<PAGE>
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 31, 1997
------------
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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 35-1537210
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer identification number)
of incorporation or organization)
3308 North Mitthoeffer Road Indianapolis, Indiana 46236
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
317-899-1022
- --------------------------------------------------------------------------------
(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 20, 1997:
Class A 18,005,042
Class B 7,967,206
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
May 31, March 1,
1997 1997
--------- --------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 47,206 $ 51,212
Short-term marketable securities 9,232 11,516
Accounts receivable 6,317 4,849
Merchandise inventories 88,419 81,991
Deferred income taxes 1,630 2,785
Other 1,816 3,631
-------- --------
Total current assets 154,620 155,984
PROPERTY AND EQUIPMENT:
Land 315 315
Building 4,238 4,238
Leasehold improvements 34,883 32,732
Furniture, fixtures, and equipment 15,256 14,071
Construction in progress 3,954 4,120
-------- --------
58,646 55,476
Less accumulated depreciation 17,508 15,958
-------- --------
41,138 39,518
OTHER ASSETS:
Marketable securities 19,940 20,106
Deferred income taxes 2,077 2,110
Other 8 --
-------- --------
22,025 22,216
-------- --------
Total assets $217,783 $217,718
======== ========
</TABLE>
See accompanying notes.
Page 2 of 12
<PAGE>
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
May 31, March 1,
1997 1997
--------- --------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $ 29,202 $ 27,589
Notes payable to bank 350 --
Employee compensation and related payroll taxes 2,456 4,853
Accrued income taxes 1,564 5,176
Accrued property and sales tax 2,209 2,448
Other liabilities and accrued expenses 3,275 3,839
-------- --------
Total current liabilities 39,056 43,905
Long-term deferred rent payments 4,118 3,938
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 31, 1997 - 17,995;
March 1, 1997 - 17,192) 180 172
Class B:
Shares authorized - 12,000
Shares issued and outstanding - (May 31, 1997 - 7,967;
March 1, 1997 - 8,750) 80 87
Additional paid-in capital 118,375 118,132
Retained earnings 55,974 51,484
-------- --------
Total stockholders' equity 174,609 169,875
-------- --------
Total liabilities and stockholders' equity $217,783 $217,718
======== ========
</TABLE>
See accompanying notes.
Page 3 of 12
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THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Three
Weeks Weeks
Ended Ended
May 31, May 31,
1997 1996
------- -------
<S> <C> <C>
Net sales $87,537 $71,744
Cost of sales (including occupancy expenses) 60,903 50,212
------- -------
Gross profit 26,634 21,532
Selling, general, and administrative expenses 20,083 16,042
------- -------
Operating income 6,551 5,490
Interest expense (income) - net (722) 194
------- -------
Income before income taxes 7,273 5,296
Provision for federal and state income taxes 2,782 2,119
------- -------
Net income $ 4,491 $ 3,177
======= =======
Fully diluted net income per share $.17 $.15
======= =======
Fully diluted weighted average shares 26,568 21,336
======= =======
</TABLE>
See accompanying notes.
Page 4 of 12
<PAGE>
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) - (Unaudited)
<TABLE>
<CAPTION>
Thirteen Three
Weeks Weeks
Ended Ended
May 31, May 31,
1997 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 4,491 $ 3,177
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 1,550 1,386
Deferred income taxes 1,188 (98)
Gain on disposal of property and equipment (4) (6)
Changes in operating assets and liabilities:
Accounts receivable (1,468) (1,121)
Merchandise inventories (6,428) 2,621
Other current assets 1,815 (298)
Other assets (8) --
Accounts payable 1,613 (7,483)
Employee compensation and related payroll taxes (2,397) (827)
Accrued income taxes (3,612) (304)
Other liabilities and accrued expenses (803) (35)
Deferred rent payments 180 180
------- -------
Net cash used in operating activities (3,883) (2,808)
INVESTING ACTIVITIES:
Purchases of property and equipment (3,184) (2,197)
Proceeds from disposal of property and equipment 18 13
Purchases of marketable securities (393) --
Proceeds from maturity of marketable securities 2,843 --
------- -------
Net cash used in investing activities (716) (2,184)
FINANCING ACTIVITIES:
Proceeds from short-term and long-term debt 7,950 33,100
Principal payments on short-term and long-term debt (7,600) (27,900)
Proceeds and tax benefits from exercise of stock options 243 396
------- -------
Net cash provided by financing activities 593 5,596
------- -------
Net increase (decrease) in cash and cash equivalents (4,006) 604
Cash and cash equivalents at beginning of period 51,212 1,686
------- -------
Cash and cash equivalents at end of period $47,206 $ 2,290
======= ========
</TABLE>
See accompanying notes
Page 5 of 12
<PAGE>
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 March 1, 1997.
2. Change in Fiscal Year End
Effective with the quarter ended March 1, 1997, the Company changed its
fiscal year from a fiscal year ending each February 28 to a 52/53 week retail
calendar year ending on the last Saturday closest to February 28. As a result of
this change, each of the Company's quarters will consist of thirteen weeks. In a
53 week fiscal year, the fourth quarter will include fourteen weeks. The
thirteen weeks ended May 31, 1997 includes 91 days versus 92 days for the first
quarter of fiscal 1997 which ended on May 31, 1996. All results presented herein
reflect such 1 day difference in the reporting periods.
3. Accounting Change
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on February 28,
1998. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement 128 on the
calculation of primary (basic) and fully diluted (diluted) earnings per share
for these periods is not expected to be material.
Page 6 of 12
<PAGE>
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.
<TABLE>
<CAPTION>
Thirteen Three
Weeks Weeks
Ended Ended
May 31, May 31,
1997 1996
------- -------
<S> <C> <C>
(Unaudited)
Net Sales 100.0% 100.0%
Cost of sales (including occupancy expenses) 69.6 70.0
----- -----
Gross profit 30.4 30.0
Selling, general and administrative expenses 22.9 22.4
----- -----
Operating income 7.5 7.6
Interest expense (income) - net (.8) .3
----- -----
Income before federal and state income taxes 8.3 7.3
Provision for federal and state income taxes 3.2 2.9
----- -----
Net income 5.1% 4.4%
====== ======
</TABLE>
THIRTEEN WEEKS ENDED 5/31/97 COMPARED TO FIRST QUARTER ENDED 5/31/96
Net sales increased 22.0% to $87.5 million for the thirteen weeks ended
May 31, 1997 from $71.7 million for the quarter ended May 31, 1996. Of this
increase, $13.1 million was attributable to a 16.2% increase in the number of
stores open during the period from 229 at May 31, 1996 to 266 at May 31, 1997.
The balance of the increase was attributable to a $700,000 increase in net sales
from the eleven existing stores open only part of the first three months of last
year and a comparable store sales increase of 0.7% for the thirteen weeks ended
May 31, 1997 for those stores opened during the entire three months of last
year. Comparable net footwear sales for the thirteen weeks ended May 31, 1997
increased 1.7% versus the thirteen weeks ended May 31, 1996. Comparable net
activewear and accessories decreased 2.3% for the comparable period. Net sales
per square foot decreased to $77 from $82 for the same period of the prior year.
Gross profit for the thirteen weeks ended May 31, 1997 was $26.6 million,
an increase of $5.1 million over the quarter ended May 31, 1996. During this
same period, gross profit increased to 30.4% of net sales versus 30.0% for the
prior year. Of this .4% increase, 1.1% was due to higher margins for products
sold which was partially offset by a .7% increase in occupancy costs as a
percentage of net sales.
Page 7 of 12
<PAGE>
Selling, general and administrative expenses increased $4.1 million
(25.2%) to $20.1 million (22.9% of net sales) for the thirteen weeks ended May
31, 1997 from $16.0 million (22.4% of net sales) for the quarter ended May 31,
1996. This dollar increase was primarily attributable to the operating costs
related to operating 37 additional stores at May 31, 1997 versus May 31, 1996.
The increase as a percentage of net sales is primarily a result of store wages
not being leveraged due to the modest comparable net sales increase of 0.7% for
the thirteen weeks ended May 31, 1997, as well as net sales including one less
day than the prior year due to the change to the retail calendar.
Net interest income was $722,000 (.8% of net sales) for the thirteen week
period ended May 31, 1997, compared to net interest expense of $194,000 (.3% of
net sales) for the quarter ended May 31, 1996, an increase of $916,000. This
increase was the result of using the proceeds of the Company's public offering
completed on June 19, 1996 to repay all existing outstanding indebtedness under
the Company's unsecured committed Loan Agreement with the remainder of these
proceeds (along with the proceeds from the Company's public offering completed
on December 18, 1996), being invested in interest bearing instruments.
The Company's provision for federal and state income taxes increased
$663,000 for the thirteen weeks ended May 31, 1997. The increase is due to the
increased level of income before income taxes for the thirteen weeks ended May
31, 1997, partially offset by a decrease in the effective tax rate to 38.25% for
the thirteen weeks ended May 31, 1997 from 40.0% for the quarter ended May 31,
1996. The decrease in effective tax rate is a result of the Company's
significant investment in tax exempt instruments along with implementation of
tax planning initiatives.
Net income increased 41.4% to $4.5 million for the thirteen weeks ended
May 31, 1997 compared to $3.2 million for the quarter ended May 31, 1996. Fully
diluted net income per share increased 13.3% to $.17 for the thirteen weeks
ended May 31, 1997 compared to $.15 for the quarter ended May 31, 1996. Fully
diluted weighted average shares outstanding were 26,568,000 and 21,336,000,
respectively, for the periods ended May 31, 1997 and 1996. The increase in
shares outstanding resulted from the completion of two public stock offerings
in fiscal 1997.
Liquidity and Capital Resources
The Company had a net use of cash of $3.9 million from its operating
activities during the thirteen weeks ended May 31, 1997 as compared to a net use
of cash from operating activities of $2.8 million during the quarter ended May
31, 1996.
The Company had a net use of cash from its investing activities, of
$716,000 and $2.2 million for the thirteen weeks ended May 31, 1997 and the
quarter ended May 31, 1996, respectively. Of the $716,000 in 1997, $3.2 million
was used for new stores construction which was partially offset by a $2.5
million net maturity of marketable securities.
The Company's working capital was $115.6 million at May 31, 1997 which was
a $3.5 million increase in working capital from $112.1 million at March 1, 1997.
Page 8 of 12
<PAGE>
Merchandise inventories were $88.4 million at May 31, 1997 compared to
$82.0 million at March 1, 1997. On a per square foot basis, merchandise
inventories at May 31, 1997 decreased 9.8% compared to May 31, 1996, and were
4.4% lower than at March 1, 1997. The Company believes present levels are
appropriate for the selling season.
At May 31, 1997, the Company had cash and cash equivalents of $47.2
million and short-term marketable securities of $9.2 million and $350,000 of
short term interest bearing debt. 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 April 1997 the Company announced plans to accelerate its store expansion
from a previously announced increase in retail square footage of 35% for fiscal
1998 to an increase of approximately 40% to 45%. 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 1998 store
expansion program and to satisfy the Company's other capital requirements
through fiscal 1998.
In 1996, 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 9 of 12
<PAGE>
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
---------------------------------------------------
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
The Company filed a report on Form 8-K on March 7, 1997 with
respect to a resolution of the Board of Directors of The Finish
Line, Inc. dated March 4, 1997 in which the Board approved and
ratified a change in the Company's fiscal year end.
Page 10 of 12
<PAGE>
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: June 25, 1997 By: /s/ Steven J. Schneider
----------------------------
Sr. Vice President,
Finance, Chief
Financial Officer and
Secretary
Page 11 of 12
<PAGE>
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen Three
Weeks Weeks
Ended Ended
May 31, May 31,
1997 1996
------- -------
<S> <C> <C>
Primary
- -------
Average shares outstanding 25,958 20,646
Net effect of dilutive stock options - based
on the treasury stock method using average
market price 610 560
======= =======
Total 26,568 21,206
======= =======
Net income $ 4,491 $ 3,177
======= =======
Per share amount $ .17 $ .15
======= =======
Fully Diluted
- -------------
Average shares outstanding 25,958 20,646
Net effect of dilutive stock options - based
on the treasury stock method using the higher
of the average market price for the period or
the market price at the end of the period 610 690
======= =======
Total 26,568 21,336
======= =======
Net income $ 4,491 $ 3,177
======= =======
Per share amount $ .17 $ .15
======= =======
</TABLE>
NOTE: Average shares outstanding used for net income per share included in the
Company's financial statements reflect the effect of the stock options
granted since their effect is approximately 3% dilutive. Only fully
diluted earnings per share have been disclosed in the Company's financial
statements as primary earnings per share are substantially the same.
Page 12 of 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE QUARTERLY PERIOD ENDED MAY 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-02-1997
<PERIOD-END> MAY-31-1997
<CASH> 47,206
<SECURITIES> 9,232
<RECEIVABLES> 6,317
<ALLOWANCES> 0
<INVENTORY> 88,419
<CURRENT-ASSETS> 154,620
<PP&E> 58,646
<DEPRECIATION> 17,508
<TOTAL-ASSETS> 217,783
<CURRENT-LIABILITIES> 39,056
<BONDS> 0
0
0
<COMMON> 260
<OTHER-SE> 174,349
<TOTAL-LIABILITY-AND-EQUITY> 217,783
<SALES> 87,537
<TOTAL-REVENUES> 87,537
<CGS> 60,903
<TOTAL-COSTS> 60,903
<OTHER-EXPENSES> 20,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (722)
<INCOME-PRETAX> 7,273
<INCOME-TAX> 2,782
<INCOME-CONTINUING> 4,491
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,491
<EPS-PRIMARY> 0
<EPS-DILUTED> .17
</TABLE>
