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
EXCHANGE ACT OF 1934
For the thirteen week period ended September 1, 2001
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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
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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 46235
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(Address of principal executive offices) (zip code)
317-899-1022
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(Registrant's telephonenumber, 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[_]
Shares of common stock outstanding at September 21, 2001:
Class A 19,797,178
Class B 4,362,442
1
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 1, March 3,
ASSETS 2001 2001
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(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 80,058 $ 45,422
Marketable securities 5,517 6,513
Accounts receivable 9,068 3,476
Merchandise inventories 146,574 145,503
Other 8,825 7,233
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Total current assets 250,042 208,147
PROPERTY AND EQUIPMENT:
Land 315 315
Building 10,571 10,486
Leasehold improvements 94,465 91,657
Furniture, fixtures, and equipment 44,451 41,515
Construction in progress 1,739 2,849
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151,541 146,822
Less accumulated depreciation 59,187 52,348
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92,354 94,474
OTHER ASSETS:
Deferred income taxes 6,832 6,247
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Total assets $349,228 $308,868
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See accompanying notes.
2
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 1, March 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2001
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(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 78,835 $ 53,450
Employee compensation 4,409 6,640
Accrued property and sales tax 5,898 3,914
Deferred income taxes 4,288 906
Other liabilities and accrued expenses 9,793 9,597
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Total current liabilities 103,223 74,507
Long-term deferred rent payments 8,204 7,614
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 (September 1,
2001 - 21,980; March 3, 2001 - 20,022) Shares outstanding (September 1,
2001 - 20,060;
March 3, 2001 - 18,203) 220 200
Class B:
Shares authorized - 12,000
Shares issued and outstanding
(September 1, 2001 - 4,362; March 3, 2001 - 6,268) 44 63
Additional paid-in capital 123,131 122,748
Retained earnings 129,531 118,257
Accumulated other comprehensive income 34 12
Treasury stock (September 1, 2001 - 1,920; March
3, 2001- 1,841) (15,159) (14,533)
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Total stockholders' equity 237,801 226,747
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Total liabilities and stockholders' equity $ 349,228 $ 308,868
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See accompanying notes.
3
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
September 1, August 26, September 1, August 26,
2001 2000 2001 2000
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Net sales $ 196,776 $ 190,542 $ 357,601 $ 337,199
Cost of sales (including occupancy expense) 137,922 137,296 258,292 243,309
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Gross profit 58,854 53,246 99,309 93,890
Selling, general, and administrative expenses 43,494 42,207 83,290 77,053
Repositioning charge reversal -- -- (660) --
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Operating income 15,360 11,039 16,679 16,837
Interest income - net 458 169 938 392
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Income before income taxes 15,818 11,208 17,617 17,229
Provision for income taxes 5,694 4,147 6,342 6,375
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Net income $ 10,124 $ 7,061 11,275 $ 10,854
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Basic net income per share $ .41 $ .29 $ .46 $ .44
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Basic weighted average shares 24,400 24,492 24,421 24,453
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Diluted net income per share $ .41 $ .29 $ .46 $ .44
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Diluted weighted average shares 24,777 24,703 24,716 24,684
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See accompanying notes.
4
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) - (Unaudited)
Twenty-Six Weeks Ended
September 1, August 26,
2001 2000
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OPERATING ACTIVITIES:
Net Income $ 11,275 $ 10,854
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 8,205 8,261
Contribution of treasury stock to pension plan -- 1,758
Repositioning Charge Reversal (660)
Deferred income taxes 2,797 23
Loss on disposal of property and equipment 4 137
Changes in operating assets and liabilities:
Accounts receivable (5,592) (97)
Merchandise inventories (1,071) (13,697)
Other current assets (1,592) (208)
Other assets -- 37
Accounts payable 25,385 25,848
Employee compensation (2,231) 128
Accrued income taxes (245) 4,526
Other liabilities and accrued expenses 3,085 (22)
Deferred rent payments 590 530
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Net cash provided by operating activities 39,950 38,078
INVESTING ACTIVITIES:
Purchases of property and equipment (7,055) (8,215)
Proceeds from disposal of property and equipment 966 65
Proceeds from maturity of available-for-sale marketable securities 1,018 500
Proceeds from sale of available-for-sale marketable securities -- 2,479
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Net cash used in investing activities (5,071) (5,171)
FINANCING ACTIVITIES:
Proceeds from short-term debt -- 47,415
Principal payments on short-term and long-term debt -- (47,415)
Proceeds and tax benefits from exercise of stock options 383 162
Common stock repurchased (626) (988)
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Net cash used in financing activities (243) (826)
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Net increase in cash and cash equivalents 34,636 32,081
Cash and cash equivalents at beginning of period 45,422 13,061
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Cash and cash equivalents at end of period $ 80,058 $ 45,142
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See accompanying notes
5
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 accounting principles generally
accepted in the United States 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 accounting principles
generally accepted in the United States 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, the Company's ability to
successfully execute and benefit from its repositioning plan, 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 3, 2001.
Throughout this document, the term "fiscal 2002" refers to the Company's current
fiscal year which ends March 2, 2002.
2. Repositioning Reserves
In the 4/th/ quarter of fiscal 2001 the Company approved a repositioning plan
and recorded a pre-tax non-recurring charge totaling $19,809,000. Those charges
included inventory markdowns, lease buyouts and asset impairment charges for 17
planned store closings, and asset impairment charges for 14 identified under-
performing stores.
As of September 1, 2001, the Company has completed 10 of the 17 planned store
closures. The Company has made payments of $284,000 against the lease obligation
reserve and recorded a reduction of the lease obligation reserve of $660,000 as
a change in estimate as a result of the successful negotiation of lease
termination costs on two stores. The remaining $2,862,000 lease obligation
reserve represents expected future lease obligations after store closure for the
7 stores that are to be closed in fiscal 2002.
The reserve for inventory markdowns was reduced by a net of $10,987,000 for the
twenty-six weeks ended September 1, 2001 as the Company sold and liquidated aged
inventory below cost. This reduction to the reserve is net of an additional
$502,000 charge to cost of sales to record additional markdowns on inventory to
reflect it at its net realizable value.
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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.
Thirteen Weeks Ended Twenty-Six Weeks Ended
September 1, August 26, September 1, August 26,
2001 2000 2001 2000
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(Unaudited) (Unaudited)
Income Statement Data:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales (including occupancy expenses) 70.1 72.1 72.2 72.2
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Gross profit 29.9 27.9 27.8 27.8
Selling, general and administrative expenses 22.1 22.1 23.3 22.8
Repositioning charge reversal -- -- (.2) --
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Operating income 7.8 5.8 4.7 5.0
Interest income - net .2 .1 .3 .1
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Income before income taxes 8.0 5.9 5.0 5.1
Provision for income taxes 2.9 2.2 1.8 1.9
----- ----- ----- -----
Net income 5.1% 3.7% 3.2% 3.2%
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Thirteen Weeks Ended September 1, 2001 Compared to Thirteen Weeks Ended August
26, 2000
Net sales increased 3.3% to $196.8 million for the thirteen weeks ended
September 1, 2001 from $190.5 million for the thirteen weeks ended August 26,
2000. This increase in net sales was primarily attributable to the one week
shift in the calendar due to last fiscal year's 53 week retail calendar which
benefited sales by approximately $5.1 million for the thirteen weeks ended
September 1, 2001 by extending one week further into the back to school selling
period. As of September 1, 2001, the number of stores in operation increased
2.8% to 445 from 433 at August 26, 2000. During the thirteen weeks ended
September 1, 2001, the Company's comparable store sales decreased 2.3% compared
to the same period in the prior year. Comparable net footwear sales for the
thirteen weeks ended September 1, 2001, increased approximately .8%, while
comparable net activewear and accessories sales for the comparable period
decreased approximately 16.6%. Activewear and accessories continue to be
negatively affected by the transition to new merchandising strategies undertaken
by the new apparel buying group.
Gross profit for the thirteen weeks ended September 1, 2001 was $58.9 million,
an increase of $5.6 million over the thirteen weeks ended August 26, 2000.
During this same period, gross profit increased to 29.9% of net sales versus
27.9% for the prior year. Of this 2.0% increase, 2.4% was due to increased
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margin for products sold which was partially offset by a .4% increase in
occupancy costs as a percentage of net sales. Product margins were positively
affected by the reduction of aged inventories through the Company's
repositioning plan.
Selling, general and administrative expenses increased $1.3 million (3.0%) to
$43.5 million (22.1% of net sales) for the thirteen weeks ended September 1,
2001 from $42.2 million (22.1% of net sales) for the thirteen weeks ended August
26, 2000. This dollar increase was primarily attributable to the operating costs
related to operating 12 additional stores at September 1, 2001 versus August 26,
2000.
Net interest income was $458,000 (.2% of net sales) for the thirteen weeks ended
September 1, 2001, compared to net interest income of $169,000 (.1% of net
sales) for the thirteen weeks ended August 26, 2000, an increase of $289,000.
This increase was the result of increased invested cash balances for the
thirteen weeks ended September 1, 2001 compared to the same period of the prior
year.
The Company's provision for income taxes increased $1.5 million for the thirteen
weeks ended September 1, 2001. The increase is due to the increased level of
income before income taxes for the thirteen weeks ended September 1, 2001,
offset by a decrease in the effective tax rate to 36.0% for the thirteen weeks
ended September 1, 2001 from 37.0% for the thirteen weeks ended August 26, 2000.
Net income increased 43.4% to $10.1 million for the thirteen weeks ended
September 1, 2001 compared to $7.1 million for the thirteen weeks ended August
26, 2000. Diluted net income per share increased 41.4% to $.41 for the thirteen
weeks ended September 1, 2001 compared to diluted net income per share of $.29
for the thirteen weeks ended August 26, 2000. Diluted weighted average shares
outstanding were 24,777,000 and 24,703,000 respectively, for the thirteen weeks
ended September 1, 2001 and August 26, 2000.
Twenty-Six Weeks Ended September 1, 2001 Compared to Twenty-Six Weeks Ended
August 26, 2000
Net sales increased 6.1% ($20.4 million) to $357.6 million for the twenty-six
weeks ended September 1, 2001 from $337.2 million for the twenty-six weeks ended
August 26, 2000. Of this increase, $10.7 million was attributable to a 2.8%
increase in the number of stores open (26 stores opened less 14 stores closed)
during the period from 433 at August 26, 2000 to 445 at September 1, 2001. The
balance of the increase was due to a $7.0 million increase in net sales from the
25 stores open only part of the twenty-six weeks of last year, along with a
comparable store sales increase of 1.2% for the twenty-six weeks ended September
1, 2001. Comparable net footwear sales for the twenty-six weeks ended September
1, 2001 increased approximately 4.1%. Comparable net activewear and accessories
decreased approximately 12.1% for the comparable period. Activewear and
accessories continue to be negatively affected by the transition to new
merchandising strategies undertaken by the new apparel buying team.
Gross profit for the twenty-six weeks ended September 1, 2001 was $99.3 million,
an increase of $5.4 million over the twenty-six weeks ended August 26, 2000.
Gross profit was 27.8% of net sales for both comparable periods. For the
twenty-six weeks ended September 1, 2001, margin for product sold increased .3%
which was offset by a .3% increase in occupancy costs as a percentage of net
sales.
Selling, general and administrative expenses increased $6.2 million (8.1%) to
$83.3 million (23.3% of net sales) for the twenty-six weeks ended September 1,
2001 from $77.1 million (22.8% of net sales) for the twenty-six weeks ended
August 26, 2000. This dollar increase was primarily attributable to the
operating costs related to operating 12 additional stores at September 1, 2001
versus August 26, 2000. In addition, prior year selling, general and
administrative expenses were net of a $493,000 settlement of an insurance claim
related to a store fire.
8
In connection with the repositioning plan the Company established a reserve for
future lease payments for store closures of $3.8 million which was included in
accrued expenses at March 3, 2001. The accrued expense was reduced $944,000 in
the twenty-six weeks ended September 1, 2001 which represented payments of
$284,000 and a decrease in the expected future lease store closure obligation of
$660,000. The reserve is reviewed periodically to determine its adequacy.
Net interest income was $938,000 (.3% of net sales) for the twenty-six weeks
ended September 1, 2001, compared to net interest income of $392,000 (.1% of net
sales) for the twenty-six weeks ended August 26, 2000, an increase of $546,000.
This increase was the result of increased invested cash balances due to the
Company's progress with the liquidation of aged inventory and an increase in
accounts payable due to timing.
The Company's provision for federal and state income taxes decreased $33,000 to
$6.3 million for the twenty-six weeks ended September 1, 2001 from $6.4 million
for the twenty-six weeks ended September 1, 2001. The decrease is due to a
decrease in the effective tax rate to 36.0% for the twenty-six weeks ended
September 1, 2001 from 37.0% for the twenty-six weeks ended August 26, 2000
which was partially offset by the increased level of income before income taxes
for the twenty-six weeks ended September 1, 2001.
Net income increased 3.9% to $11.3 million for the twenty-six weeks ended
September 1, 2001 compared to $10.9 million for the twenty-six weeks ended
August 26, 2000. Diluted net income per share increased 4.5% to $.46 for the
twenty-six weeks ended September 1, 2001 compared to diluted net income per
share of $.44 for the twenty six weeks ended August 26, 2000. Diluted weighted
average shares outstanding were 24,716,000 and 24,684,000, respectively, for the
periods ended September 1, 2001 and August 26, 2000.
Liquidity and Capital Resources
The Company generated cash of $39.9 million from its operating activities during
the twenty-six weeks ended September 1, 2001 as compared to $38.1 million during
the twenty-six weeks ended August 26, 2000.
The Company had a net use of cash from its investing activities of $5.1 million
and $5.2 million for the twenty-six weeks ended September 1, 2001 and August 26,
2000, respectively. In fiscal 2002, $7.1 million was used primarily for
construction of new stores and remodeling of existing stores. This was partially
offset by $1.0 million net maturities of marketable securities.
Merchandise inventories were $146.6 million at September 1, 2001 compared to
$145.5 million at March 3, 2001 and $162.7 million at August 26, 2000. On a per
square foot basis, merchandise inventories at September 1, 2001 decreased 11.5%
compared to August 26, 2000. Although merchandise inventories as of September 1,
2000 were significantly reduced on a per square foot basis, management believes
levels are adequate primarily due to less aged inventory resulting from
executing the Company's repositioning plan.
The Company had working capital of $146.8 million at September 1, 2001, an
increase of $13.2 million from $133.6 million at March 3, 2001.
At September 1, 2001 the Company had cash and cash equivalents of $80.1 million,
marketable securities of $5.5 million and no interest bearing debt. Cash
equivalents are primarily invested in taxable instruments with maturities of one
to twenty-eight days. Marketable securities range in maturity from 90 days to
three years and are primarily invested in tax exempt municipal obligations.
Marketable securities are classified as available-for-sale and are available to
support current operations.
9
As previously announced, the Company's expansion plans are to increase its
retail square footage by approximately 1-2% for fiscal 2002. Management believes
that cash on hand and marketable securities, operating cash flow and the
Company's existing $60,000,000 bank facility, which expires on September 20,
2003, will provide sufficient capital to complete the Company's fiscal 2002
store expansion program and to satisfy the Company's other capital requirements
through fiscal 2002.
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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 2001 Annual Meeting of Stockholders was held on July 19, 2001.
(b) The following directors were elected to serve until the 2002 Annual
Meeting of Stockholders or until their successors have been duly
elected and qualified. Of the 13,476,039 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:
Number Of Votes Received
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Name For Against
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Alan H. Cohen 75,523,599 626,190
David I. Klapper 75,547,099 602,690
Larry J. Sablosky 75,523,599 626,190
Jonathan K. Layne 76,072,214 77,575
Jeffrey H. Smulyan 76,072,114 77,675
Stephen Goldsmith 76,131,702 18,087
Bill Kirkendall 76,135,214 14,575
ITEM 5: Other Information
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None.
ITEM 6: Exhibits and Reports on Form 8-K:
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(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on September 13, 2001 with
respect to a press release issued by the Company on September 10,
2001 regarding certain management changes.
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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 27, 2001 By: /s/ Kevin S. Wampler
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Kevin S. Wampler
Senior Vice President - Chief Accounting
Officer and Assistant Secretary
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