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 June 1, 2002
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OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________________
Commission File number 0-20184
The Finish Line, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 35-1537210
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(State or other jurisdiction (I.R.S. Employer identification number)
of incorporation or organization)
3308 North Mitthoeffer Road Indianapolis, Indiana 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)
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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 June 21, 2002:
Class A 20,125,960
Class B 4,350,810
1
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 1, March 2,
2002 2002
----------- -----------
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 72,585 $ 74,510
Marketable securities 3,316 3,343
Accounts receivable 3,626 2,221
Merchandise inventories 161,931 141,878
Other 10,717 7,673
----------- -----------
Total current assets 252,175 229,625
PROPERTY AND EQUIPMENT:
Land 315 315
Building 11,108 10,767
Leasehold improvements 98,853 97,724
Furniture, fixtures, and equipment 46,391 45,685
Construction in progress 3,465 2,801
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160,132 157,292
Less accumulated depreciation 69,818 66,554
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90,314 90,738
OTHER ASSETS:
Deferred income taxes 8,395 7,984
----------- -----------
$350,884 $328,347
=========== ===========
See accompanying notes.
2
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 1, March 2,
2002 2002
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
CURRENT LIABILITIES:
Accounts payable $ 73,335 $ 50,908
Employee compensation 4,535 7,768
Accrued property and sales taxes 3,840 4,036
Deferred income taxes 3,705 2,922
Other liabilities and accrued expenses 7,204 10,145
-------- --------
Total current liabilities 92,619 75,779
Long-term deferred rent payments 8,734 8,614
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 - (June 1, 2002 - 22,045;
March 2, 2002 - 22,045) 220 220
Shares outstanding - (June 1, 2002 - 20,124;
March 2, 2002 - 19,961)
Class B:
Shares authorized - 12,000
Shares issued and outstanding - (June 1, 2002 - 4,351;
March 2, 2002 - 4,351) 44 44
Additional paid-in capital 123,986 123,559
Retained earnings 140,382 136,705
Accumulated other comprehensive loss 4 22
Treasury stock - (June 1, 2002 - 1,921; March 3, 2001 - 2,084) (15,105) (16,596)
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Total stockholders' equity 249,531 243,954
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Total liabilities and stockholders' equity $350,884 $328,347
======== ========
See accompanying notes.
3
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Thirteen Weeks Ended
June 1, June 2,
2002 2001
--------- ---------
Net sales $ 170,576 $ 160,825
Cost of sales (including occupancy expense) 121,998 120,370
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Gross profit 48,578 40,455
Selling, general, and administrative expenses 43,089 39,796
Repositioning charge reversal -- (660)
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Operating income 5,489 1,319
Interest income - net 348 480
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Income before income taxes 5,837 1,799
Provision for income taxes 2,160 648
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Net income $ 3,677 $ 1,151
========= =========
Basic net income per share $ .15 $ .05
========= =========
Basic weighted average shares 24,406 24,443
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Diluted net income per share $ .15 $ .05
========= =========
Diluted weighted average shares 24,986 24,655
========= =========
See accompanying notes.
4
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) - (Unaudited)
Thirteen Weeks Ended
June 1, June 2,
2002 2001
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OPERATING ACTIVITIES:
Net Income $ 3,677 $ 1,151
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 4,218 4,056
Deferred income taxes 372 772
Repositioning charge reversal -- (893)
Loss on disposal of property and equipment 227 6
Changes in operating assets and liabilities:
Accounts receivable (1,405) (4,707)
Merchandise inventories (20,053) 7,449
Other current assets (3,044) (2,019)
Accounts payable 22,427 (4,899)
Employee compensation (3,233) (2,677)
Other liabilities and accrued expenses (3,137) (414)
Deferred rent payments 120 270
-------- --------
Net cash provided by (used in) operating activities 169 (1,905)
INVESTING ACTIVITIES:
Purchases of property and equipment (4,028) (2,211)
Proceeds from disposal of property and equipment 7 --
Proceeds from sale of marketable securities 10 --
-------- --------
Net cash used in investing activities (4,011) (2,211)
FINANCING ACTIVITIES:
Proceeds and tax benefits from exercise of stock options 1,917 2
Purchase of treasury stock -- (626)
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Net cash provided by (used in) financing activities 1,917 (624)
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Net decrease in cash and cash equivalents (1,925) (4,740)
Cash and cash equivalents at beginning of period 74,510 45,422
-------- --------
Cash and cash equivalents at end of period $ 72,585 $ 40,682
======== ========
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 reporting period to
reporting period. Therefore, the results of the interim periods presented herein
are not necessarily indicative of the results to be expected for any other
interim period or the full year.
Except for the historical information contained herein, the matters
discussed in this filing are forward looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
expressed in any of the forward looking statements. Such risks and uncertainties
include, but are not limited to, product demand and market acceptance risks, the
effect of economic conditions, the effect of competitive products and pricing,
the availability of products, management of growth, and the other risks detailed
in the Company's Securities and Exchange Commission filings.
These financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended March 2, 2002.
2. Repositioning Reserves
In the 4/th/ quarter of 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.
At March 2, 2002 the Company had a remaining lease obligation
reserve balance of $1,369,000 related to the repositioning plan. The Company
made payments of $243,000 against the lease obligation reserve in the first
quarter. The remaining $1,126,000 lease obligation reserve represents expected
future lease obligations after store closure for the 1 store to be closed in
fiscal 2003.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion and analysis should be read in conjunction
with Management's Discussion and Analysis of Financial Condition, including
Critical Accounting Policies, included in the Annual Report incorporated by
reference to the Form 10K for the year ended March 2, 2002.
Results of Operations
The following table and subsequent discussion sets forth operating
data of the Company as a percentage of net sales for the periods indicated
below.
Thirteen Weeks Ended
June 1, June 2,
2002 2001
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(Unaudited)
Net Sales 100.0% 100.0%
Cost of sales (including occupancy expenses) 71.5 74.9
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Gross profit 28.5 25.1
Selling, general and administrative expenses 25.3 24.7
Repositioning charge reversal -- (.4)
------- --------
Operating income 3.2 .8
Interest income - net .2 .3
------- --------
Income before income taxes 3.4 1.1
Provision for income taxes 1.2 .4
------- --------
Net income 2.2% .7%
======= ========
THIRTEEN WEEKS ENDED JUNE 1, 2002 COMPARED TO THIRTEEN WEEKS ENDED JUNE 2, 2001
Net sales increased 6.1% to $170.6 million for the thirteen weeks
ended June 1, 2002 from $160.8 million for the thirteen weeks ended June 2,
2001. Of this increase, $7.1 million was attributable to a 2.0% increase in the
number of stores open during the period from 442 at June 2, 2001 to 451 at June
1, 2002. The balance of the increase was attributable to a $657,000 increase in
net sales from the existing stores open only part of the first thirteen weeks of
last year and a comparable store sales increase of 3.3% for the thirteen weeks
ended June 1, 2002 for those stores opened during the entire thirteen weeks of
last year. Comparable net footwear sales for the thirteen weeks ended June 1,
2002 increased 3.1% while comparable net activewear and accessories sales
increased 4.3% for the comparable period. Net sales per square foot increased to
$62 for the thirteen weeks ended June 1, 2002 compared to $60 for the thirteen
weeks ended June 2, 2001.
7
Gross profit for the thirteen weeks ended June 1, 2002 was $48.6 million,
an increase of $8.1 million over the thirteen weeks ended June 2, 2001. During
this same period, gross profit increased to 28.5% of net sales versus 25.1% for
the prior year. Of this 3.4% increase, 3.1% was due to an increase in margin for
products sold. In addition, occupancy costs decreased .2% as a percentage of net
sales and inventory shrink decreased .1% as a percentage of net sales. The
product margin was negatively effected in the prior year as the Company
liquidated aged product in conjunction with the repositioning plan and by a
charge of $502,000 to cost of sales representing additional inventory writedowns
associated with the repositioning plan.
Selling, general and administrative expenses increased $3.3 million (8.3%)
to $43.1 million (25.3% of net sales) for the thirteen weeks ended June 1, 2002
from $39.8 million (24.7% of net sales) for the thirteen weeks ended June 2,
2001. This dollar increase was primarily attributable to the operating costs
related to operating 9 additional stores at June 1, 2002 versus June 2, 2001.
The increase as a percent to sales was driven by increased marketing costs
associated with the Company's branding campaign and rollout of its private label
apparel. Additionally, freight costs increased as the Company brought in
inventory early as noted in the liquidity section below.
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 $2.4
million in fiscal 2002 which represented payments of $434,000 and a decrease in
the expected future lease store closure obligation of $2.0 million, which was
taken back into income as a change in estimate. The accrued expense was reduced
by payments of $243,000 in the first quarter ended June 1, 2002. The remaining
reserve, which is $1.1 million at June 1, 2002 compared to $1.4 million at March
2, 2002 is reviewed periodically to determine its adequacy.
Net interest income was $348,000 (.2% of net sales) for the thirteen week
period ended June 1, 2002 compared to $480,000 (.3% of net sales) for the
thirteen weeks ended June 2, 2001, a decrease of $132,000. This decrease was the
result of decreased yields on its invested balances compared to the prior year
along with an investment change to primarily tax exempt instruments from taxable
instruments.
The Company's provision for income taxes increased $1.5 million to $2.2
million for the thirteen weeks ended June 1, 2002 compared to $648,000 for the
thirteen weeks ended June 2, 2001. The increase is due to the increased level of
income before income taxes for the thirteen weeks ended June 1, 2002, and an
increase in the effective tax rate to 37% for the thirteen weeks ended June 1,
2002 from 36% for the thirteen weeks ended June 1, 2001.
Net income increased 219.6% to $3.7 million for the thirteen weeks ended
June 1, 2002 compared to $1.2 million for the thirteen weeks ended June 2, 2001.
Diluted net income per share increased 200.0% to $.15 for the thirteen weeks
ended June 1, 2002 compared to diluted net income per share of $.05 for the
thirteen weeks ended June 2, 2001. Diluted weighted average shares outstanding
were 24,986,000 and 24,655,000, respectively, for the thirteen weeks ended June
1, 2002 and June 2, 2001.
Liquidity and Capital Resources
The Company had net cash provided of $169,000 from its operating activities
during the thirteen weeks ended June 1, 2002 as compared to a net use of cash
from operating activities of $1.9 million during the quarter ended June 2, 2001.
8
The Company had a net use of cash from its investing activities of $4.0
million and $2.2 million for the thirteen weeks ended June 1, 2002 and June 2,
2001, respectively. The $4.0 million use of cash in 2002 is primarily due to new
and remodeled stores construction.
The Company's working capital was $159.6 million at June 1, 2002 which was
a $5.8 million increase from $153.8 million at March 2, 2002.
Merchandise inventories were $161.9 million at June 1, 2002 compared to
$141.9 million at March 2, 2002. On a per square foot basis, merchandise
inventories at June 1, 2002 increased 15.9% compared to June 2, 2001, and were
13.4% higher than at March 2, 2002. This increase was planned by the Company to
provide better flow of merchandise for the back to school selling season and to
frontload merchandise to lessen the effect of the potential strike that has been
threatened by the longshoreman's union against the Pacific Maritime Association
in July of this year.
At June 1, 2002, the Company had cash and cash equivalents of $72.6
million, marketable securities of $3.3 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 two 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.
The Company plans to open 35-38 stores in fiscal 2003, remodel 15 existing
stores and close 5 to 10 stores. In addition, the Company has initiated plans to
expand the existing Corporate Office and Distribution Center in Indianapolis
with an addition of 275,000 square feet. This project is estimated to cost
$15-$18 million and is expected to begin in Fall 2003 with completion in 2004.
Based on these projects, the Company now expects capital expenditures for the
current fiscal year to approximate $30-$35 million. Management believes that
cash and marketable securities on hand, 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 2003 store expansion
program and to satisfy the Company's other capital requirements through fiscal
2003.
9
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
None.
ITEM 2: Changes in Securities
None.
ITEM 3: Defaults Upon Senior Securities
None.
ITEM 4: Submission of Matters to a Vote of Security-Holders
None.
ITEM 5: Other Information
None.
ITEM 6: Exhibits and Reports on Form 8-K:
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE FINISH LINE, INC.
Date: June 27, 2002 By: /s/ Kevin S. Wampler
--------------------
Kevin S. Wampler,
Senior Vice President-Chief
Accounting Officer and
Assistant Secretary
11