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 quarterly period ended August 31, 1996
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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 46236
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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 ___
---
Shares of common stock outstanding at September 20, 1996:
Class A 6,753,087
Class B 4,934,537
PAGE 1 OF 20
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FINISH LINE, INC.
BALANCE SHEETS
(In thousands)
Aug 31, Feb 29,
1996 1996
----------- ---------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 31,852 $ 1,686
Short-term investments 4,980 --
Accounts receivable 4,639 1,099
Merchandise inventories 83,046 76,088
Deferred income taxes 2,350 1,608
Other current assets 658 524
-------- --------
Total current assets 127,525 81,005
PROPERTY AND EQUIPMENT
Land 315 315
Building 4,168 4,156
Leasehold improvements 29,600 26,898
Furniture, fixtures, and equipment 12,184 11,235
Construction in progress 706 596
-------- --------
46,973 43,200
Less accumulated depreciation 13,851 11,441
-------- --------
33,122 31,759
OTHER ASSETS
Deferred income taxes 2,368 2,208
-------- --------
Total assets $163,015 $114,972
======== ========
See accompanying notes.
PAGE 2 OF 20
THE FINISH LINE, INC.
BALANCE SHEETS
(In thousands)
Aug 31, Feb 29,
1996 1996
----------- ---------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 39,610 $ 29,717
Notes payable to bank -- 9,500
Employee compensation and related payroll taxes 3,140 3,234
Accrued interest -- 56
Accrued income taxes 3,416 2,074
Accrued property and sales tax 3,332 1,869
Other liabilities and accrued expenses 2,781 2,102
-------- --------
Total current liabilities 52,279 48,552
LONG-TERM LIABILITIES
Deferred rent payments 3,632 3,272
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 1,000 shares authorized; none issued -- --
Common Stock, $.01 par value
Class A:
Shares authorized - 20,000
Shares issued and outstanding (August 31,
1996 -6,732; February 29, 1996 - 4,081) 67 41
Class B:
Shares authorized - 12,000
Shares issued and outstanding
(August 31, 1996- 4,935; February 29, 1996 - 6,235) 49 62
Additional paid-in capital 64,802 30,374
Retained earnings 42,186 32,671
-------- --------
Total stockholders' equity 107,104 63,148
-------- --------
Total liabilities and stockholders' equity $163,015 $114,972
======== ========
See accompanying notes.
PAGE 3 OF 20
THE FINISH LINE, INC.
STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ------------------
August 31, August 31,
1996 1995 1996 1995
-------- -------- -------- --------
Net sales $91,006 $64,584 $162,750 $116,803
Cost of sales (including occupancy expenses) 61,543 44,895 111,755 81,236
------- ------- -------- --------
Gross profit 29,463 19,689 50,995 35,567
Selling, general, and administrative expenses 19,037 14,015 35,079 26,373
------- ------- -------- --------
Operating income 10,426 5,674 15,916 9,194
Interest expense (income) - net (137) 229 57 359
------- ------- -------- --------
Income before income taxes 10,563 5,445 15,859 8,835
Provision for income taxes 4,225 2,178 6,344 3,534
------- ------- -------- --------
Net income $ 6,338 $ 3,267 $ 9,515 $ 5,301
======= ======= ======== ========
Fully diluted net income per share $.54 $.31 $.85 $.51
======= ======= ======== ========
Fully diluted weighted average shares 11,775 10,385 11,234 10,353
======= ======= ======== ========
See accompanying notes.
PAGE 4 OF 20
THE FINISH LINE, INC.
STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Six Months ended August 31,
---------------------------
1996 1995
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OPERATING ACTIVITIES:
Net Income $ 9,515 $ 5,301
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,616 2,113
Deferred income taxes (902) (259)
Gain on disposals of property and equipment (16) (5)
Changes in operating assets and liabilities:
Accounts receivable (3,540) (133)
Merchandise inventories (6,958) (14,552)
Other current assets (134) 141
Tax deposits and other assets -- 147
Accounts payable 9,893 12,805
Employee compensation and related payroll taxes (94) (840)
Accrued income taxes 1,342 524
Other liabilities and accrued expenses 2,086 924
Deferred rent payments 360 420
-------- --------
Net cash provided by operating activities 14,168 6,586
-------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment (3,992) (6,357)
Proceeds from disposals of property and equipment 29 72
Investment in short-term investments (4,980)
--------
Net cash used in investing activities (8,943) (6,285)
-------- --------
FINANCING ACTIVITIES:
Proceeds from short-term debt 39,800 49,800
Principal payments on short-term and long-term debt (49,300) (50,325)
Net proceeds from public offering 33,559 --
Proceeds and tax benefit from exercise of stock options 882 3
-------- --------
Net cash provided by (used in) financing activities 24,941 (522)
-------- --------
Net increase (decrease) in cash and cash equivalents 30,166 (221)
Cash and cash equivalents at beginning of period 1,686 978
-------- --------
Cash and cash equivalents at end of period $ 31,852 $ 757
======== ========
See accompanying notes.
PAGE 5 OF 20
THE FINISH LINE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements of The Finish Line, Inc.
(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.
These financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended February 29, 1996.
2. Notes Payable to Bank
Effective September 1, 1996, the Company amended its unsecured committed
Loan Agreement (the "Facility") dated July 20, 1995 with a commercial bank. The
amendment extended the maturity to September 1, 1999 and set the credit
available at $30,000,000. At August 31, 1996 there were no borrowings
outstanding under the Facility.
The Facility contains restrictive covenants which limit, among other
things, mergers and dividends. In addition, the Company must maintain a fixed
charge coverage ratio (as defined) of not less than 1.5 to 1.0 and a tangible
net worth of not less than $69,300,000, and funded debt to total capitalization
(as defined) may not exceed 40%. As of August 31, 1996, the Company is in
compliance with all such covenants.
The interest rate on the Facility is, at the Company's election, either the
bank's Federal Fund Rate plus .625%, the bank's Libor Rate plus .5% or the
bank's prime commercial lending rate. The margin percentage added to the Federal
Fund Rate, and Libor Rate is subject to adjustment quarterly based on the fixed
charge coverage ratio (as defined).
3. Public Offering
The Company completed a secondary offering (the "Secondary Offering") of
its Class A Common Stock on June 19, 1996 pursuant to which the Company sold
1,300,000 shares of Class A Common Stock at an offering price of $27.50 per
share. Net proceeds to the Company from the Secondary Offering (after deducting
the underwriting discount of $1,781,000 and expenses of $410,000 incurred in
connection with the Secondary Offering) were $33,559,000.
PAGE 6 OF 20
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.
Three Months Six Months
Ended August 31, Ended August 31,
1996 1995 1996 1995
-------- -------- -------- --------
(Unaudited) (Unaudited)
Income Statement Data:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales (including occupancy expenses) 67.6 69.5 68.7 69.5
----- ----- ----- -----
Gross profit 32.4 30.5 31.3 30.5
Selling, general and administrative expenses 20.9 21.7 21.6 22.6
----- ----- ----- -----
Operating income 11.5 8.8 9.7 7.9
Interest expense (income) - net (.1) .3 -- .3
----- ----- ----- -----
Income before income taxes 11.6 8.5 9.7 7.6
Provision for income taxes 4.6 3.4 3.9 3.1
----- ----- ----- -----
Net income 7.0% 5.1% 5.8% 4.5%
===== ===== ===== =====
SECOND QUARTER ENDED 8/31/96 COMPARED TO SECOND QUARTER ENDED 8/31/95
Net sales increased 40.9% to $91.0 million for the quarter ended August 31,
1996 from $64.6 million for the quarter ended August 31, 1995. This increase in
net sales was primarily attributable to sales from new stores and comparable
store sales increases. As of August 31, 1996, the number of stores in operation
increased 15.2% to 235 from 204 at August 31, 1995. During the quarter ended
August 31, 1996, the Company's comparable store sales increased 16.9% compared
to the same period in the prior year. Comparable net footwear sales for the
quarter ended August 31, 1996 increased approximately 15.4%. Comparable net
activewear and accessories sales for the comparable period increased 20.8%.
PAGE 7 OF 20
Gross profit for the quarter ended August 31, 1996 was $29.5 million, an
increase of $9.8 million over the quarter ended August 31, 1995. During this
same period, gross profit increased to 32.4% of net sales versus 30.5% for the
prior year. Of this 1.9% increase, 1.2% was due to higher margins for products
sold and .7% was due to a decrease in occupancy costs as a percentage of net
sales.
Selling, general and administrative expenses increased $5.0 million (35.8%)
to $19.0 million (20.9% of net sales) for the quarter ended August 31, 1996 from
$14.0 million (21.7% of net sales) for the quarter ended August 31, 1995. This
dollar increase was primarily attributable to the operating costs related to
operating 31 additional stores at the end of August 31, 1996 versus August 31,
1995.
Net interest income was $137,000 (.1% of net sales) for the quarter ended
August 31, 1996, compared to net interest expense of $229,000 (.3% of net sales)
for the quarter ended August 31, 1995, a decrease of $366,000 or 159.8%. This
decrease resulted primarily due to the proceeds of the secondary offering being
used to repay all existing outstanding indebtedness under its unsecured
committed Loan Agreement with the remainder of the proceeds being invested in
short term interest bearing instruments.
The Company's provision for federal and state income taxes increased $2.0
million for the quarter ended August 31, 1996. The increase is due to the
increased level of income before income taxes for the quarter ended August 31,
1996, as the effective tax rate was 40% for each of the comparable quarters.
Fully diluted net income per share increased 74.2% to $.54 for the quarter
ended August 31, 1996 compared to fully diluted net income per share of $.31 for
the quarter ended August 31, 1995. Fully diluted weighted average shares
outstanding were 11,775,000 and 10,385,000 respectively during the quarters
ended August 31, 1996 and 1995.
SIX MONTHS ENDED 8/31/96 COMPARED TO SIX MONTHS ENDED 8/31/95
Net sales increased 39.3% ($45.9 million) to $162.8 million for the six
months ended August 31, 1996 from $116.8 million for the six months ended August
31, 1995. Of this increase, $21.9 million was attributable to a 15.2% increase
in the number of stores open (35 stores opened less 4 stores closed) during the
period from 204 at August 31, 1995 to 235 at August 31, 1996. The balance of
the increase was due to a $5.4 million increase in net sales from the 17 stores
open only part of the first six months of last year and a comparable store sales
increase of 15.0% for the six months ended August 31, 1996. Comparable net
footwear sales for the six months ended August 31, 1996 increased approximately
14.8%. Comparable net activewear and accessories increased approximately 15.4%
for the comparable period. Net sales per square foot increased to $182 from
$160 for the same period of the prior year.
Gross profit for the six months ended August 31, 1996 was $51.0 million, an
increase of $15.4 million over the six months ended August 31, 1995. During
this same period, gross profit increased to 31.3% of net sales versus 30.5% for
the prior year. Of this .8% increase, .6% was due to a decrease in occupancy
expenses as a percentage of net sales and a .2% increase in margins for products
sold.
PAGE 8 OF 20
Selling, general and administrative expenses increased $8.7 million (33.0%)
to $35.1 million (21.6% of net sales) for the six months ended August 31, 1996
from $26.4 million (22.6% of net sales) for the six months ended August 31,
1995. This dollar increase was primarily attributable to the operating costs
related to operating 31 additional stores at August 31, 1996 versus August 31,
1995.
Net interest expense decreased to $57,000 (.0% of net sales) for the six
months ended August 31, 1996, from $359,000 (.3% of net sales) for the six
months ended August 31, 1995, a decrease of $302,000 or 84.1%. This decrease
resulted from the proceeds of the secondary offering being used to repay all
existing outstanding indebtedness under its unsecured committed Loan Agreement
with the remainder of the proceeds being invested in short term interest bearing
instruments.
The Company's provision for federal and state income taxes increased $2.8
million for the six months ended August 31, 1996. The increase is due to the
increased level of income before income taxes for the six months ended August
31, 1996, as the effective tax rate was 40% for each of the comparable six month
periods.
Fully diluted net income per share increased 66.7% to $.85 for the six
months ended August 31, 1996 compared to fully diluted net income per share of
$.51 for the six months ended August 31, 1995. Weighted average shares
outstanding were 11,234,000 and 10,353,000 respectively for the six months ended
August 31, 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash of $14.2 million from its operating activities
during the six months ended August 31, 1996 as compared to $6.6 million during
the six months ended August 31, 1995. The increase in cash generated from
operating activities was primarily the result of increased net income before
depreciation along with an increase in accounts payable (net of merchandise
inventory).
The Company had a net use of cash from its investing activities, of $8.9
million and $6.3 million for the six months ended August 31, 1996 and 1995,
respectively. Of the $8.9 million in 1996, $4.0 million was due to new stores
construction and $4.9 million was for short-term investments.
The Company had positive working capital of $75.2 million at August 31,
1996 which was an increase of $42.7 million from the working capital of $32.5
million at February 29, 1996. This increase was primarily the result of the
Company's completion of its secondary public offering on June 19, 1996 which
provided net proceeds of $33.6 million plus net income of $9.5 million for the
six month period ended August 31, 1996 which was reinvested in working capital.
On September 1, 1996, the Company amended its unsecured Loan Agreement with
a commercial bank extending the maturity to September 1, 1999 and set the credit
available at $30,000,000. See also Note 2 of Notes to Financial Statements.
PAGE 9 OF 20
At August 31, 1996 the Company had cash and cash equivelants of $31.9
million and short-term investments of $5.0 million and no interest bearing debt.
The short-term investments range in maturity from 90 days to 180 days while the
majority of cash equiveleants are invested in tax exempt instruments with
maturities of one to seven days.
Merchandise inventories were $83.0 million at August 31, 1996 compared to
$76.1 million at February 29, 1996. On a per square foot basis, merchandise
inventories at August 31, 1996 decreased 8.3% compared to August 31, 1995, and
were 4.4% lower than at February 29, 1996. The Company believes present levels
are appropriate for the selling season and reflects a reduction of aged
inventory.
Recently, President Clinton signed a bill which among other items,
increased the minimum wage effective October 1, 1996 from $4.25 to $4.75 per
hour and subsequently to $5.15 per hour on September 1, 1997. Although many of
the Company's store employees are part-time and paid hourly, the passage of this
bill is not expected to have a material adverse effect on the Company's
financial condition or results of operation.
PAGE 10 OF 20
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 18, 1996.
(b) The following directors were elected to serve until the 1997 Annual
Meeting of Stockholders or until their successors have been duly
elected and qualified. Of the 4,105,362 shares (1 vote per share) of
Class A common stock and the 6,234,537 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
------------------------
Withheld
Name For Authority
------------ -------- ---------
Alan H. Cohen 65,934,167 1,361
David I. Klapper 65,934,172 1,356
David M. Fagin 65,934,172 1,356
Larry J. Sablosky 65,934,172 1,356
Jonathan K. Layne 65,934,169 1,359
Jeffrey H. Smulyan 65,934,172 1,356
ITEM 5: Other Information
-----------------
None.
PAGE 11 OF 20
ITEM 6: Exhibits and Reports on Form 8-K:
---------------------------------
(a) Exhibits
10.24.1 First Amendment to Loan Agreement among NBD Bank, NA.
and The Finish Line, Inc. dated September 1, 1996.
10.24.2 Amended and Restated Promissory Note (unsecured) in
the amount of $30,000,000 dated September 1, 1996
11 - Computation of Net Income Per Share.
27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on June 5, 1996 with respect to
a press release issued by the Company on June 5, 1996.
PAGE 12 OF 20
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 26, 1996 By: /s/ Steven J. Schneider
------------------------
Steven J. Schneider
Vice President - Finance and Chief
Financial Officer
PAGE 13 OF 20