<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 August 30, 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 September 19, 1997:
Class A 17,963,216
Class B 7,965,732
Page 1 of 20
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS August 30, March 1,
1997 1997
<S> <C> <C>
---------- --------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 68,229 $ 51,212
Short-term marketable securities 9,468 11,516
Accounts receivable 7,202 4,849
Merchandise inventories 106,513 81,991
Deferred income taxes 1,820 2,785
Other 2,520 3,631
---------- --------
Total current assets 195,752 155,984
PROPERTY AND EQUIPMENT
Land 315 315
Building 7,792 4,238
Leasehold improvements 40,630 32,732
Furniture, fixtures, and equipment 16,415 14,071
Construction in progress 830 4,120
---------- --------
65,982 55,476
Less accumulated depreciation 19,180 15,958
---------- --------
46,802 39,518
OTHER ASSETS
Marketable securities 19,223 20,106
Deferred income taxes 2,085 2,110
Other 154 --
---------- --------
21,462 22,216
---------- --------
Total assets $264,016 $217,718
========== ========
</TABLE>
See accompanying notes.
Page 2 of 20
<PAGE>
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
August 30, March 1,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1997
<S> <C> <C>
---------- --------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 62,295 $ 27,589
Employee compensation and related payroll
taxes 3,927 4,853
Accrued income taxes 2,159 5,176
Accrued property and sales tax 4,082 2,448
Other liabilities and accrued expenses 4,235 3,839
---------- --------
Total current liabilities 76,698 43,905
Long-term deferred rent payments 4,298 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 (August 30,
1997-17,960; March 1, 1997 - 17,192) 180 172
Class B:
Shares authorized - 12,000
Shares issued and outstanding
(August 30, 1997- 7,966;
March 1, 1997 - 8,750) 80 87
Additional paid-in capital 118,515 118,132
Retained earnings 64,938 51,484
Treasury stock (693) --
---------- --------
Total stockholders' equity 183,020 169,875
Total liabilities and stockholders' ---------- --------
equity $264,016 $217,718
========== ========
</TABLE>
See accompanying notes.
Page 3 of 20
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THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Three Twenty- Six
Weeks Months Six Weeks Months
Ended Ended Ended Ended
August 30, August 31, August 30, August 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 118,727 $ 91,006 $ 206,264 $ 162,750
Cost of sales (including occupancy expenses) 80,178 61,543 141,081 111,755
--------- ---------- ---------- ----------
Gross profit 38,549 29,463 65,183 50,995
Selling, general, and administrative expenses 24,744 19,037 44,827 35,079
--------- ---------- ---------- ----------
Operating income 13,805 10,426 20,356 15,916
Interest expense (income) - net (712) (137) (1,434) 57
--------- ---------- ---------- ----------
Income before income taxes 14,517 10,563 21,790 15,859
Provision for income taxes 5,553 4,225 8,335 6,344
--------- ---------- ---------- ----------
Net income $ 8,964 $ 6,338 $ 13,455 $ 9,515
========= ========== ========== ==========
Fully diluted net income per share $ .34 $ .27 $ .51 $ .42
========= ========== ========== ==========
Fully diluted weighted average shares 26,518 23,550 26,546 22,468
========= ========== ========== ==========
</TABLE>
See accompanying notes.
Page 4 of 20
<PAGE>
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands) (Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Six Months
Weeks Ended Ended
8/30/97 8/31/96
----------- ----------
<S> <C> <C>
Net Income $ 13,455 $ 9,515
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,386 2,616
Deferred income taxes 990 (902)
Gain on disposals of property and equipment (4) (16)
Changes in operating assets and liabilities:
Accounts receivable (2,353) (3,540)
Merchandise inventories (24,522) (6,958)
Other current assets 1,111 (134)
Other assets (154) --
Accounts payable 34,706 9,893
Employee compensation and related payroll taxes (926) (94)
Accrued income taxes (3,017) 1,342
Other liabilities and accrued expenses 2,030 2,086
Deferred rent payments 360 360
----------- ----------
Net cash provided by operating activities 25,062 14,168
----------- ----------
INVESTING ACTIVITIES:
Purchases of property and equipment (10,684) (3,992)
Proceeds from disposals of property and equipment 18 29
Purchases of marketable securities (1,695) (4,980)
Proceeds from maturity of short-term marketable securities 4,626 --
----------- ----------
Net cash used in investing activities (7,735) (8,943)
----------- ----------
FINANCING ACTIVITIES:
Proceeds from short-term debt 10,250 39,800
Principal payments on short-term and long-term debt (10,250) (49,300)
Net proceeds from public offering -- 33,559
Proceeds and tax benefit from exercise of stock options 383 882
Common stock repurchased (693) --
----------- ----------
Net cash provided by (used in) financing activities (310) 24,941
----------- ----------
Net increase in cash and cash equivalents 17,017 30,166
Cash and cash equivalents at beginning of period 51,212 1,686
----------- ----------
Cash and cash equivalents at end of period $ 68,229 $ 31,852
=========== ==========
</TABLE>
See accompanying notes.
Page 5 of 20
<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 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.
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 August 30, 1997 includes 91 days versus 92 days for the
second quarter of fiscal 1997 which ended on August 31, 1996. The twenty-six
weeks ended August 30, 1997 includes 182 days versus 184 days for the six months
ended August 31, 1996. All results presented herein reflect these differences
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 20
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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.
<TABLE>
<CAPTION>
Thirteen Three Twenty- Six
Weeks Months Six weeks Months
Ended Ended Ended Ended
August 30, August 31, August 30, August 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales (including occupancy expenses) 67.5 67.6 68.4 68.7
---------- ---------- ---------- ----------
Gross profit 32.5 32.4 31.6 31.3
Selling, general and administrative expenses 20.8 20.9 21.7 21.6
---------- ---------- ---------- ----------
Operating income 11.7 11.5 9.9 9.7
Interest expense (income) - net (.6) (.1) (.7) --
---------- ---------- ---------- ----------
Income before income taxes 12.3 11.6 10.6 9.7
Provision for income taxes 4.7 4.6 4.1 3.9
---------- ---------- ---------- ----------
Net income 7.6% 7.0% 6.5% 5.8%
========== ========== ========== ==========
</TABLE>
Page 7 of 20
<PAGE>
THIRTEEN WEEKS ENDED 8/30/97 COMPARED TO SECOND QUARTER ENDED 8/31/96
Net sales increased 30.5% to $118.7 million for the thirteen weeks ended
August 30, 1997 from $91.0 million for the quarter ended August 31, 1996. This
increase in net sales was primarily attributable to sales from new stores and
comparable store sales increases. As of August 30, 1997, the number of stores
in operation increased 19.6% to 281 from 235 at August 31, 1996. During the
thirteen weeks ended August 30, 1997, the Company's comparable store sales
increased 5.5% compared to the same period in the prior year. Comparable net
footwear sales for the thirteen weeks ended August 30, 1997 increased
approximately 6.8%. Comparable net activewear and accessories sales for the
comparable period increased 2.0%.
Gross profit for the thirteen weeks ended August 30, 1997 was $38.5 million,
an increase of $9.1 million over the quarter ended August 31, 1996. During this
same period, gross profit increased to 32.5% of net sales versus 32.4% for the
prior year. Of this .1% increase, .4% was due to higher margins for products
sold, partially offset by a .3% increase in occupancy costs as a percentage of
net sales.
Selling, general and administrative expenses increased $5.7 million (30.0%)
to $24.7 million (20.8% of net sales) for the thirteen weeks ended August 30,
1997 from $19.0 million (20.9% of net sales) for the quarter ended August 31,
1996. This dollar increase was primarily attributable to the operating costs
related to operating 46 additional stores at August 30, 1997 versus August 31,
1996.
Net interest income was $712,000 (.6% of net sales) for the thirteen weeks
ended August 30, 1997, compared to net interest income of $137,000 (.1% of net
sales) for the quarter ended August 31, 1996, an increase of $575,000. 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 short term interest bearing
instruments.
The Company's provision for federal and state income taxes increased $1.3
million for the thirteen weeks ended August 30, 1997. The increase is due to
the increased level of income before income taxes for the thirteen weeks ended
August 30, 1997, partially offset by a decrease in the effective tax rate to
38.25% for the thirteen weeks ended August 30, 1997 from 40.0% for the quarter
ended August 31, 1996. The decrease in effective tax rate is a result of the
Company's significant investment in tax exempt instruments along with the
implementation of tax planning initiatives.
Net income increased 41/4% to $9.0 million for the thirteen weeks ended
August 30, 1997 compared to $6.3 million for the quarter ended August 31, 1996.
Fully diluted net income per share increased 25.9% to $.34 for the thirteen
weeks ended August 30, 1997 compared to fully diluted net income per share of
$.27 for the quarter ended August 31, 1996. Fully diluted weighted average
shares outstanding were 26,518,000 and 23,550,000, respectively, for the periods
ended August 30, 1997 and August 31, 1996. The increase in shares outstanding
resulted from the completion of two public stock offerings in fiscal 1997.
TWENTY-SIX WEEKS ENDED 8/30/97 COMPARED TO SIX MONTHS ENDED 8/31/96
Net sales increased 26.7% ($43.5 million) to $206.3 million for the twenty-
six weeks ended August 30, 1997 from $162.8 million for the six months ended
August 31, 1996. Of this increase, $18.7 million was attributable to a 19.6%
increase in the number of stores open (48 stores opened less 2 stores closed)
during the period from 235 at August 31, 1996 to 281 at August 30, 1997. The
balance of the increase
Page 8 of 20
<PAGE>
was due to a $7.3 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 3.3% for the twenty-six weeks ended August 30, 1997. Comparable net footwear
sales for the twenty-six weeks ended August 30, 1997 increased approximately
4.5%. Comparable net activewear and accessories increased approximately 0.2% for
the comparable period. Net sales per square foot decreased to $174 from $182 for
the same period of the prior year.
Gross profit for the twenty-six weeks ended August 30, 1997 was $65.2
million, an increase of $14.2 million over the six months ended August 31, 1996.
During this same period, gross profit increased to 31.6% of net sales versus
31.3% for the prior year. Of this .3% increase, .8% was due to higher margins
for product sold, partially offset by a .5% increase in occupancy costs as a
percentage of net sales.
Selling, general and administrative expenses increased $9.7 million (27.8%)
to $44.8 million (21.7% of net sales) for the twenty-six weeks ended August 30,
1997 from $35.1 million (21.6% of net sales) for the six months ended August 31,
1996. This dollar increase was primarily attributable to the operating costs
related to operating 46 additional stores at August 30, 1997 versus August 31,
1996.
Net interest income was $1.4 million (.7% of net sales) for the twenty-six
weeks ended August 30, 1997, compared to net interest expense of $57,000 (.0% of
net sales) for the six months ended August 31, 1996, an increase of $1.4
million. 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 $2.0
million to $8.3 million for the twenty-six weeks ended August 30, 1997 from $6.3
million for the six months ended August 31, 1996. The increase is due to the
increased level of income before income taxes for the twenty-six weeks ended
August 30, 1997, partially offset by a decrease in the effective tax rate to
38.25% for the twenty-six weeks ended August 30, 1997 from 40.0% for the quarter
ended August 31, 1997. The decrease in effective tax rate is a result of the
Company's significant investment in tax exempt instruments along with
implementation of the tax planning initiatives.
Net income increased 41.4% to $13.5 million for the twenty-six weeks ended
August 30, 1997 compared to $9.5 million for the six months ended August 31,
1996. Fully diluted net income per share increased 21.4% to $.51 for the six
months ended August 30, 1997 compared to fully diluted net income per share of
$.42 for the six months ended August 31, 1996. Weighted average shares
outstanding were 26,546,000 and 22,468,000 respectively for the periods ended
August 30, 1997, and August 31, 1996. The increase in shares outstanding
resulted from the completion of two public stock offerings in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash of $25.1 million from its operating activities
during the twenty-six weeks ended August 30, 1997 as compared to $14.2 million
during the six months ended August 31, 1996. 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 $7.7
million and $8.9 million for the twenty-six weeks ended August 30, 1997 and the
six months ended August 31, 1996, respectively. Of the $7.7 million in 1997,
$10.7 million was used for new stores construction which was partially
Page 9 of 20
<PAGE>
offset by a $2.9 million net maturities of marketable securities.
The Company had working capital of $119.1 million at August 30, 1997 which
was an increase of $7.0 million from the working capital of $112.1 million at
March 1, 1997.
At August 30, 1997 the Company had cash and cash equivalents of $68.2
million and short-term marketable securities of $9.5 million and no interest
bearing debt. Cash equivalents are primarily invested in tax except 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.
Merchandise inventories were $106.5 million at August 30, 1997 compared to
$82.0 million at March 1, 1997. On a per square foot basis, merchandise
inventories at August 30, 1997 decreased 7.2% compared to August 31, 1996. The
Company believes present levels are appropriate for the selling season.
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.
Management believes that cash and cash equivalents on hand, operating cash
flow and available borrowings under the Company's existing facility will be
sufficient to complete the Company's fiscal 1998 and 1999 store expansion
program and to satisfy the Company's other capital requirements through fiscal
1999.
Page 10 of 20
<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
---------------------------------------------------
(a) The Annual Meeting of Stockholders was held on July 17, 1997.
(b) The following directors were elected to serve until the 1998
Annual Meeting of stockholders or until their successors have been
duly elected and qualified. Of the 15,486,371 shares (1 vote per
share) of Class A common stock and the 7,967,206 shares (10 votes
per share) of Class B common stock represented at the meeting, the
directors were elected by the following votes:
<TABLE>
<CAPTION>
Number Of Votes Received
------------------------
Name For Against
----------- ---------- -------
<S> <C> <C>
Alan H. Cohen 95,143,019 15,412
David I. Klapper 95,143,739 14,692
David M. Fagin 94,410,641 747,790
Larry J. Sablosky 95,143,809 14,622
Jonathan K. Layne 95,143,809 14,622
Jeffrey H. Smulyan 95,143,709 14,722
</TABLE>
ITEM 5: Other Information
-----------------
None.
ITEM 6: Exhibits and Reports on Form 8-K:
---------------------------------
(a) Exhibits
10.25 - Second Amendment to Loan Agreement among NBD Bank, NA
and The Finish Line, Inc. dated July 16, 1997.
10.26 - Revolving Credit Agreement among Spike's Holding, Inc.,
and The Finish Line, Inc. dated May 4, 1997.
11 - Computation of Net Income Per Share.
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
Page 11 of 20
<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: September 26, 1997 By: /s/ Steven J. Schneider
-----------------------------
Steven J. Schneider
Sr. Vice President - Finance, Chief
Financial Officer and Secretary
Page 12 of 20
<PAGE>
EXHIBIT 10.25
SECOND AMENDMENT TO LOAN AGREEMENT
----------------------------------
THIS SECOND AMENDMENT is entered into as of July 16, 1997 by and between THE
FINISH LINE, INC. (the "Borrower") and NBD BANK, N.A. (the "Bank");
WHEREAS, the Borrower and the Bank have entered into a certain Loan
Agreement dated July 20, 1995 as modified by a First Amendment dated September
1, 1996 (the "Agreement"); and
WHEREAS, the Borrower has requested that the Bank consent and agree to (i)
the creation of Spike's Holding, Inc. ("Spike's"), a Delaware corporation which
will be a wholly owned subsidiary of the Borrower, (ii) the transfer of certain
intellectual property rights by the Borrower to Spike's, (iii) the licensing of
these rights by the Borrower from Spike's, and (iv) the creation of a revolving
lending arrangement between Spike's as lender and the Borrower as borrower under
which Spike's may lend up to $50,000,000 on an unsecured basis to the Borrower
(collectively, the "Affiliate Transactions"); and
WHEREAS, the Bank is willing to consent to the Affiliate Transactions proved
that the Bank receives a guaranty of payment of the Borrower's obligations and s
subordination agreement from Spike's under which debt owned by the Borrower to
Spike's is subordinated to repayment of the Borrower's obligations owned to the
Bank;
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. An additional condition precedent is added to Section 3.1 of the Agreement
as follows:
(D) That there is operative and in effect an Unlimited Continuing Guaranty
(the "Guaranty") and Debt Subordination Agreement (the "Subordination
Agreement") each running from Spike's Holding, Inc., a wholly owned
subsidiary of the Borrower, in favor of the Bank, in form and substance
satisfactory to the Bank.
2. The Bank consents to the Affiliate Transactions described above and waives
any violation of the Agreement which may be occasioned by the Affiliate
Transactions.
3. The Bank will receive a Guaranty and Debt Subordination Agreement in the
forms of Exhibits A and B attached hereto, from Spike's Holding, Inc.
together with proof of the corporate existence of Spike's and proof of the
due authorization and execution of such agreements.
4. An additional Event of Default is added to Section 6.1 of the Agreement as
follows:
(J) if Spike's Holding Inc. becomes insolvent, or violates any material
provision of the terms of the Guaranty or the Subordination Agreement,
or the provisions of either the Guaranty or the Subordination Agreement
are no longer enforceable.
5. Except as modified herein, the Agreement, as heretofore modified, will
remain unchanged and in full force and effect.
Page 13 of 20
<PAGE>
IN WITNESS WHEREOF, this Second Amendment has been entered into as of the
date first hereinabove written.
NBD BANK, N.A. THE FINISH LINE, INC.
By: /s/ Leo G. Watson, Jr. By: /s/ Stephen J. Schneider
----------------------- -----------------------
Leo G. Watson, Jr. Stephen J. Schneider
Vice President Senior VP of Finance
----------------------- -----------------------
Printed Name - Title Printed Name - Title
Page 14 of 20
<PAGE>
EXHIBIT 10.26
REVOLVING CREDIT AGREEMENT
This Revolving Credit Agreement (the "Agreement") is made and entered into as of
the 4th day of May, 1997 (the "Effective Date"), by and among Spike's Holding,
Inc., a Delaware corporation (the "Company") and The Finish Line, Inc., a
Delaware corporation (the "Borrower").
W I T N E S S E T H:
WHEREAS, the Company desires to extend credit to the Borrower by making loans to
Borrower, from time to time, in one or more borrowings, sums in dollars equal to
an aggregate amount not exceeding the Loan Commitment; and
WHEREAS, the Borrower desires to borrow from the Company, from time to time,
sums in dollars equal to an aggregate amount not exceeding the Loan Commitment.
NOW THEREFORE, in consideration of the mutual covenants and agreements contained
herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Certain Defined Terms. As used herein, the following terms shall
---------------------
have the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Agreement in the singular have the same meanings when used in
the plural and vice versa):
---- -----
"Business Day" shall mean any day on which the principal office of Finish
------------
Line, Inc. is not closed in Indianapolis, Indiana.
"Default" shall mean an Event of Default or an event which with notice or
-------
lapse of time or both would become an Event of Default.
"Indebtedness" shall mean all sums owed or to be owed by the Borrower to
------------
the Company, whether principal or interest, interest thereon and reimbursement
of monies advanced as provided herein.
"Interest Period" shall mean, with respect to any Revolving Loan, each
---------------
period commencing on the date such Loan is made and ending on the last day of
each fiscal quarter.
"Fiscal Quarter" shall mean the period ending on the closest Saturday
--------------
ending in May/August/November and February of each fiscal year.
"Loan" shall mean the Revolving Loan, whether one or more, issued pursuant
----
to Section 2.01 of this Agreement.
"Loan Commitment" shall mean the obligation of the Company to make
---------------
Revolving Loans up to an aggregate principal amount at any one time outstanding
equal to $50,000,000. The Company has the exclusive option of increasing the
Loan Commitment and any increase in such Loan Commitment shall be subject to the
terms and conditions contained herein.
"Original Termination Date" shall mean the date which is thirty six (36)
-------------------------
calendar months from the date of the Effective Date.
"Termination Date" shall mean the Original Termination Date, unless
----------------
otherwise extended to a later date by the Company pursuant to Section 2.05
hereof.
Accounting terms not specifically defined herein shall be defined in accordance
with generally accepted accounting principles.
Page 15 of 20
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ARTICLE II
EXTENSION OF CREDIT
Section 2.01 Line of Credit. The Company agrees to make a loan or loans to the
--------------
Borrower during the period from and including the date hereof to the day falling
30 days before the Termination Date in an aggregate principal amount (as to all
Revolving Loans) not exceeding at any one time outstanding the respective Loan
Commitment of the Company, relating to the Borrower, as in effect from time to
time.
Section 2.02 Prepayment. Subject to the terms of this Agreement, Borrower
----------
shall have the right to prepay, without penalty, in whole or in part the amount
owed on the Revolving Loan. Any such prepayment shall be applied first to
accrued interest on the Revolving Loan and then to principal maturities in the
inverse order of their maturity.
Section 2.03 Revolving Loan. Whenever the Borrower desires a Revolving Loan
--------------
advanced hereunder, the Borrower shall give notice, in writing or orally, to the
Company of the requested advance. The notice shall provide that (i) a Revolving
Loan is requested, (ii) the date of the requested advance, and (iii) the
aggregate principal amount of the Revolving Loan.
Section 2.04 Several Obligations; Remedies Independent. The amounts payable by
-----------------------------------------
the Borrower to the Company at any time under this Agreement shall be a separate
and independent debt and the Company shall be entitled to protect and enforce
its rights arising out of this Agreement and any of the Notes held by it.
Section 2.05 Extension of Termination Date. Subject to the terms and
-----------------------------
conditions hereof, the Company has the exclusive option of extending the
Termination Date to the next subsequent anniversary of the Original Termination
Date, each such extension being limited to a single anniversary period.
Extension of the Termination Date by the Company may be made automatically by
the Company, and all terms and conditions of this Agreement shall apply unless
otherwise mutually agreed to by the Company and the Borrower in writing.
Section 2.06 Mandatory Prepayments of Revolving Loan. If the aggregate
---------------------------------------
outstanding principal amount of the Revolving Loan exceeds on any date the
aggregate amount of the Loan Commitment on such date, the Borrower shall cause
the respective Revolving Loan to be repaid on such date in an aggregate
principal amount at least equal to such excess.
ARTICLE III
INTEREST
Section 3.01 Interest.
--------
(a) Upon receipt of an invoice from the Company, Borrower shall pay
interest quarterly on the 1st day following the completion of the Borrower's
fiscal quarter. The interest shall accrue quarterly at the Prime Rate as
published in the Wall Street Journal on the first day of each fiscal quarter
plus one percent on the unpaid principal balance.
(b) In no event will the amount of any interest due and payable hereunder
exceed the maximum rate of interest allowed by applicable law.
ARTICLE IV
PAYMENTS
Section 4.01 Payments. Except to the extent otherwise provided herein, all
--------
payments of principal, interest and other amounts to be made by the Borrower
under this Agreement and any Loan shall be made in United States of America
Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to the Company on the date on which such payment shall become due
(each such payment made after such time on such due date to be deemed to have
been made on the next succeeding Business Day).
Section 4.02 Repayment of Principal. Borrower shall pay one-tenth (1/10) of
----------------------
the balance outstanding on the last day of the Borrower's fiscal year. Such
payment shall be due and payable as of the end of the next business day.
Page 16 of 20
<PAGE>
ARTICLE V
SUBORDINATION
Section 5.01 Subordination. Notwithstanding any provision contained herein to
-------------
the contrary, the principal indebtedness evidenced by this Loan shall be
subordinate and junior in right of payment to any and all obligations of the
Borrower in respect of the principal and unpaid interest on indebtedness for
borrowed money, whether such indebtedness is direct or indirect, absolute or
contingent, due or to become due, whether outstanding on the date hereof or
thereafter created, incurred, assumed, or guaranteed. In the event that any
provisions contained herein impairs, compromises, or violates any senior
obligation of Borrower, such provision shall be unenforceable, with respect to
such Borrower, to the extent that it impairs, compromises or violates such
obligation. Nothing contained in this paragraph shall impair, as between the
Borrower and the Company of this Loan, the obligation of the Borrower to pay all
amounts due hereunder in accordance with the terms hereof.
ARTICLE VI
COVENANTS, REPRESENTATIONS AND WARRANTIES
Section 6.01 Borrower represents and warrants to the Company that:
(a) Existence. It is a corporation duly organized, legally existing and in
---------
good standing under the laws of its respective state of organization,
and is duly qualified to transact business in each State or other
jurisdiction in which the character of the properties owned by it or the
nature of its business require such qualification, and has power to make
this Agreement and to borrow hereunder.
(b) Authority. It is duly authorized and empowered to create and issue the
---------
Loan, and to execute and deliver this Agreement. It is duly authorized
and empowered to execute and deliver all other instruments referred to
or mentioned herein to which it is a party, and all action requisite for
the due creation, issuance and delivery of the Loan and the due
execution and delivery of this Agreement has been duly and effectively
taken. This Agreement and the Loan when executed and delivered will be a
valid and binding obligation of the Borrower enforceable in accordance
with their terms (subject to any applicable Bankruptcy, insolvency or
other laws generally affecting the enforcement of creditors' rights).
This Agreement does not violate any provisions of the respective
Borrower's articles of organization, operating agreement, or any
contract agreement, law or regulation to which it is subject, and the
same do not require the consent or approval of any regulatory authority
or governmental body of the United States of America or any political
subdivision thereof.
ARTICLE VII
NOTICES
Section 7.01 Notice. All notices and communications directed by the Borrower to
------
the Company shall be sent to:
Spike's Holding, Inc.
ATTN: Barbara Steen
900 Market Street, Suite 200
Wilmington, DE 19801
PH: 302-421-7361
All notices and communications directed by the Company to the Borrower shall be
sent to:
The Finish Line, Inc.
ATTN: Steven J. Schneider
3308 Mitthoeffer Rd.
Indianapolis, Indiana 46236
317-899-1022 EXT. 3230
Either party may from time to time notify the other party of a different address
to which all notices and communications shall thereafter be addressed.
Page 17 of 20
<PAGE>
ARTICLE VIII
DEFAULT
Section 8.01 Default. In the event of default as defined in Section 8.02 in
-------
the making of any payment herein provided, either of principal or interest, when
due or in the event the entirety of the unpaid principal and accrued, unpaid
interest remaining due under this Loan is declared due, interest shall thereupon
accrue upon such amounts so due and payable at the lesser of: (i) fifteen
percent (15%) per annum, or (ii) the maximum rate of interest allowed by law.
The Company shall determine whether or not an event of default has occurred
hereunder.
Section 8.02 Events of Default. In connection with the Borrower, any of the
-----------------
following events shall occur and be continuing shall be considered an Event of
Default, for the respective Borrower, as that term is used herein:
(a) Default in the payment of any installment of principal or interest of
any Loan,
(b) Default in the payment at the originally scheduled maturity (but after
expiration of any grace period applicable to such maturity or when due
whether by acceleration or otherwise of all or any part of any
indebtedness of the Borrower to any other person or entity);
(c) Default in the observance of performance of any covenant, contained
herein, to be performed or kept by the Borrower,
(d) Any representation or warranty made by the Borrower herein provides to
have been untrue in any material respect as of the date hereof, or any
representation, statement (including financial statements), certificate
of data furnished or made by the Borrower hereunder proves to have been
untrue in any material respect, as of the date as of which the facts
therein set forth were stated or certified, or
(e) Discontinue business, apply for or consent to the appointment of a
receiver, a trustee or liquidator or itself or of all or a substantial
part of its assets, adjudicated a Bankrupt or insolvent, file a
voluntary petition in Bankruptcy, file a petition or answer seeking
reorganization or an arrangement with creditors or seeking to take
advantage of any law (federal or state) relating to relief of debtors,
or admit (by answer, by default or otherwise) the material allegations
of a petition filed against it in any Bankruptcy, reorganization,
arrangement, insolvency or other proceedings (whether federal or state)
relating to relief of debtors, or suffer or permit to continue unstayed
and in effect for 30 consecutive days any judgment, decree or order,
entered by a court of competent jurisdiction, which approves a petition
seeking reorganization of the Borrower or appoints a receiver, trustee
or liquidator of the Borrower or of all or a substantial part of its
assets, or the Borrower takes or omits to take any action for the
purpose or with the result of effecting or permitting any of the
foregoing.
ARTICLE IX
COVENANTS AND REPRESENTATIONS
Section 9.01 Taxes and Other Liens. The Borrower will comply with all statutes
---------------------
and government regulations and will pay all taxes, assessments, governmental
charges, claims for labor, supplies, rent and other obligations which, if
unpaid, might become a lien against the property of the Borrower except
liabilities being diligently contested in good faith and against which the
Borrower will set up reserves in accordance with generally accepted accounting
principles.
Section 9.02 Representations by the Borrower. Steven J. Schneider on behalf of
-------------------------------
the Borrower, covenants and represents that he is an officer of the Borrower and
is authorized to execute this Agreement on behalf of the Borrower. Steven J.
Schneider further covenants and represents that the Borrower is in good standing
under the laws of its jurisdiction.
Section 9.03 Company Existence. Borrower will maintain its company existence,
-----------------
remain in good standing in each jurisdiction in which it is required to be
qualified, maintain all franchises and licenses reasonably necessary in its
business, comply in all material respects with all valid and applicable
statutes, rule and regulations, and it will maintain or cause to be maintained
its properties in reasonably good and workable condition at all times.
Page 18 of 20
<PAGE>
ARTICLE X
MISCELLANEOUS
Section 10.01 Governing Law. This Agreement shall be interpreted and construed
-------------
in accordance with the laws of the state of Delaware.
Section 10.02 Amendments. This Agreement shall not be modified or amended
----------
except by an instrument in writing signed by both parties.
Section 10.03 Severability. If any one or more provisions of this Agreement
------------
shall be found to be illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 10.04 Entire Agreement. This Agreement sets forth the entire agreement
----------------
and understanding between the parties with respect to the subject matter hereof.
Any oral representations or modifications concerning this instrument shall be of
no force or effect unless contained in a subsequent written modification signed
by a duly authorized officer or agent of the party to be bound thereby.
Section 10.05 Headings. The descriptive headings contained herein are for
--------
convenience only and shall not control or affect the meaning, interpretation or
construction of any provision of this Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be Executed by
their duly authorized officers on the Effective Date.
SPIKE'S HOLDING, INC. THE FINISH LINE, INC.
By: /s/ Linda M. Disher By: /s/ Steven J. Schneider
_________________________ __________________________
Name: Linda M. Disher Name: Steven J. Schneider
Title: President Title: Sr. Vice President - Finance &
Secretary
Page 19 of 20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share amounts)
Thirteen Three Twenty- Six
Weeks Months Six Weeks Months
Ended Ended Ended Ended
August 30, August 31, August 30, August 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary
Average shares outstanding 25,963 22,808 25,960 21,728
Net effect of dilutive stock options - based
on the treasury stock method using average
market price 549 678 586 620
------- ------- ------- -------
Total 26,512 23,486 26,546 22,348
======= ======= ======= =======
Net income $ 8,964 $ 6,338 $13,455 $ 9,515
======= ======= ======= =======
Per share amount $ .34 $ .27 $ .51 $ .43
======= ======= ======= =======
Fully Diluted
Average shares outstanding 25,963 22,808 25,960 21,728
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 555 742 586 740
------- ------- -------- -------
Total 26,518 23,550 26,546 22,468
======= ======= ======== =======
Net Income $ 8,964 $ 6,338 $ 13,455 $ 9,515
======= ======= ======== =======
Per share amount $ .34 $ .27 $ .51 $ .42
======== ======= ======== =======
</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 more than 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 20 of 20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE TWENTY-SIX WEEK PERIOD ENDED AUGUST 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-02-1997
<PERIOD-END> AUG-30-1997
<CASH> 68,229
<SECURITIES> 9,468
<RECEIVABLES> 7,202
<ALLOWANCES> 0
<INVENTORY> 106,513
<CURRENT-ASSETS> 195,752
<PP&E> 65,982
<DEPRECIATION> 19,180
<TOTAL-ASSETS> 264,016
<CURRENT-LIABILITIES> 76,698
<BONDS> 0
0
0
<COMMON> 260
<OTHER-SE> 182,760
<TOTAL-LIABILITY-AND-EQUITY> 264,016
<SALES> 206,264
<TOTAL-REVENUES> 206,264
<CGS> 141,081
<TOTAL-COSTS> 141,081
<OTHER-EXPENSES> 44,827
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,434)
<INCOME-PRETAX> 21,790
<INCOME-TAX> 8,335
<INCOME-CONTINUING> 13,455
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,455
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
