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
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ACT OF 1934
For the quarterly period ended November 30, 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
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Shares of common stock outstanding at December 20, 1996:
Class A 16,940,774
Class B 9,001,474
Page 1 of 14
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FINISH LINE, INC.
BALANCE SHEETS
(In thousands)
Nov 30, Feb 29,
1996 1996
----------- ---------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 18,513 $ 1,686
Short-term investments 4,980 --
Accounts receivable 7,104 1,099
Merchandise inventories 87,547 76,088
Deferred income taxes 2,835 1,608
Other current assets 1,292 524
-------- --------
Total current assets 122,271 81,005
PROPERTY AND EQUIPMENT
Land 315 315
Building 4,220 4,156
Leasehold improvements 32,159 26,898
Furniture, fixtures, and equipment 12,952 11,235
Construction in progress 424 596
-------- --------
50,070 43,200
Less accumulated depreciation 15,067 11,441
-------- --------
35,003 31,759
OTHER ASSETS
Deferred income taxes 2,482 2,208
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Total assets $159,756 $114,972
======== ========
See accompanying notes.
THE FINISH LINE, INC.
Page 2 of 14
BALANCE SHEETS
(In thousands)
Nov 30, Feb 29,
1995 1996
----------- ----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 30,328 $ 29,717
Notes payable to bank -- 9,500
Employee compensation and related payroll taxes 3,579 3,234
Accrued interest -- 56
Accrued income taxes 3,505 2,074
Accrued property and sales tax 2,610 1,869
Other liabilities and accrued expenses 3,665 2,102
-------- --------
Total current liabilities 43,687 48,552
LONG-TERM LIABILITIES
Deferred rent payments 3,812 3,272
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 (November 30, 1996 - 13,941;
February 29, 1996 - 8,162) 139 41
Class B:
Shares authorized - 12,000
Shares issued and outstanding (November 30, 1996 - 9,601;
February 29, 1996 - 12,469) 96 62
Additional paid-in capital 67,248 30,374
Retained earnings 44,774 32,671
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Total stockholders' equity 112,257 63,148
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Total liabilities and stockholders' equity $159,756 $114,972
======== ========
See accompanying notes.
THE FINISH LINE, INC.
Page 3 of 14
STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
November 30, November 30,
1996 1995 1996 1995
------- ------- -------- --------
Net sales $73,003 $52,729 $235,753 $169,532
Cost of sales (including occupancy expenses) 51,129 37,770 162,884 119,006
------- ------- -------- --------
Gross profit 21,874 14,959 72,869 50,526
Selling, general, and administrative expenses 17,747 13,356 52,826 39,729
------- ------- -------- --------
Operating income 4,127 1,603 20,043 10,797
Interest expense (income) - net. (189) 305 (132) 664
------- ------- -------- --------
Income before income taxes 4,316 1,298 20,175 10,133
Provision for income taxes 1,727 519 8,071 4,053
------- ------- -------- --------
Net income $ 2,589 $ 779 $ 12,104 $ 6,080
======= ======= ======== ========
Fully diluted net income per share $.11 $.04 $.53 $.29
======= ======= ======== ========
Fully diluted weighted average shares 24,149 20,730 22,975 20,728
======= ======= ======== ========
See accompanying notes.
Page 4 of 14
THE FINISH LINE, INC.
STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Nine Months ended November 30,
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1996 1995
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OPERATING ACTIVITIES:
Net Income $ 12,104 $ 6,080
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,845 3,118
Deferred income taxes (1,501) (542)
(Gain) loss on disposal of property and equipment 33 (13)
Changes in operating assets and liabilities:
Accounts receivable (6,005) (2,700)
Merchandise inventories (11,459) (20,279)
Other current assets (768) (104)
Other assets -- 147
Accounts payable 611 7,455
Employee compensation and related payroll taxes 345 (66)
Accrued income taxes 1,431 (83)
Other liabilities and accrued expenses 2,248 901
Deferred rent payments 540 630
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Net cash provided by (used in) operating activities 1,424 (5,456)
INVESTING ACTIVITIES:
Purchases of property and equipment (7,151) (8,285)
Proceeds from disposals of property and equipment 29 161
Investment in short-term investments (4,980) --
-------- --------
Net cash used in investing activities (12,102) (8,124)
FINANCING ACTIVITIES:
Proceeds from short-term and long-term debt 42,200 78,900
Principal payments on short-term and long-term debt (51,700) (64,225)
Net proceeds from public offering 33,559 --
Proceeds and tax benefit from exercise of stock options 3,446 3
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Net cash provided by financing activities 27,505 14,678
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Net increase in cash and cash equivalents 16,827 1,098
Cash and cash equivalents at beginning of period 1,686 978
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Cash and cash equivalents at end of period $ 18,513 $ 2,076
======== ========
See accompanying notes.
Page 5 of 14
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 November 30, 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 November 30, 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 Offerings
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
2,600,000 shares of Class A Common Stock at an offering price of $13.75 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 14
The Company completed a secondary public offering (the "December 1996
Secondary Offering") of its Class A Common Stock on December 18, 1996, pursuant
to which the Company sold 2,400,000 shares of its Class A Common Stock at an
offering price of $22.50 per share. Net proceeds to the Company from the
December 1996 Secondary Offering (after deducting the underwriting discount of
$2,700,000 and expenses estimated at $400,000) are estimated to be $50,900,000.
These proceeds will be used to finance the accelerated expansion of the
Company's store base as well as for potential acquisitions and general corporate
purposes. As part of the December 1996 Secondary Offering, four selling
stockholders (each an officer and director of the Company) sold an aggregate of
600,000 shares of Class A Common Stock (which were converted from Class B to
Class A) at the same price per share of $22.50 less $675,000 for the
underwriting discount. The Company has not and will not receive any of the
proceeds from the shares sold by the four selling stockholders. The financial
statements and other information reported herein do not reflect the results of
the December 1996 Secondary Offering since it was complete subsequent to
November 30, 1996.
4. Stock Split
On September 27, 1996, the Company's Board of Directors declared a two-for-
one split of the Company's Class A and Class B Common Stock which was
distributed after the close of business on November 15, 1996 in the form of a
100% stock dividend to shareholders of record as of October 18, 1996. All
references in the financial statements to number of shares, per share amounts
and prices per share of the Company's Class A and B Common Stock have been
retroactively restated to reflect the impact of the Company's stock split.
Page 7 of 14
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 Nine Months
Ended November 30, Ended November 30,
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) 70.0 71.6 69.1 70.2
----- ----- ----- -----
Gross profit 30.0 28.4 30.9 29.8
Selling, general and administrative expenses 24.3 25.3 22.4 23.4
----- ----- ----- -----
Operating income 5.7 3.1 8.5 6.4
Interest expense (income) - net (.2) .6 (.1) .4
----- ----- ----- -----
Income before income taxes 5.9 2.5 8.6 6.0
Provision for income taxes 2.4 1.0 3.5 2.4
----- ----- ----- -----
Net income 3.5% 1.5% 5.1% 3.6%
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Page 8 of 14
THIRD QUARTER ENDED 11/30/96 COMPARED TO THIRD QUARTER ENDED 11/30/95
Net sales increased 38.4% to $73.0 million for the quarter ended November
30, 1996 from $52.7 million for the quarter ended November 30, 1995. This
increase in net sales was primarily attributable to net sales from new stores
and comparable store sales increases. As of November 30, 1996, the number of
stores in operation increased 13.6% to 251 from 221 at November 30, 1995. During
the quarter ended November 30, 1996, the Company's comparable store sales
increased 17.2% compared to the same period in the prior year. Comparable
footwear net sales for the quarter ended November 30, 1996 increased
approximately 15.9% versus the quarter ended November 30, 1995. Comparable
activewear and accessories net sales increased approximately 19.3% for the
comparable period. Net sales per square foot increased to $73 from $63 for the
same period of the prior year.
Gross profit for the quarter ended November 30, 1996 was $21.9 million, an
increase of $6.9 million over the quarter ended November 30, 1995. During this
same period, gross profit increased to 30.0% of net sales versus 28.4% for the
prior year. Of this 1.6% increase, .7% was due to a decrease in occupancy costs
as a percentage of net sales and .8% was due to a decrease in the reserve for
estimated inventory shrinkage as compared to the same period of the prior year
and .1% was due to an increase in margins for products sold.
Selling, general and administrative expenses increased $4.4 million (32.9%)
to $17.7 million (24.3% of net sales) for the quarter ended November 30, 1996
from $13.4 million (25.3% of net sales) for the quarter ended November 30, 1995.
This dollar increase was primarily attributable to the operating costs related
to operating 30 additional stores at November 30, 1996 versus November 30, 1995.
The decrease as a percentage of net sales is primarily a result of the
comparable store net sales increase of 17.2% for the quarter ended November 30,
1996 along with improved expense controls.
Net interest income was $189,000 (.2% of net sales) for the quarter ended
November 30, 1996, compared to net interest expense of $305,000 (.6% of net
sales) for the quarter ended November 30, 1995, a decrease of $494,000 or
162.0%. This decrease was a result of using the proceeds of the secondary
offering completed on June 19, 1996 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 to
$1.7 million for the quarter ended November 30, 1996, from $519,000 for the
quarter ended November 30, 1995. The increase is due to the increased level of
income before income taxes for the quarter ended November 30, 1996, as the
effective tax rate was 40% for each of the comparable quarters.
Fully diluted net income per share increased 175% to $.11 for the quarters
ended November 30, 1996 compared to fully diluted net income per share of $.04
for the quarter ended November 30, 1995. Fully diluted weighted average shares
outstanding were 24,149,000 and 20,730,000 respectively, during the quarters
ended November 30, 1996 and 1995.
Page 9 of 14
NINE MONTHS ENDED 11/30/96 COMPARED TO NINE MONTHS ENDED 11/30/95
Net sales increased 39.1% to $235.8 million for the nine months ended
November 30, 1996 from $169.5 million for the nine months ended November 30,
1995. Of this increase, $21.0 million was attributable to a 13.6% increase in
the number of stores open during the period from 221 November 30, 1995 to 251 at
November 30, 1996. The balance of the increase was attributable to a $21.6
million increase in net sales from the 35 existing stores open only part of the
first nine months of last year and a comparable store increase of 15.6% for the
nine months ended November 30, 1996. Comparable footwear net sales for the nine
months ended November 30, 1996 increased approximately 15.1%. Comparable
activewear and accessories net sales increased approximately 16.8% for the
comparable period. Net sales per square foot increased to $254 from $222 for
the comparable nine month periods.
Gross profit for the nine months ended November 30, 1996 was $72.9 million,
an increase of $22.3 million over the nine months ended November 30, 1995.
During this same period, gross profit increased to 30.9% of net sales versus
29.8% for the prior year. Of this 1.1% increase, .7% was due to a decrease in
occupancy costs as a percentage of net sales, .2% was due to an increase in
margins for products sold, with the remaining .2% increase due to a decrease in
the reserve for estimated inventory shrinkage.
Selling, general and administrative expenses increased $13.1 million
(33.0%) to $52.8 million (22.4% of net sales) for the nine months ended November
30, 1996 from $39.7 million (23.4% of net sales) for the nine months ended
November 30, 1995. This dollar increase was primarily attributable to the
operating costs related to operating 30 additional stores at November 30, 1996
versus November 30, 1995. The decrease as a percentage of net sales is primarily
a result of the comparable store net sales increase of 15.6% for the nine month
period ended November 30, 1996 along with improved expense controls.
Net Interest income was $132,000 (.1% of net sales) for the nine months
ended November 30, 1996, compared to net interest expense of $664,000 (.4% of
net sales) for the nine months ended November 30, 1995, a decrease of $796,000
or 119.9%. This decrease was a result of using the proceeds of the secondary
offering completed on June 19, 1996 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 $4.0
million for the nine months ended November 30, 1996. The increase is due to the
increased level in income before income taxes for the nine months ended November
30, 1996, as the effective tax rate was 40% for each of the comparable nine
month periods.
Fully diluted net income per share increased 82.8% to $.53 for the nine
months ended November 30, 1996 compared to fully diluted net income per share of
$.29 for the nine months ended November 30, 1995. Fully diluted weighted
average shares outstanding were 22,975,000 and 20,728,000 respectively for the
nine months ended November 30, 1996 and 1995.
Page 10 of 14
Liquidity and Capital Resources
The Company generated cash of $1.4 million from its operating activities
during the nine months ended November 30, 1996 as compared to using cash in
operating activities of $5.5 million during the nine months ended November 30,
1995. The increase in cash generated from operating activities was primarily
the result of increased net income before depreciation.
The Company had a net use of cash from its investing activities, of $12.1
million and $8.1 million for the nine months ended November 30, 1996 and 1995,
respectively. Of the $12.1 million in 1996, $7.2 million was used for new store
construction and $5.0 million was used to purchase short-term investments.
The Company had positive working capital of $78.6 million at November 30,
1996, an increase of $46.1 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 $12.1 million for the nine month
period ended November 30, 1996 which was reinvested in working capital.
Merchandise inventories were $87.5 million at November 30, 1996 compared to
$76.1 million at February 29, 1996. On a per square foot basis, merchandise
inventories at November 30, 1996 decreased approximately 6.7% compared to
November 30, 1995, and were approximately 7.6% lower than at February 29, 1996.
The Company believes present levels are appropriate for the selling season and
reflects a reduction of aged inventory.
At November 30, 1996 the Company had cash and cash equivalents of $18.5
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 equivalents are invested in tax exempt instruments with
maturities of one to seven days.
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 11 of 14
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
---------------------------------------------------
The stockholders acted by written consent to approve an amendment
to the Company's Certificate of Incorporation to increase the number of
authorized shares of capital stock from 33,000,000 to 43,000,000. The
Company submitted to its stockholders an information statement dated
October 24, 1996 with respect to the action by written consent. This
action was effective on November 13, 1996.
ITEM 5: Other Information
-----------------
None.
ITEM 6: Exhibits and Reports on Form 8-K:
---------------------------------
(a) Exhibits
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 December 4, 1996 with
respect to a press release issued by the Company on December 4,
1996.
The Company filed a report on Form 8-K on December 18, 1996 with
respect to a press release issued by the Company on December 18,
1996.
Page 12 of 14
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: December 27, 1996 By:/s/ Steven J. Schneider
--------------------------
Steven J. Schneider
Vice President -Finance and Chief
Financial Officer
Page 13 of 14