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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the thirteen week period ended August 26, 2000
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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
<TABLE>
<S> <C>
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 46235
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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.)
</TABLE>
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 September 15, 2000:
Class A 18,235,265
Class B 6,267,375
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
August 26, February 26,
2000 2000
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 45,142 $ 13,061
Marketable securities 8,458 11,420
Accounts receivable 9,652 9,555
Merchandise inventories 162,676 148,979
Income taxes recoverable -- 756
Other 1,681 1,473
---------- ------------
Total current assets 227,609 185,244
PROPERTY AND EQUIPMENT:
Land 315 315
Building 10,385 10,391
Leasehold improvements 95,360 89,909
Furniture, fixtures, and equipment 43,292 40,737
Construction in progress 948 2,087
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150,300 143,439
Less accumulated depreciation 48,929 41,820
---------- ------------
101,371 101,619
OTHER ASSETS:
Deferred income taxes 2,890 2,023
Other 172 209
---------- ------------
3,062 2,232
---------- ------------
Total assets $332,042 $289,095
========== ============
</TABLE>
See accompanying notes.
2
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THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
August 26, February 26,
2000 2000
---------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 68,036 $ 42,188
Employee compensation 4,765 4,637
Accrued income taxes 3,770 --
Accrued property and sales tax 5,627 4,097
Deferred income taxes 4,729 3,839
Other liabilities and accrued expenses 4,033 5,585
---------- ------------
Total current liabilities 90,960 60,346
Long-term deferred rent payments 6,887 6,357
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 (August 26,
2000 - 20,016; February 26, 2000 - 19,988)
Shares outstanding (August 26, 2000 - 18,235;
February 26, 2000 - 18,203) 200 200
Class B:
Shares authorized - 12,000
Shares issued and outstanding
(August 26, 2000 - 6,268; February 26, 2000 - 6,268) 63 63
Additional paid-in capital 122,717 122,269
Retained earnings 125,367 114,512
Accumulated other comprehensive loss (24) (41)
Treasury stock (August 26, 2000 - 1,781; February
26, 2000- 1,785) (14,128) (14,611)
---------- ------------
Total stockholders' equity 234,195 222,392
---------- ------------
Total liabilities and stockholders' equity $ 332,042 $ 289,095
========== ============
</TABLE>
See accompanying notes.
3
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THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 26, August 28, August 26, August 28,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $190,542 $165,994 $337,199 $298,290
Cost of sales (including occupancy expense) 137,296 117,303 243,309 212,473
-------- -------- -------- --------
Gross profit 53,246 48,691 93,890 85,817
Selling, general, and administrative expenses 42,207 37,037 77,053 68,747
-------- -------- -------- --------
Operating income 11,039 11,654 16,837 17,070
Interest income - net 169 278 392 564
-------- -------- -------- --------
Income before income taxes 11,208 11,932 17,229 17,634
Provision for income taxes 4,147 4,176 6,375 6,172
-------- -------- -------- --------
Net income $ 7,061 $ 7,756 $ 10,854 $ 11,462
======== ======== ======== ========
Basic net income per share $ .29 $ .31 $ .44 $ .46
======== ======== ======== ========
Basic weighted average shares 24,492 24,917 24,453 24,901
======== ======== ======== ========
Diluted net income per share $ .29 $ .31 $ .44 $ .46
======== ======== ======== ========
Diluted weighted average shares 24,703 25,149 24,684 25,173
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
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THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands) (Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
August 26, 2000 August 28, 1999
---------------- ---------------
<S> <C> <C>
Net Income $ 10,854 $ 11,462
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,261 6,767
Contribution of treasury stock to profit sharing plan 1,758 683
Deferred income taxes 23 (678)
Loss on disposals of property and equipment 137 150
Changes in operating assets and liabilities:
Accounts receivable (97) (1,435)
Merchandise inventories (13,697) (18,458)
Other current assets (208) (241)
Other assets 37 2
Accounts payable 25,848 16,745
Employee compensation 128 225
Accrued income taxes 4,526 2,971
Other liabilities and accrued expenses (22) 1,427
Deferred rent payments 530 550
--------- ---------
Net cash provided by operating activities 38,078 20,170
INVESTING ACTIVITIES:
Purchases of property and equipment (8,215) (10,772)
Proceeds from disposals of property and equipment 65 163
Proceeds from maturity of held-to-maturity marketable securities -- 1,655
Proceeds from maturity of available-for-sale marketable securities 500 --
Proceeds from sale of available-for-sale marketable securities 2,479 --
--------- ---------
Net cash used in investing activities (5,171) (8,954)
FINANCING ACTIVITIES:
Proceeds from short-term debt 47,415 2,800
Principal payments on short-term and long-term debt (47,415) (2,800)
Proceeds and tax benefit from exercise of stock options 162 209
Common stock repurchased (988) --
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Net cash provided by (used in) financing activities (826) 209
--------- ---------
Net increase in cash and cash equivalents 32,081 11,425
Cash and cash equivalents at beginning of period 13,061 23,113
--------- ---------
Cash and cash equivalents at end of period $ 45,142 $ 34,538
========= =========
</TABLE>
See accompanying notes.
5
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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 February 26, 2000.
Throughout this document, the term "fiscal 2001" refers to the Company's current
fiscal year which ends March 3, 2001.
2. Notes Payable to Bank
The Company prior to September 20, 2000 was party to a $75,000,000 revolving
line of credit with a syndicate of banks which the Company terminated effective
September 20, 2000. There were no borrowings outstanding under the line at
August 26, 2000 or at the time of termination.
The Company entered into a new unsecured committed Credit Agreement (the
"Facility") as of September 20, 2000 with a syndicate of commercial banks. The
Facility, with available credit of $60,000,000, matures on September 20, 2003.
The Facility contains restrictive covenants, which limit, among other things,
the Company's ability to declare or pay dividends, incur or guarantee debt,
redeem shares of its capital stock, be a part to a merger, acquire or dispose of
assets or engage in any other transactions outside the ordinary course of
business. In addition, the Company must maintain a leverage ratio (as defined)
of not more than 4.0 to 1.0, and consolidated tangible net worth (as defined and
adjusted annually) of not less than $211,000,000. In addition, the Company is
subject to a liquidity test and an annual capital expenditure limitation.
The interest rate on the facility is, at the Company's election, either a
negotiated rate approximating the federal funds effective rate plus 1.0% (this
rate is available on the first $5,000,000 of borrowings), the bank's libor rate
plus 1.0%, or the bank's prime commercial lending rate. The margin percentage
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added to the libor rate is subject to adjustment quarterly based on the leverage
ratio (as defined).
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 Weeks Ended Twenty-Six Weeks Ended
August 26, August 28, August 26, August 28,
2000 1999 2000 1999
---------- ---------- ---------- ----------
(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) 72.1 70.7 72.2 71.2
--------- --------- --------- ---------
Gross profit 27.9 29.3 27.8 28.8
Selling, general and administrative expenses 22.1 22.3 22.8 23.1
--------- --------- --------- ---------
Operating income 5.8 7.0 5.0 5.7
Interest income - net .1 .2 .1 .2
--------- --------- --------- ---------
Income before income taxes 5.9 7.2 5.1 5.9
Provision for income taxes 2.2 2.5 1.9 2.1
--------- --------- --------- ---------
Net income 3.7% 4.7% 3.2% 3.8%
========= ========= ========= =========
</TABLE>
Thirteen Weeks Ended 8/26/00 Compared to Thirteen Weeks Ended 8/28/99
Net sales increased 14.8% to $190.5 million for the thirteen weeks ended August
26, 2000 from $166.0 million for the thirteen weeks ended August 28, 1999. This
increase in net sales was primarily attributable to sales from new stores. As of
August 26, 2000, the number of stores in operation increased 12.8% to 433 from
384 at August 28, 1999. During the thirteen weeks ended August 26, 2000, the
Company's comparable store sales increased 3.3% compared to the same period in
the prior year. Comparable net footwear sales for the thirteen weeks ended
August 26, 2000 increased approximately 6.2%. Comparable net activewear and
accessories sales for the comparable period decreased approximately 8.1%.
Activewear and accessories continue to be negatively affected by a decrease in
the average unit selling price of product in the category.
Gross profit for the thirteen weeks ended August 26, 2000 was $53.2 million, an
increase of $4.6 million over the thirteen weeks ended August 28, 1999. During
this same period, gross profit decreased to 27.9% of net sales versus 29.3% for
the prior year. Of this 1.4% decrease, .9% was due to decreased margin for
products sold and .5% was due to an increase in occupancy costs as a percentage
of net sales.
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Selling, general and administrative expenses increased $5.2 million (14.0%) to
$42.2 million (22.1% of net sales) for the thirteen weeks ended August 26, 2000
from $37.0 million (22.3% of net sales) for the thirteen weeks ended August 28,
1999. This dollar increase was primarily attributable to the operating costs
related to operating 49 additional stores at August 26, 2000 versus August 28,
1999.
Net interest income was $169,000 (.1% of net sales) for the thirteen weeks ended
August 26, 2000, compared to net interest income of $278,000 (.2% of net sales)
for the thirteen weeks ended August 28, 1999, a decrease of $109,000. This
decrease was the result of reduced invested cash balances due to the Company's
funding of fiscal 2001 expansion.
The Company's provision for federal and state income taxes decreased $29,000 for
the thirteen weeks ended August 26, 2000. The decrease is due to the decreased
level of income before income taxes for the thirteen weeks ended August 26,
2000, offset by an increase in the effective tax rate to 37.0% for the thirteen
weeks ended August 26, 2000 from 35.0% for the thirteen weeks ended August 28,
1999.
Net income decreased 9.0% to $7.1 million for the thirteen weeks ended August
26, 2000 compared to $7.8 million for the thirteen weeks ended August 28, 1999.
Diluted net income per share decreased 6.5% to $.29 for the thirteen weeks ended
August 26, 2000 compared to diluted net income per share of $.31 for the
thirteen weeks ended August 28, 1999. Diluted weighted average shares
outstanding were 24,703,000 and 25,149,000 respectively, for the thirteen weeks
ended August 26, 2000 and August 28, 1999. The decrease of 1.8% in diluted
average shares outstanding reflects the repurchase of 633,000 shares of Class A
Common Stock through the stock buyback program authorized by the Board of
Directors in September 1998.
Twenty-Six Weeks Ended 8/26/00 Compared to Twenty-Six Weeks Ended 8/28/99
Net sales increased 13.0% ($38.9 million) to $337.2 million for the twenty-six
weeks ended August 26, 2000 from $298.3 million for the twenty-six weeks ended
August 28, 1999. Of this increase, $28.3 million was attributable to a 12.8%
increase in the number of stores open (53 stores opened less 4 stores closed)
during the period from 384 at August 28, 1999 to 433 at August 26, 2000. The
balance of the increase was due to a $6.9 million increase in net sales from the
24 stores open only part of the twenty-six weeks of last year, along with a
comparable store sales increase of 1.5% for the twenty-six weeks ended August
26, 2000. Comparable net footwear sales for the twenty-six weeks ended August
26, 2000 increased approximately 4.6%. Comparable net activewear and accessories
decreased approximately 10.5% for the comparable period. Activewear and
accessories continue to be negatively affected by a fashion shift by customers
to contemporary non-athletic brands and a decrease in the average unit selling
price. Net sales per square foot decreased to $136 from $145 for the same period
of the prior year. Sales per square foot have been negatively impacted by the
decrease in activewear sales along with a 1.8% increase in the average store
size from 5,966 square feet at August 28, 1999 to 6,071 square feet at August
26, 2000.
Gross profit for the twenty-six weeks ended August 26, 2000 was $93.9 million,
an increase of $8.1 million over the twenty-six weeks ended August 28, 1999.
During this same period, gross profit decreased to 27.8% of net sales versus
28.8% for the prior year. Of this 1.0% decrease, .6% was due to an increase in
occupancy costs as a percentage of net sales. Additionally, margin for product
sold decreased .5%, however it was offset by a .1% decrease in inventory shrink
expense.
Selling, general and administrative expenses increased $8.4 million (12.1%) to
$77.1 million (22.8% of net sales) for the twenty-six weeks ended August 26,
2000 from $68.7 million (23.1% of net sales) for the twenty-six weeks ended
August 28, 1999. This dollar increase was primarily attributable to the
operating
8
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costs related to operating 49 additional stores at August 26, 2000 versus August
28, 1999.
Net interest income was $392,000 (.1% of net sales) for the twenty-six weeks
ended August 26, 2000, compared to net interest income of $564,000 (.2% of net
sales) for the twenty-six weeks ended August 28, 1999, a decrease of $172,000.
This decrease was the result of reduced invested cash balances due to the
Company's funding of fiscal 2001 expansion.
The Company's provision for federal and state income taxes increased $203,000 to
$6.4 million for the twenty-six weeks ended August 26, 2000 from $6.2 million
for the twenty-six weeks ended August 28, 1999. The increase is due to an
increase in the effective tax rate to 37.0% for the twenty-six weeks ended
August 26, 2000 from 35.0% for the twenty-six weeks ended August 28, 1999
partially offset by the decreased level of income before income taxes for the
twenty-six weeks ended August 26, 2000.
Net income decreased 5.3% to $10.9 million for the twenty-six weeks ended August
26, 2000 compared to $11.5 million for the twenty-six weeks ended August 28,
1999. Diluted net income per share decreased 4.3% to $.44 for the twenty six
weeks ended August 26, 2000 compared to diluted net income per share of $.46 for
the twenty six weeks ended August 28, 1999. Diluted weighted average shares
outstanding were 24,684,000 and 25,173,000, respectively, for the periods ended
August 26, 2000 and August 28, 1999. The decrease of 1.9% in diluted average
shares outstanding reflects the repurchase of 633,000 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 generated cash of $38.1 million from its operating activities during
the twenty-six weeks ended August 26, 2000 as compared to $20.2 million during
the twenty-six weeks ended August 28, 1999.
The Company had a net use of cash from its investing activities of $5.2 million
and $9.0 million for the twenty-six weeks ended August 26, 2000 and August 28,
1999, respectively. In fiscal 2001, $8.2 million was used primarily for
construction of new stores and remodeling of existing stores. This was partially
offset by $3.0 million net maturities of marketable securities.
The Company had working capital of $136.6 million at August 26, 2000, an
increase of $11.7 million from the working capital of $124.9 million at February
26, 2000.
At August 26, 2000 the Company had cash and cash equivalents of $45.1 million,
marketable securities of $8.5 million and no interest bearing debt. Cash
equivalents are primarily invested in tax exempt instruments with maturities of
one to twenty-eight days. Marketable securities range in maturity from 90 days
to four years from date of purchase and are primarily invested in tax exempt
municipal obligations. Marketable securities are classified as available-for-
sale and are available to support current operations.
The Company prior to September 20, 2000 was party to a $75,000,000 revolving
line of credit with a syndicate of banks which the Company terminated effective
September 20, 2000. There were no borrowings outstanding under the line at
August 26, 2000 or at the time of termination.
Effective September 20, 2000, the Company entered into a new unsecured committed
$60,000,000 revolving line of credit which expires September 2003. The line of
credit contains restrictive covenants that limit, among other things, the
Company's ability to declare or pay dividends, incur or guarantee debt, redeem
shares of its capital stock, be a part to a merger, acquire or dispose of assets
or engage in any other transactions outside the ordinary course of business. See
Note 2 to the Financial Statements for further details.
9
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Merchandise inventories were $162.7 million at August 26, 2000 compared to
$149.0 million at February 26, 2000 and $153.8 million at August 28, 1999. On a
per square foot basis, merchandise inventories at August 26, 2000 decreased 7.8%
compared to August 28, 1999. The Company believes present levels are appropriate
for the selling season.
The Company's previously announced expansion plans are to increase its retail
square footage by approximately 7-8% for fiscal 2001. Management believes that
cash on hand, operating cash flow and the Company's new bank facility will
provide sufficient capital to complete the Company's fiscal 2001 store expansion
program and to satisfy the Company's other capital requirements through fiscal
2001.
10
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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
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None.
ITEM 4: Submission of Matters to a Vote of Security-Holders
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(a) The Annual Meeting of Stockholders was held on July 20, 2000.
(b) The following directors were elected to serve until the 2001 Annual
Meeting of Stockholders or until their successors have been duly
elected and qualified. Of the 17,157,895 shares (1 vote per share)
of Class A common stock and the 6,267,375 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 79,350,108 481,537
David I. Klapper 79,652,101 179,544
Larry J. Sablosky 79,651,726 179,919
Jonathan K. Layne 79,645,096 186,549
Jeffrey H. Smulyan 79,642,396 189,249
Stephen Goldsmith 79,645,172 186,473
</TABLE>
ITEM 5: Other Information
-----------------
None.
ITEM 6: Exhibits and Reports on Form 8-K:
---------------------------------
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the thirteen
week period ending August 26, 2000.
11
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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: September 20, 2000 By: /s/ Steven J. Schneider
-----------------------------
Steven J. Schneider
Executive Vice President - Finance, Chief
Financial Officer and Assistant Secretary
12
