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 28, 2004
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)
| Indiana | 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 September 17, 2004:
Class A 21,268,706
Class B 2,865,284
PART 1. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
| August 28, 2004 |
August 30, 2003 |
February 28, 2004 | |||||||
| (Unaudited) | (Unaudited) | ||||||||
| ASSETS |
|||||||||
| CURRENT ASSETS: |
|||||||||
| Cash and cash equivalents |
$ | 65,839 | $ | 86,491 | $ | 77,077 | |||
| Marketable securities |
41,050 | 20,000 | 18,775 | ||||||
| Accounts receivable |
10,749 | 8,231 | 6,261 | ||||||
| Merchandise inventories, net |
241,371 | 188,853 | 192,599 | ||||||
| Other |
5,019 | 11,461 | 2,826 | ||||||
| Total current assets |
364,028 | 315,036 | 297,538 | ||||||
| PROPERTY AND EQUIPMENT: |
|||||||||
| Land |
315 | 315 | 315 | ||||||
| Building |
22,025 | 11,676 | 11,677 | ||||||
| Leasehold improvements |
131,358 | 115,441 | 122,735 | ||||||
| Furniture, fixtures, and equipment |
72,542 | 56,374 | 60,050 | ||||||
| Construction in progress |
6,168 | 12,341 | 20,681 | ||||||
| 232,408 | 196,147 | 215,458 | |||||||
| Less accumulated depreciation |
99,455 | 84,719 | 92,984 | ||||||
| 132,953 | 111,428 | 122,474 | |||||||
| OTHER ASSETS: |
|||||||||
| Deferred income taxes |
2,978 | 5,857 | 5,541 | ||||||
| Total assets |
$ | 499,959 | $ | 432,321 | $ | 425,553 | |||
See accompanying notes.
2
THE FINISH LINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
| August 28, 2004 |
August 30, 2003 |
February 28, 2004 |
||||||||||
| (unaudited) | (unaudited) | |||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||
| CURRENT LIABILITIES: |
||||||||||||
| Accounts payable |
$ | 92,098 | $ | 100,651 | $ | 56,332 | ||||||
| Employee compensation |
10,607 | 9,402 | 11,660 | |||||||||
| Accrued property and sales tax |
6,996 | 6,463 | 6,144 | |||||||||
| Deferred income taxes |
8,361 | 9,128 | 5,823 | |||||||||
| Other liabilities and accrued expenses |
17,528 | 8,507 | 13,375 | |||||||||
| Total current liabilities |
135,590 | 134,151 | 93,334 | |||||||||
| Long-term deferred rent payments |
8,893 | 8,960 | 8,893 | |||||||||
| SHAREHOLDERS’ 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 28, 2004 – 23,530; August 30, 2003 – 23,100; February 28, 2004 – 23,531) Shares outstanding – (August 28, 2004 – 21,253; August 30, 2003 – 20,164; February 28, 2004 – 21,157) |
235 | 231 | 235 | |||||||||
| Class B: |
||||||||||||
| Shares authorized - 12,000 Shares issued and outstanding – (August 28, 2004 – 2,865; August 30, 2003 – 3,295; February 28, 2004 – 2,865) |
29 | 33 | 29 | |||||||||
| Additional paid-in capital |
134,072 | 126,231 | 132,602 | |||||||||
| Retained earnings |
239,202 | 185,812 | 209,012 | |||||||||
| Accumulated other comprehensive income |
— | (2 | ) | — | ||||||||
| Treasury stock – (August 28, 2004 – 2,277; August 30, 2003 – 2,936; February 28, 2004 – 2,374) |
(18,062 | ) | (23,095 | ) | (18,552 | ) | ||||||
| Total shareholders’ equity |
355,476 | 289,210 | 323,326 | |||||||||
| Total liabilities and shareholders’ equity |
$ | 499,959 | $ | 432,321 | $ | 425,553 | ||||||
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 | |||||||||||
| August 28, 2004 |
August 30, 2003 |
August 28, 2004 |
August 30, 2003 | |||||||||
| Net sales |
$ | 312,162 | $ | 270,789 | $ | 570,128 | $ | 478,594 | ||||
| Cost of sales (including occupancy expense) |
209,431 | 184,379 | 389,131 | 331,473 | ||||||||
| Gross profit |
102,731 | 86,410 | 180,997 | 147,121 | ||||||||
| Selling, general, and administrative expenses |
69,372 | 58,103 | 130,817 | 108,628 | ||||||||
| Operating income |
33,359 | 28,307 | 50,180 | 38,493 | ||||||||
| Interest income - net |
232 | 130 | 458 | 330 | ||||||||
| Income before income taxes |
33,591 | 28,437 | 50,638 | 38,823 | ||||||||
| Provision for income taxes |
12,765 | 10,910 | 19,243 | 14,753 | ||||||||
| Net income |
$ | 20,826 | $ | 17,527 | $ | 31,395 | $ | 24,070 | ||||
| Basic net income per share |
$ | .86 | $ | .75 | $ | 1.30 | $ | 1.04 | ||||
| Basic weighted average shares |
24,096 | 23,352 | 24,077 | 23,222 | ||||||||
| Diluted net income per share |
$ | .85 | $ | .73 | $ | 1.27 | $ | 1.01 | ||||
| Diluted weighted average shares |
24,613 | 24,037 | 24,637 | 23,857 | ||||||||
| Dividends declared per share |
$ | .05 | $ | — | $ | .05 | $ | — | ||||
See accompanying notes.
4
THE FINISH LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) - (Unaudited)
| Twenty-Six Weeks Ended |
||||||||
| August 28, 2004 |
August 30, 2003 |
|||||||
| OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 31,395 | $ | 24,070 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
10,103 | 9,222 | ||||||
| Deferred income taxes |
5,101 | 5,355 | ||||||
| Loss on disposal of property and equipment |
94 | 84 | ||||||
| Tax benefit from exercise of stock options |
769 | 2,061 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(4,488 | ) | (2,377 | ) | ||||
| Merchandise inventories |
(48,772 | ) | (30,073 | ) | ||||
| Other current assets |
(2,193 | ) | (2,768 | ) | ||||
| Accounts payable |
35,766 | 45,881 | ||||||
| Employee compensation |
(1,053 | ) | 1,115 | |||||
| Other liabilities and accrued expenses |
3,799 | 2,150 | ||||||
| Deferred rent payments |
— | 60 | ||||||
| Net cash provided by operating activities |
30,521 | 54,780 | ||||||
| INVESTING ACTIVITIES: |
||||||||
| Purchases of property and equipment |
(21,090 | ) | (25,799 | ) | ||||
| Proceeds from disposal of property and equipment |
414 | 27 | ||||||
| Proceeds from sale of available-for-sale marketable securities |
35,948 | 501 | ||||||
| Purchases of available-for-sale marketable securities |
(58,223 | ) | — | |||||
| Net cash used in investing activities |
(42,951 | ) | (25,271 | ) | ||||
| FINANCING ACTIVITIES: |
||||||||
| Proceeds from exercise of stock options |
1,192 | 3,583 | ||||||
| Net cash provided by financing activities |
1,192 | 3,583 | ||||||
| Net increase (decrease) in cash and cash equivalents |
(11,238 | ) | 33,092 | |||||
| Cash and cash equivalents at beginning of period |
77,077 | 53,399 | ||||||
| Cash and cash equivalents at end of period |
$ | 65,839 | $ | 86,491 | ||||
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 The Finish Line USA, Inc., The Finish Line Distribution, Inc., Spike’s Holding, LLC, 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 the 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. Preparation of the financial statements require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting 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.
Certain amounts in the financial statements of prior year have been reclassified to conform with the current year presentation. These reclassifications had no effect on net income.
These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended February 28, 2004.
2. Reincorporation and Company Reorganization
On July 29, 2004, The Finish Line, Inc., a Delaware corporation (the “Delaware Company”) merged (the “Reincorporation Merger”) with and into its newly-formed, wholly-owned subsidiary, The Finish Line Indiana Corp., an Indiana corporation (the “Indiana Company”). The Indiana Company survived the Reincorporation Merger as an Indiana corporation and became the successor corporation to the Delaware Company under the Securities Exchange Act of 1934, as amended, with respect to the Delaware Company’s Class A stock, and under the Securities Act of 1933, as amended (“Securities Act”) with respect to the Delaware Company’s outstanding Securities Act registration statements. At the effective time of the Reincorporation Merger, the Indiana Company also changed its name to “The Finish Line, Inc.” The principal purpose of the Reincorporation Merger was to change the state of incorporation of the Delaware Company from Delaware to Indiana.
On August 1, 2004, the Indiana Company and its subsidiaries reorganized their operations to split the retail, distribution, headquarters, intellectual property and transportation functions among four corporations and one limited liability company (the Indiana Company, collectively with its subsidiaries after the effective date of the reorganization, is referred to throughout as the “Company”). The Finish Line, Inc. now represents the core retail business. The Finish Line USA, Inc., a wholly-owned subsidiary of The Finish Line, Inc., was formed to be responsible for the Company’s internal operations, which consists primarily of operations at headquarters. The Finish Line Distribution, Inc., a wholly-owned subsidiary of The Finish Line, Inc., was formed to be responsible for receiving, processing, selling and redistributing all merchandise purchased from The Finish Line USA, Inc. Finish Line Transportation Company, Inc., a wholly-owned subsidiary of The Finish Line, Inc., existed prior to the reorganization and will continue to own, manage, maintain and operate all automobiles, trucks, and aircraft. Spikes Holding, Inc., a Delaware
6
Corporation and wholly-owned subsidiary of The Finish Line, Inc., was merged into a newly-formed entity, Spikes Holdings, LLC, an Indiana limited liability company, and became a wholly-owned subsidiary of The Finish Line USA, Inc. Spikes Holdings, LLC holds all of the Company’s intellectual property.
The implementation of the company reorganization was approved by the Board of Directors to allow the Company to better organize itself along functional lines and increase its operating efficiency, but is not expected to result in a material change to the overall business, management or location of the principal executive offices. As of August 28, 2004, and the period from the reorganization to August 28, 2004, there were no changes to the assets, liabilities, shareholders’ equity or results of operations of the Company on a consolidated basis.
3. Stock Based Compensation
As allowed by FASB 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,” 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 for the thirteen week and twenty-six week periods ended would have been as follows:
| Thirteen Weeks Ended |
Twenty-Six Weeks Ended |
|||||||||||||||
| August 28, 2004 |
August 30, 2003 |
August 28, 2004 |
August 30, 2003 |
|||||||||||||
| (in thousands except per share data) | ||||||||||||||||
| Net income as reported |
$ | 20,826 | ||||||||||||||