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 29, 1999
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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)
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(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 19, 1998:
Class A 17,670,171
Class B 7,244,068
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
May 29, February 27,
1999 1999
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ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 14,537 $ 23,113
Short-term marketable securities 1,651 2,155
Accounts receivable 10,416 6,951
Merchandise inventories 150,428 135,303
Deferred income taxes 2,457 2,432
Other 1,671 1,241
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Total current assets 181,160 171,195
PROPERTY AND EQUIPMENT:
Land 315 315
Building 10,272 10,251
Leasehold improvements 78,151 74,948
Furniture, fixtures, and equipment 32,259 30,418
Construction in progress 2,544 4,251
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123,541 120,183
Less accumulated depreciation 32,541 29,749
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91,000 90,434
OTHER ASSETS:
Marketable securities 15,656 15,656
Deferred income taxes 1,349 1,022
Other 255 248
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17,260 16,926
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$289,420 $278,555
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See accompanying notes.
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
May 29, February 27,
1999 1999
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LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
CURRENT LIABILITIES:
Accounts payable $ 57,522 $ 50,672
Employee compensation 3,290 5,025
Accrued income taxes 2,182 446
Accrued property and sales taxes 3,240 3,533
Other liabilities and accrued expenses 4,286 4,858
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Total current liabilities 70,520 64,534
Long-term deferred rent payments 5,667 5,342
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 29,
1999 - 18,983; February 27, 1999 - 18,961) 190 190
Class B:
Shares authorized - 12,000
Shares issued and outstanding - (May 29,
1999 - 7,244; February 27, 1999 - 7,244) 72 72
Additional paid-in capital 122,118 121,954
Retained earnings 102,611 98,905
Treasury stock - (May 29, 1999 - 1,313;
February 27, 1999 - 1,363) (11,758) (12,442)
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Total stockholders' equity 213,233 208,679
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Total liabilities and stockholders' equity $289,420 $278,555
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See accompanying notes.
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Thirteen Weeks Ended
May 29, May 30,
1999 1998
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Net sales $132,296 $116,602
Cost of sales (including occupancy expense) 95,170 81,379
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Gross profit 37,126 35,223
Selling, general, and administrative expenses 31,705 26,472
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Operating income 5,421 8,751
Interest income - net (281) (490)
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Income before income taxes 5,702 9,241
Provision for income taxes 1,996 3,512
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Net income $3,706 $5,729
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Basic net income per share $.15 $.22
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Basic weighted average shares 24,885 26,072
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Diluted net income per share $.15 $.22
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Diluted weighted average shares 25,198 26,505
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See accompanying notes.
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) - (Unaudited)
Thirteen Weeks Ended
May 29, May 30,
1999 1998
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OPERATING ACTIVITIES:
Net Income $ 3,706 $ 5,729
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 3,680 2,622
Contribution of treasury stock to pension plan 683 981
Deferred income taxes (352) 75
Loss on disposal of property and equipment 150 8
Changes in operating assets and liabilities:
Accounts receivable (3,465) (7,292)
Merchandise inventories (15,125) 808
Other current assets (430) (400)
Other assets (7) 4
Accounts payable 6,850 (1,155)
Employee compensation and related payroll
taxes (1,735) (2,017)
Accrued income taxes 1,736 416
Other liabilities and accrued expenses (865) (472)
Deferred rent payments 325 180
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Net cash used in operating activities (4,849) (513)
INVESTING ACTIVITIES:
Purchasing of property and equipment (4,562) (9,380)
Proceeds from disposal of property and
equipment 166 4
Purchase of marketable securities -- (915)
Proceeds from maturity of marketable securities 504 508
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Net cash used in investing activities (3,892) (9,783)
FINANCING ACTIVITIES:
Proceeds from short-term debt -- 2,200
Principal payments on short-term debt -- (2,200)
Proceeds and tax benefits from exercise of
stock options 165 1,646
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Net cash provided by financing activities 165 1,646
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Net decrease in cash and cash equivalents
(8,576) (8,650)
Cash and cash equivalents at beginning of
period 23,113 28,113
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Cash and cash equivalents at end of period $14,537 $ 19,463
======== ========
See accompanying notes
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 27, 1999.
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 29, May 30,
1999 1998
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(Unaudited)
Net Sales 100.0% 100.0%
Cost of sales (including occupancy expenses) 71.9 69.8
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Gross profit 28.1 30.2
Selling, general and administrative expenses 24.0 22.7
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Operating income 4.1 7.5
Interest income - net (.2) (.4)
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Income before income taxes 4.3 7.9
Provision for income taxes 1.5 3.0
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Net income 2.8% 4.9%
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THIRTEEN WEEKS ENDED MAY 29, 1999 COMPARED TO THIRTEEN WEEKS ENDED MAY 30, 1998
Net sales increased 13.5% to $132.3 million for the thirteen weeks ended
May 29, 1999 from $116.6 million for the thirteen weeks ended May 30, 1998. Of
this increase, $18.1 million was attributable to a 17.4% increase in the number
of stores open during the period from 316 at May 30, 1998 to 371 at May 29,
1999. The balance of the increase was attributable to a $2.2 million increase
in net sales from the fifteen existing stores open only part of the first three
months of last year. These increases were partially offset by a comparable
store sales decrease of 5.2% for the thirteen weeks ended May 29, 1999 for those
stores opened during the entire three months of last year. Comparable net
footwear sales for the thirteen weeks ended May 29, 1999 were flat versus the
thirteen weeks ended May 30, 1998. Comparable net activewear and accessories
sales decreased 21.0% for the comparable period. Activewear and accessories
continue to be negatively effected by a fashion shift by customers to
contemporary non-athletic brands. Net sales per square foot decreased 14.3% to
$66 for the thirteen weeks ended May 29, 1999 compared to $77 for the comparable
period of the prior year. Sales per square foot have been negatively impacted
by the decrease in activewear sales along with an 8.3% increase in the average
store size from 5,472 square feet at May 30, 1998 to 5,924 square feet at May
29, 1999.
Gross profit for the thirteen weeks ended May 29, 1999 was $37.1 million,
an increase of $1.9 million over the thirteen weeks ended May 30, 1998. During
this same period, gross profit decreased to 28.1% of net sales versus 30.2% for
the prior year. Of this 2.1% decrease, 2.3% 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.
Selling, general and administrative expenses increased $5.2 million
(19.8%) to $31.7 million (24.0% of net sales) for the thirteen weeks ended May
29, 1999 from $26.5 million (22.7% of net sales) for the thirteen weeks ended
May 30, 1998. This dollar increase was primarily attributable to the operating
costs related to operating 55 additional stores at May 29, 1999 versus May 30,
1998 along with increased depreciation expense.
Net interest income was $281,000 (.2% of net sales) for the thirteen week
period ended May 29, 1999, compared to $490,000 (.4% of net sales) for the
thirteen weeks ended May 30, 1998, a decrease of $209,000. This decrease was
the result of reduced invested cash balances due to the Company's funding of
fiscal 2000 expansion.
The Company's provision for income taxes decreased $1.5 million for the
thirteen weeks ended May 29, 1999. The decrease is due to the decreased level
of income before income taxes for the thirteen weeks ended May 29, 1999, in
addition to a decrease in the effective tax rate to 35.0% for the thirteen weeks
ended May 29, 1999 from 38.0% for the thirteen weeks ended May 30, 1998. The
decrease in the effective tax rate is due to on going tax planning initiatives.
Net income decreased 35.3% to $3.7 million for the thirteen weeks ended
May 29, 1999 compared to $5.7 million for the thirteen weeks ended May 30, 1998.
Diluted net income per share decreased 31.8% to $.15 for the thirteen weeks
ended May 29, 1999 compared to $.22 for the thirteen weeks ended May 30, 1998.
Diluted weighted average shares outstanding were 25,198,000 and 26,505,000,
respectively, for the thirteen weeks ended May 29, 1999 and May 30, 1998. The
decrease of 4.9% in diluted average shares outstanding reflects the repurchase
of 1,313,000 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 had a net use of cash of $4.8 million from its operating
activities during the thirteen weeks ended May 29, 1999 as compared to a net use
of cash from operating activities of $513,000 during the quarter ended May 30,
1998. The increase in cash used from operating activities is primarily due to
increased inventory net of accounts payable.
The Company had a net use of cash from its investing activities, of $3.9
million and $9.8 million for the thirteen weeks ended May 29, 1999 and May 30,
1998, respectively. Of the $3.9 million in 1999, $4.6 million was used for new
and remodeled stores construction, partially offset by the proceeds from
maturity of marketable securities.
The Company's working capital was $110.6 million at May 29, 1999 which was
a $3.9 million increase from $106.7 million at February 27, 1999.
Merchandise inventories were $150.4 million at May 29, 1999 compared to
$135.3 million at February 27, 1999. On a per square foot basis, merchandise
inventories at May 29, 1999 decreased 8.5% compared to May 30, 1998, and were
6.0% higher than at February 27, 1999. The Company believes present levels are
appropriate for the selling season.
At May 29, 1999, the Company had cash and cash equivalents of $14.5
million and short-term marketable securities of $1.7 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 $15.7 million at May 29, 1999. Long-term marketable securities
are primarily invested in tax exempt municipal obligations with maturities
ranging from one to five years.
The Company's previously announced expansion plans are to increase its
retail square footage by approximately 15% for fiscal 2000. Management believes
that cash on hand, operating cash flow and the Company's existing bank facility
will provide sufficient capital to complete the Company's fiscal 2000 store
expansion program and to satisfy the Company's other capital requirements
through fiscal 2000.
Year 2000 Readiness
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Such software and
devises with embedded technology may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in system failures or
miscalculations leading to disruptions in the Company's operations, including,
among other things, a temporary inability to process transactions, receive
inventory from suppliers, ship inventory to stores, or engage in similar
business activities.
The Company's year 2000 Plan (Plan) is being completed in four phases as it
relates to IT systems, non-IT systems and third party suppliers, vendors and
service providers ("Third Parties"). The four phases include inventory and
assessment; remediation; testing; and contingency planning.
The Company has undertaken initiatives to ensure that its information technology
(IT) systems and non-IT systems will function properly with respect to dates in
the year 2000 and thereafter. IT systems include hardware, accounting, data
processing, and telephone systems, cash registers, hand-held terminals,
scanning equipment, and other miscellaneous systems. Non-IT systems include
alarm systems, time clocks, fax machines, material handling equipment,
sprinklers, and heating, ventilating and air conditioning systems.
To date the Company has substantially completed the first three phases of the
Plan as it relates to substantially all IT and non-IT systems. The Company
utilizes commercially available packaged software to support the majority of its
application needs. A majority of such packages have been represented by the
respective vendors as year 2000 compliant. Testing to date has confirmed this.
Contingency planning as necessary is ongoing and is expected to be complete by
September 1999.
Risks
The Company believes that Third Parties represent the area of greatest risk to
the Company including the potential failure of mall utilities and failure of
merchandise vendor production facilities. This is due to the Company's limited
ability to influence actions of the Third Parties, and because of the Company's
inability to estimate the level and impact of noncompliance of Third Parties in
some instances. Material Third Parties have been identified and the Company has
opened communication with them in regards to the year 2000 issue.
Correspondence has
been sent to material Third Parties and the Company has received return
correspondence from a large majority stating that they expect to be year 2000
compliant in 1999. The Company plans to perform follow-up inquiries with non-
responding Third Parties and develop contingency plans by September 1999 if
necessary.
The Company purchased 56% of its merchandise from Nike in fiscal 1999 and
expects merchandise purchases in fiscal 2000 to continue at a significant level.
Nike has publicly stated that a substantial number of their significant
suppliers and customers have not responded to Nike's surveys or provided
assurance of their year 2000 readiness or have not responded with sufficient
detail for Nike to determine their year 2000 readiness. The Company will
continue to monitor this situation and will work with Nike, if necessary to
develop contingency plans.
A majority of the products purchased by the Company from Nike and its other key
vendors are sourced in Asia. From the Company's review and through third party
sources, including key vendor disclosures, the Company believes that the Asian
factories which produce these products have limited year 2000 exposure due to
the limited amount of automation. The Company does however have concerns
regarding infrastructure in Asia such as electric power and telecommunications.
Such failures could materially and adversely affect the Company's results of
operations, liquidity, and financial condition.
Costs
Costs related to the year 2000 issue are funded through operating cash flows.
The Company has not incurred significant historic costs related to the year 2000
issue as systems have been upgraded as part of the Company's growth and normal
maintenance routines. Through May 29, 1999 the Company had expended
approximately $100,000 in remediation efforts, including the costs of new
software and modifying the applicable code of existing software. The Company
has expensed the majority of these costs to date. The Company estimates the
remaining costs to be less than $50,000.
Although the Company anticipates no material business disruption will occur as a
result of the year 2000 issue, the year 2000 issue is unique and the failure to
correct a material year 2000 issue could result in an interruption, or a failure
of, certain normal business activities or operations, such as loss of
communications with store locations, inability to process transactions,
inability for malls to operate, and the disruption of the supply of product and
distribution channel. Such failures could materially and adversely affect the
Company's results of operations, liquidity and financial condition. Due to
general uncertainty inherent in the year 2000 problem, resulting from the
uncertainty of the year 2000 readiness of Third Parties, the Company is unable
to determine at this time whether the consequences of year 2000 failures will
have a material impact on the Company's results of operations, liquidity or
financial condition.
The above section, even if incorporated by reference into other documents or
disclosures, is a year 2000 Readiness Disclosure as defined under the Year 2000
Information and Readiness Disclosure Act of 1998.
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
-------------------------------
None.
ITEM 4: Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
None.
ITEM 5: Other Information
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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.
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, 1999 By: /s/ Steven J. Schneider
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Steven J. Schneider,
Sr. Vice President,
Finance, Chief
Financial Officer and
Assistant Secretary