequacy.
Net interest income was $480,000 (.3% of net sales) for the thirteen week
period ended June 2, 2001 compared to $223,000 (.2% of net sales) for the
thirteen weeks ended May 27, 2000, an increase of $257,000. This increase was
the result of increased invested cash balances for the thirteen weeks ended June
2, 2001 compared to the same period of the prior year.
The Company's provision for income taxes decreased $1.6 million for the
thirteen weeks ended June 2, 2001 over the thirteen weeks ended May 27, 2000.
The decrease is due to the decreased level of income before income taxes for the
thirteen weeks ended June 2, 2001, and a decrease in the effective tax rate to
36% for the thirteen weeks ended June 2, 2001 from 37% for the thirteen weeks
ended May 27, 2000.
Net income decreased 69.7% to $1.2 million for the thirteen weeks ended
June 2, 2001 compared to $3.8 million for the thirteen weeks ended May 27, 2000.
Diluted net income per share decreased 66.7% to $.05 for the thirteen weeks
ended June 2, 2001 compared to diluted net income per share of $.15 for the
thirteen weeks ended May 27, 2000. Diluted weighted average shares outstanding
were 24,655,000 and 24,665,000, respectively, for the thirteen weeks ended June
2, 2001 and May 27, 2000.
Liquidity and Capital Resources
The Company had a net use of cash of $1.9 million from its operating
activities during the thirteen weeks ended June 2, 2001 as compared to a net use
of cash from operating activities of $1.2 million during the quarter ended May
27, 2000.
The Company had a net use of cash from its investing activities of $2.2
million and $1.3 million for the thirteen weeks ended June 2, 2001 and May 27,
2000, respectively. The $2.2 million
8
use of cash in 2001 is primarily due to new and remodeled stores construction.
The Company's working capital was $135.9 million at June 2, 2001 which was
a $2.3 million increase from $133.6 million at March 3, 2001.
Merchandise inventories were $138.1 million at June 2, 2001 compared to
$145.5 million at March 3, 2001. On a per square foot basis, merchandise
inventories at June 2, 2001 decreased 21.8% compared to May 27, 2000, and were
6.1% lower than at March 3, 2001.
At June 2, 2001, the Company had cash and cash equivalents of $40.7
million, marketable securities of $6.5 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 three years 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's previously announced expansion plans are to increase its
retail square footage by approximately 1-2% for fiscal 2002. Management
believes that cash and marketable securities on hand, operating cash flow and
the Company's existing $60,000,000 bank facility, which expires on September 20,
2003, will provide sufficient capital to complete the Company's fiscal 2002
store expansion program and to satisfy the Company's other capital requirements
through fiscal 2002.
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PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
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None.
ITEM 2: Changes in Securities
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None.
ITEM 3: Defaults Upon Senior Securities
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None.
ITEM 4: Submission of Matters to a Vote of Security-Holders
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None.
ITEM 5: Other Information
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None.
ITEM 6: Exhibits and Reports on Form 8-K:
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(a) Exhibits
None.
(b) Reports on Form 8-K
None.
10
SIGNATURES
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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: June 28, 2001 By: /s/ Kevin S. Wampler
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Kevin S. Wampler,
Senior Vice President-Chief
Accounting Officer and
Assistant Secretary
11