SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the thirteen week period ended May 31, 2003
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 of incorporation or organization) |
(I.R.S. Employer identification number) | |
| 3308 North Mitthoeffer Road Indianapolis, Indiana |
46235 | |
| (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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes x No ¨
Shares of common stock outstanding at June 20, 2003:
Class A 19,621,825
Class B 3,572,810
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
| May 31, 2003 |
June 1, 2002 |
March 1, 2003 | |||||||
| (unaudited) | (unaudited) | ||||||||
| ASSETS | |||||||||
| CURRENT ASSETS: |
|||||||||
| Cash and cash equivalents |
$ | 70,823 | $ | 72,585 | $ | 73,399 | |||
| Marketable securities |
502 | 3,316 | 506 | ||||||
| Accounts receivable |
3,859 | 3,626 | 5,854 | ||||||
| Merchandise inventories |
182,240 | 161,931 | 158,780 | ||||||
| Other |
12,177 | 10,717 | 8,693 | ||||||
| Total current assets |
269,601 | 252,175 | 247,232 | ||||||
| PROPERTY AND EQUIPMENT: |
|||||||||
| Land |
315 | 315 | 315 | ||||||
| Building |
8,709 | 11,108 | 8,730 | ||||||
| Leasehold improvements |
110,042 | 98,853 | 106,409 | ||||||
| Furniture, fixtures, and equipment |
54,368 | 46,391 | 54,019 | ||||||
| Construction in progress |
9,218 | 3,465 | 4,526 | ||||||
| 182,652 | 160,132 | 173,999 | |||||||
| Less accumulated depreciation |
80,867 | 69,818 | 79,037 | ||||||
| 101,785 | 90,314 | 94,962 | |||||||
| OTHER ASSETS: |
|||||||||
| Deferred income taxes |
7,172 | 8,395 | 7,884 | ||||||
| $ | 378,558 | $ | 350,884 | $ | 350,078 | ||||
See accompanying notes.
2
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
| May 31, 2003 |
June 1, 2002 |
March 1, 2003 |
||||||||||
| (unaudited) | (unaudited) | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| CURRENT LIABILITIES: |
||||||||||||
| Accounts payable |
$ | 78,154 | $ | 73,335 | $ | 54,770 | ||||||
| Employee compensation |
4,850 | 4,535 | 8,287 | |||||||||
| Accrued property and sales taxes |
4,311 | 3,840 | 4,841 | |||||||||
| Deferred income taxes |
7,033 | 3,705 | 5,800 | |||||||||
| Other liabilities and accrued expenses |
8,004 | 7,204 | 7,979 | |||||||||
| Total current liabilities |
102,352 | 92,619 | 81,677 | |||||||||
| Long-term deferred rent payments |
8,930 | 8,734 | 8,900 | |||||||||
| 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—(May 31, 2003 – 22,498; June 1, 2002 – 22,045; March 1, 2003 – 22,048) |
225 | 220 | 220 | |||||||||
| Shares outstanding—(May 31, 2003 – 19,249; June 1, 2002 – 20,124; March 1, 2003 – 18,695) |
||||||||||||
| Class B: |
||||||||||||
| Shares authorized—12,000 |
||||||||||||
| Shares issued and outstanding—(May 31, 2003 – 3,898; June 1, 2002 – 4,351; March 1, 2003 – 4,348) |
39 | 44 | 44 | |||||||||
| Additional paid-in capital |
124,637 | 123,986 | 124,347 | |||||||||
| Retained earnings |
168,285 | 140,382 | 161,742 | |||||||||
| Accumulated other comprehensive income |
— | 4 | 2 | |||||||||
| Treasury stock—(May 31, 2003 – 3,249; June 1, 2002 – 1,921; |
(25,910 | ) | (15,105 | ) | (26,854 | ) | ||||||
| Total stockholders’ equity |
267,276 | 249,531 | 259,501 | |||||||||
| Total liabilities and stockholders’ equity |
$ | 378,558 | $ | 350,884 | $ | 350,078 | ||||||
See accompanying notes.
3
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
| Thirteen Weeks Ended | ||||||
| May 31, 2003 |
June 1, 2002 | |||||
| Net sales |
$ | 207,805 | $ | 170,576 | ||
| Cost of sales (including occupancy expense) |
147,094 | 121,998 | ||||
| Gross profit |
60,711 | 48,578 | ||||
| Selling, general, and administrative expenses |
50,525 | 43,089 | ||||
| Operating income |
10,186 | 5,489 | ||||
| Interest income – net |
200 | 348 | ||||
| Income before income taxes |
10,386 | 5,837 | ||||
| Provision for income taxes |
3,843 | 2,160 | ||||
| Net income |
$ | 6,543 | $ | 3,677 | ||
| Basic net income per share |
$ | .28 | $ | .15 | ||
| Basic weighted average shares |
23,093 | 24,406 | ||||
| Diluted net income per share |
$ | .28 | $ | .15 | ||
| Diluted weighted average shares |
23,678 | 24,986 | ||||
See accompanying notes.
4
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)—(Unaudited)
| Thirteen Weeks Ended | ||||||||
| May 31, 2003 |
June 1, 2002 |
|||||||
| OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 6,543 | $ | 3,677 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
4,590 | 4,218 | ||||||
| Deferred income taxes |
1,945 | 372 | ||||||
| Loss on disposal of property and equipment |
79 | 227 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
1,995 | (1,405 | ) | |||||
| Merchandise inventories |
(23,460 | ) | (20,053 | ) | ||||
| Other current assets |
(3,484 | ) | (3,044 | ) | ||||
| Accounts payable |
23,384 | 22,427 | ||||||
| Employee compensation |
(3,437 | ) | (3,233 | ) | ||||
| Other liabilities and accrued expenses |
(505 | ) | (3,137 | ) | ||||
| Deferred rent payments |
30 | 120 | ||||||
| Net cash provided by operating activities |
7,680 | 169 | ||||||
| INVESTING ACTIVITIES: |
||||||||
| Purchases of property and equipment |
(11,519 | ) | (4,028 | ) | ||||
| Proceeds from disposal of property and equipment |
27 | 7 | ||||||
| Proceeds from sale of marketable securities |
1 | 10 | ||||||
| Net cash used in investing activities |
(11,491 | ) | (4,011 | ) | ||||
| FINANCING ACTIVITIES: |
||||||||
| Proceeds and tax benefits from exercise of stock options |
1,235 | 1,917 | ||||||
| Net cash provided by financing activities |
1,235 | 1,917 | ||||||
| Net decrease in cash and cash equivalents |
(2,576 | ) | (1,925 | ) | ||||
| Cash and cash equivalents at beginning of period |
73,399 | 74,510 | ||||||
| Cash and cash equivalents at end of period |
$ | 70,823 | $ | 72,585 | ||||
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 subsidiaries Spike’s Holding, Inc. and Finish Line Transportation Co., 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 1, 2003.
2. Stock Based Compensation
In December 2002, the FASB issued Statement No. 148 (FAS 148), “Accounting for Stock-Based Compensation – Transition and Disclosure,” which amends FASB Statement No. 123 (FAS 123), “Accounting for Stock-Based Compensation.” FAS 148 is effective for fiscal years ending after December 15, 2002, and gives further guidance regarding methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation and regarding disclosure requirements as previously defined in FAS 123. The Company has elected to follow Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its stock options. Under APB No. 25, if the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized.
The effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FAS 123 to its stock-based employee compensation would have been as follows for the first quarter ended:
6
| May 31, 2003 |
June 1, 2002 |
|||||||
| (in thousands except per share data) |
||||||||
| Net income as reported |
$ | 6,543 | $ | 3,677 | ||||
| Total stock based employee compensation expense using the fair value based method, net of related tax |
(517 | ) | (486 | ) | ||||
| Pro forma net income |
$ | 6,026 | $ | 3,191 | ||||
| Diluted earnings per share |
||||||||
| As reported |
$ | .28 | $ | .15 | ||||
| Pro forma |
.26 | .13 | ||||||
| Basic earnings per share |
||||||||
| As reported |
$ | .28 | $ | .15 | ||||
| Pro forma |
.27 | .13 | ||||||
No individual options were granted during the three month periods ended May 31, 2003 and June 1, 2002. The fair values for all years were determined using a Black-Scholes option-pricing model with the following assumptions:
| 2003 |
2002 |
|||||
| Dividend yield |
0 | % | 0 | % | ||
| Volatility |
74.7 | % | 75.7 | % | ||
| Risk-free interest rate |
3.78 | % | 5.14 | % | ||
| Expected life |
7 years | 7 years |
7
ITEM 2.
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 Company’s Annual Report on Form 10-K for the year ended March 1, 2003.
Results of Operations
The f