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 May 30, 1998
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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 June 19, 1998:
Class A 18,916,721
Class B 7,244,068
Page 1 of 12
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
May 30, February 28,
1998 1998
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(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 19,463 $ 28,113
Short-term marketable securities 8,796 7,886
Accounts receivable 11,960 4,668
Merchandise inventories 129,342 130,150
Deferred income taxes 2,211 2,275
Other 2,388 1,988
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Total current assets 174,160 175,080
PROPERTY AND EQUIPMENT:
Land 315 315
Building 9,681 7,517
Leasehold improvements 54,575 49,549
Furniture, fixtures, and equipment 25,315 21,547
Construction in progress 1,298 3,828
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91,184 82,756
Less accumulated depreciation 23,526 21,844
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67,658 60,912
OTHER ASSETS:
Marketable securities 17,307 17,810
Deferred income taxes 1,940 1,951
Other 221 225
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19,468 19,986
-------- --------
Total assets $261,286 $255,978
======== ========
See accompanying notes.
Page 2 of 12
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
May 30, February 28,
1998 1998
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 37,635 $ 38,790
Employee compensation and related payroll taxes 3,137 5,154
Accrued income taxes 3,793 3,377
Accrued property and sales tax 3,065 3,352
Other liabilities and accrued expenses 3,400 3,585
----------- -----------
Total current liabilities 51,030 54,258
Long-term deferred rent payments 4,778 4,598
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 - (May 30, 1998 - 18,900;
February 28, 1998 - 18,170) 189 182
Class B:
Shares authorized - 12,000
Shares issued and outstanding - (May 30, 1998 - 7,249;
February 28, 1998 - 7,842) 72 78
Additional paid-in capital 121,270 119,181
Retained earnings 83,947 78,218
Treasury stock - (May 30, 1998 - 0; February 28, 1998 - 40) -- (537)
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Total stockholders' equity 205,478 197,122
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Total liabilities and stockholders' equity $261,286 $255,978
=========== ===========
See accompanying notes.
Page 3 of 12
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Thirteen Weeks Ended
May 30, May 31,
1998 1997
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Net sales $116,602 $87,537
Cost of sales (including occupancy expenses) 81,379 60,903
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Gross profit 35,223 26,634
Selling, general, and administrative expenses 26,472 20,083
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Operating income 8,751 6,551
Interest income - net (490) (722)
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Income before income taxes 9,241 7,273
Provision for income taxes 3,512 2,782
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Net income $ 5,729 $ 4,491
======== =======
Basic net income per share $ .22 $ .17
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Basic weighted average shares 26,072 25,958
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Diluted net income per share $ .22 $ .17
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Diluted weighted average shares 26,505 26,336
======== =======
See accompanying notes.
Page 4 of 12
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) - (Unaudited)
Thirteen Weeks Ended
May 30, May 31,
1998 1997
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OPERATING ACTIVITIES:
Net Income $ 5,729 $ 4,491
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 2,622 1,550
Contribution of treasury stock to profit sharing plan 981 --
Deferred income taxes 75 1,188
(Gain) loss on disposal of property and equipment 8 (4)
Changes in operating assets and liabilities:
Accounts receivable (7,292) (1,468)
Merchandise inventories 808 (6,428)
Other current assets (400) 1,815
Other assets 4 (8)
Accounts payable (1,155) 1,613
Employee compensation and related payroll taxes (2,017) (2,397)
Accrued income taxes 416 (3,612)
Other liabilities and accrued expenses (472) (803)
Deferred rent payments 180 180
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Net cash used in operating activities (513) (3,883)
INVESTING ACTIVITIES:
Purchases of property and equipment (9,380) (3,184)
Proceeds from disposal of property and equipment 4 18
Purchases of marketable securities (915) (393)
Proceeds from maturity of marketable securities 508 2,843
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Net cash used in investing activities (9,783) (716)
FINANCING ACTIVITIES:
Proceeds from short-term debt 2,200 7,950
Principal payments on short-term debt (2,200) (7,600)
Proceeds and tax benefits from exercise of stock options 1,646 243
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Net cash provided by financing activities 1,646 593
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Net decrease in cash and cash equivalents (8,650) (4,006)
Cash and cash equivalents at beginning of period 28,113 51,212
------- -------
Cash and cash equivalents at end of period $19,463 $47,206
======= =======
See accompanying notes
Page 5 of 12
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 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, 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 28, 1998.
2. FAS 130 Comprehensive Income
As of March 1, 1998 the Company adopted FAS Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components. The adoption of the
statement had no impact on the Company's net income, shareholders equity or
financial statement presentation as the Company has no comprehensive income
components.
Page 6 of 12
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
May 30, May 31,
1998 1997
--------- ---------
(Unaudited)
Net Sales 100.0% 100.0%
Cost of sales (including occupancy expenses) 69.8 69.6
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Gross profit 30.2 30.4
Selling, general and administrative expenses 22.7 22.9
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Operating income 7.5 7.5
Interest income - net (.4) (.8)
----- -----
Income before income taxes 7.9 8.3
Provision for income taxes 3.0 3.2
----- -----
Net income 4.9% 5.1%
===== =====
THIRTEEN WEEKS ENDED MAY 30, 1998 COMPARED TO THIRTEEN WEEKS ENDED MAY 31, 1997
Net sales increased 33.2% to $116.6 million for the thirteen weeks ended
May 30, 1998 from $87.5 million for the thirteen weeks ended May 31, 1997. Of
this increase, $18.2 million was attributable to a 18.8% increase in the number
of stores open during the period from 266 at May 31, 1997 to 316 at May 30,
1998. The balance of the increase was attributable to a $1.6 million increase
in net sales from the fifteen existing stores open only part of the first three
months of last year and a comparable store sales increase of 8.2% for the
thirteen weeks ended May 30, 1998 for those stores opened during the entire
three months of last year. Comparable net footwear sales for the thirteen weeks
ended May 30, 1998 increased 9.4% versus the thirteen weeks ended May 31, 1997.
Comparable net activewear and accessories increased 4.5% for the comparable
period. Net sales per square foot were $77 for both periods presented.
Gross profit for the thirteen weeks ended May 30, 1998 was $35.2 million,
an increase of $8.6 million over the thirteen weeks ended May 31, 1997. During
this same period, gross profit decreased to 30.2% of net sales versus 30.4% for
the prior year. Of this .2% decrease, .4% was due to an increase in occupancy
costs as a percentage of net sales which was partially offset by a .2% increase
in margin for products sold.
Page 7 of 12
Selling, general and administrative expenses increased $6.4 million
(31.8%) to $26.5 million (22.7% of net sales) for the thirteen weeks ended May
30, 1998 from $20.1 million (22.9% of net sales) for the thirteen weeks ended
May 31, 1997. This dollar increase was primarily attributable to the operating
costs related to operating 50 additional stores at May 30, 1998 versus May 31,
1997. The decrease as a percentage of net sales is primarily a result of the
comparable stores net sales increase of 8.2% for the thirteen weeks along with
improved expense controls.
Net interest income was $490,000 (.4% of net sales) for the thirteen week
period ended May 30, 1998, compared to net interest income of $722,000 (.8% of
net sales) for the thirteen weeks ended May 31, 1997, a decrease of $232,000.
This decrease was the result of reduced invested cash balances due to the
Company's funding of fiscal 1998 expansion.
The Company's provision for income taxes increased $730,000 for the
thirteen weeks ended May 30, 1998. The increase is due to the increased level
of income before income taxes for the thirteen weeks ended May 30, 1998,
partially offset by a decrease in the effective tax rate to 38.0% for the
thirteen weeks ended May 31, 1998 from 38.25% for the thirteen weeks ended May
31, 1997.
Net income increased 27.6% to $5.7 million for the thirteen weeks ended
May 30, 1998 compared to $4.5 million for the thirteen weeks ended May 31, 1997.
Diluted net income per share increased 29.4% to $.22 for the thirteen weeks
ended May 30, 1998 compared to $.17 for the thirteen weeks ended May 31, 1997.
Diluted weighted average shares outstanding were 26,505,000 and 26,336,000,
respectively, for the thirteen weeks ended May 30, 1998 and May 31, 1997.
Liquidity and Capital Resources
The Company had a net use of cash of $513,000 from its operating
activities during the thirteen weeks ended May 30, 1998 as compared to a net use
of cash from operating activities of $3.9 million during the quarter ended May
31, 1997.
The Company had a net use of cash from its investing activities, of $9.8
million and $716,000 for the thirteen weeks ended May 30, 1998 and May 31, 1997,
respectively. Of the $9.8 million in 1998, $9.4 million was used for new and
remodeled stores construction and the completion on an addition to the corporate
offices.
The Company's working capital was $123.1 million at May 30, 1998 which was
a $2.3 million increase in working capital from $120.8 million at February 28,
1998.
Page 8 of 12
Merchandise inventories were $129.3 million at May 30, 1998 compared to
$130.2 million at February 28, 1998. On a per square foot basis, merchandise
inventories at May 30, 1998 increased 3.8% compared to May 31, 1997, and were
8.8% lower than at February 28, 1998. The Company believes present levels are
appropriate for the selling season.
At May 30, 1998, the Company had cash and cash equivalents of $19.5
million and short-term marketable securities of $8.8 million. Cash equivalents
are primarily invested in tax exempt instruments with maturities of one to
twenty-eight days. Short-term marketable securities range in maturity from 90-
365 days from date of purchase and are primarily invested in tax exempt
municipal obligations. In addition, the Company held long-term marketable
securities of $17.3 million at May 30, 1998. Long-term marketable securities
are primarily invested in tax exempt municipal obligations with maturities
ranging from one to six years.
The Company's previously announced expansion plans are to increase its
retail square footage by approximately 30% for fiscal 1999. Management believes
that cash on hand, operating cash flow and borrowings under the Company's
existing bank facility will be sufficient to complete the Company's fiscal 1999
store expansion program and to satisfy the Company's other capital requirements
through fiscal 1999.
As is commonly known, there is a potential issue facing companies regarding the
ability of information systems to accommodate the year 2000. The Company has
completed an assessment and will have to modify portions of its software so that
its computer systems will function properly with respect to dates in the year
2000 and thereafter. The Company believes that with modifications to existing
software and conversions to new software, the year 2000 issue will not pose
significant operational problems for its computer systems. The costs related to
these modifications are not expected to exceed $250,000.
Page 9 of 12
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
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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
---------------------------------------------------
None.
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
None.
Page 10 of 12
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 26, 1998 By: /s/ Steven J. Schneider
-----------------------
Steven J. Schneider,
Sr. Vice President,
Finance, Chief
Financial Officer and
Secretary
Page 11 of 12