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EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 - FINISH LINE INC /IN/d439039dex311.htm

 

 

UNITED STATES

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 quarterly period ended December 1, 2012

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 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 registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter ) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨ (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    ¨    No  x

Shares of Class A common stock outstanding at December 21, 2012: 49,707,899

 

 

 


PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE FINISH LINE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

 

     December 1,
2012
     November 26,
2011
     March 3,
2012
 
     (unaudited)      (unaudited)         
ASSETS         

CURRENT ASSETS:

        

Cash and cash equivalents

   $ 168,154       $ 216,570       $ 307,494   

Accounts receivable, net

     12,025         8,842         9,041   

Merchandise inventories, net

     301,654         280,409         220,405   

Income taxes receivable

     10,417         4,097         —     

Other

     8,462         8,427         15,808   
  

 

 

    

 

 

    

 

 

 

Total current assets

     500,712         518,345         552,748   

PROPERTY AND EQUIPMENT:

        

Land

     1,557         1,557         1,557   

Building

     42,397         41,446         41,745   

Leasehold improvements

     228,647         223,828         220,532   

Furniture, fixtures and equipment

     126,418         120,199         115,798   

Construction in progress

     38,149         5,291         6,987   
  

 

 

    

 

 

    

 

 

 
     437,168         392,321         386,619   

Less accumulated depreciation

     269,198         263,978         259,622   
  

 

 

    

 

 

    

 

 

 
     167,970         128,343         126,997   

Deferred income taxes

     18,926         23,337         16,888   

Goodwill and other intangible assets

     15,313         8,815         9,053   

Other assets, net

     6,864         5,585         5,810   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 709,785       $ 684,425       $ 711,496   
  

 

 

    

 

 

    

 

 

 

See accompanying notes.

 

2


THE FINISH LINE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

 

     December 1,
2012
    November 26,
2011
    March 3,
2012
 
     (unaudited)     (unaudited)        
LIABILITIES AND SHAREHOLDERS’ EQUITY       

CURRENT LIABILITIES:

      

Accounts payable

   $ 92,956      $ 95,845      $ 67,246   

Employee compensation

     15,425        18,923        22,403   

Accrued property and sales tax

     8,212        8,186        10,312   

Income taxes payable

     —          —          13,348   

Deferred income taxes

     8,997        6,407        7,068   

Other liabilities and accrued expenses

     20,019        18,622        18,306   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     145,609        147,983        138,683   

Deferred credits from landlords

     28,138        30,035        27,737   

Other long-term liabilities

     18,463        15,335        15,539   

REDEEMABLE NONCONTROLLING INTEREST

     4,535        —          —     

SHAREHOLDERS’ EQUITY:

      

Preferred stock, $.01 par value; 1,000 shares authorized; none issued

     —          —          —     

Common stock, $.01 par value

      

Class A:

      

Shares authorized—(December 1, 2012 – 110,000; November 26, 2011 – 100,000; March 3, 2012 – 100,000)

      

Shares issued—(December 1, 2012 – 59,587; November 26, 2011 – 58,811; March 3, 2012 – 58,839)

      

Shares outstanding—(December 1, 2012 – 49,262; November 26, 2011 – 50,784; March 3, 2012 – 50,795)

     596        588        588   

Class B:

      

Shares authorized—(December 1, 2012 – 0; November 26, 2011 – 10,000; March 3, 2012 – 10,000)

      

Shares issued and outstanding—(December 1, 2012 – 0; November 26, 2011 – 599; March 3, 2012 – 571)

     —          6        5   

Additional paid-in capital

     216,657        209,592        211,271   

Retained earnings

     473,921        407,071        445,884   

Treasury stock—(December 1, 2012 – 10,325; November 26, 2011 – 8,027; March 3, 2012 – 8,044)

     (178,134     (126,185     (128,211 )
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     513,040        491,072        529,537   
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 709,785      $ 684,425      $ 711,496   
  

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

3


THE FINISH LINE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

     Thirteen Weeks Ended      Thirty-Nine Weeks Ended  
     December 1,
2012
    November 26,
2011
     December 1,
2012
     November 26,
2011
 

Net sales

   $ 296,623      $ 282,011       $ 1,000,683       $ 912,999   

Cost of sales (including occupancy costs)

     206,833        191,002         671,684         602,393   
  

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit

     89,790        91,009         328,999         310,606   

Selling, general and administrative expenses

     91,447        83,067         271,004         241,818   

Store closing costs

     1        368         421         965   
  

 

 

   

 

 

    

 

 

    

 

 

 

Operating (loss) income

     (1,658 )     7,574         57,574         67,823   

Interest income, net

     38        109         167         390   
  

 

 

   

 

 

    

 

 

    

 

 

 

(Loss) income before income taxes

     (1,620 )     7,683         57,741         68,213   

Income tax (benefit) expense

     (811     2,135         22,033         25,329   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net (loss) income

     (809 )     5,548         35,708         42,884   

Net loss attributable to redeemable noncontrolling interest

     702        —           1,436         —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Net (loss) income attributable to The Finish Line, Inc.

   $ (107 )   $ 5,548       $ 37,144       $ 42,884   
  

 

 

   

 

 

    

 

 

    

 

 

 

Basic earnings per share attributable to The Finish Line, Inc. shareholders

   $ 0.00      $ 0.11       $ 0.73       $ 0.81   
  

 

 

   

 

 

    

 

 

    

 

 

 

Basic weighted average shares

     49,949        51,338         50,277         52,267   
  

 

 

   

 

 

    

 

 

    

 

 

 

Diluted earnings per share attributable to The Finish Line, Inc. shareholders

   $ 0.00      $ 0.11       $ 0.72       $ 0.80   
  

 

 

   

 

 

    

 

 

    

 

 

 

Diluted weighted average shares

     49,949        52,082         50,977         53,076   
  

 

 

   

 

 

    

 

 

    

 

 

 

Dividends declared per share

   $ 0.06      $ 0.05       $ 0.18       $ 0.15   
  

 

 

   

 

 

    

 

 

    

 

 

 

See accompanying notes.

 

4


THE FINISH LINE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Thirty-Nine Weeks Ended  
     December 1,
2012
    November 26,
2011
 

OPERATING ACTIVITIES:

    

Net income

   $ 35,708      $ 42,884   

Adjustments to reconcile net income to net cash used in operating activities:

    

Depreciation and amortization

     21,160        19,842   

Deferred income taxes

     (109     3,696   

Share-based compensation

     5,391        3,916   

Loss on disposal of property and equipment

     570        1,225   

Excess tax benefits from share-based compensation

     (2,372     (5,451

Changes in operating assets and liabilities:

    

Accounts receivable, net

     (2,967     1,710   

Merchandise inventories, net

     (80,352     (83,746

Other assets

     7,927        (1,498

Accounts payable

     23,786        21,087   

Employee compensation

     (6,997     407   

Income taxes payable/receivable

     (24,103     (8,419

Other liabilities and accrued expenses

     (880     1,399   

Deferred credits from landlords

     692        (4,617
  

 

 

   

 

 

 

Net cash used in operating activities

     (22,546     (7,565

INVESTING ACTIVITIES:

    

Additions to property and equipment

     (62,061     (21,984

Payments for intangible assets

     —          (550

Proceeds from disposals of property and equipment

     67        40   

Acquisitions, net of cash acquired

     (2,256     (8,500

Cash paid for investment

     (1,000     —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (65,250     (30,994

FINANCING ACTIVITIES:

    

Dividends paid to shareholders

     (9,176     (7,922

Proceeds from issuance of common stock

     2,879        12,731   

Excess tax benefits from share-based compensation

     2,372        5,451   

Purchase of common stock for treasury

     (53,619     (54,454

Funding of related-party note receivable

     (4,000     —     

Proceeds from sale of redeemable noncontrolling interest

     10,000        —     
  

 

 

   

 

 

 

Net cash used in financing activities

     (51,544     (44,194
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (139,340     (82,753

Cash and cash equivalents at beginning of period

     307,494        299,323   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 168,154      $ 216,570   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Capital expenditures incurred but not yet paid

   $ 630      $ —     

See accompanying notes.

 

5


THE FINISH LINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of The Finish Line, Inc., along with its consolidated subsidiaries (individually and collectively referred to as the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 GAAP for complete financial statements. Preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included. Intercompany accounts and transactions have been eliminated in consolidation.

The Company has experienced, and expects to continue to experience, significant variability in sales, net income and merchandise inventories 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.

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 March 3, 2012 (“fiscal 2012”), as filed with the Securities and Exchange Commission (“SEC”) on May 2, 2012.

Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment.” This update amended the procedures for testing the impairment of indefinite-lived intangible assets by permitting an entity to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible assets are impaired. An entity’s assessment of the totality of events and circumstances and their impact on the entity’s indefinite-lived intangible assets will then be used as a basis for determining whether it is necessary to perform the quantitative impairment test as described in Accounting Standard Codification (“ASC”) 350-30, “Intangibles – Goodwill and Other – General Intangibles Other than Goodwill.” This ASU will be effective for the Company on March 3, 2013, with early adoption permitted. The adoption of this guidance is not expected to have a significant effect on the Company’s consolidated financial statements.

Other recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

Segment Information

The Company is a premium retailer of athletic shoes, apparel and accessories for men, women and kids, throughout the United States, through three operating segments, “brick and mortar” stores, digital (which includes internet, mobile and tablet), and The Running Specialty Group (“Running Specialty”). Given the similar economic characteristics of both “brick and mortar” stores and digital, which include a similar nature of products sold, type of customer, and method of distribution, and Running Specialty being immaterial, the Company’s operating segments are aggregated into one reportable segment. The following table sets forth net sales of the Company by major category for each of the following periods (in thousands):

 

     Thirteen Weeks Ended (Unaudited)  

Category

   December 1, 2012     November 26, 2011  

Footwear

   $ 240,162         81   $ 232,623         82

Softgoods

     56,461         19     49,388         18
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 296,623         100   $ 282,011         100
  

 

 

    

 

 

   

 

 

    

 

 

 

 

     Thirty-Nine Weeks Ended (Unaudited)  

Category

   December 1, 2012     November 26, 2011  

Footwear

   $ 860,421         86   $ 788,463         86

Softgoods

     140,262         14     124,536         14
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 1,000,683         100   $ 912,999         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Reclassification

Certain amounts in the March 3, 2012 financial statements have been reclassified to conform to the fiscal 2013 presentation.

2. Running Specialty

On August 31, 2011, the Company acquired substantially all the assets and assumed certain liabilities of the Running Company for a purchase price of $8.5 million which was funded through the Company’s existing cash. As of the acquisition date, the Running Company operated 18 specialty running shops in Connecticut, District of Columbia, Florida, Maryland, Massachusetts, New Jersey, New York and Texas.

The Company allocated the purchase price based upon the tangible and intangible assets acquired, net of liabilities. The allocation of the purchase price is detailed below (in thousands):

 

6


     Allocation of
Purchase Price
 

Goodwill

   $ 8,503   

Tangible assets, net of liabilities

     1,675   

Net unfavorable lease obligation

     (1,678 )
  

 

 

 

Total purchase price

   $ 8,500   
  

 

 

 

The Company determined the estimated fair values based on discounted cash flow analyses and estimates made by management. Goodwill from the acquisition is deductible for tax purposes.

On March 29, 2012, GCPI SR LLC (“GCPI”) made a $10.0 million strategic investment in Running Specialty. The Company will remain majority owner with a 51% ownership. GCPI has the right to “put” and the Company has the right to “call” after March 4, 2017, under certain circumstances, the remaining 49% interest in Running Specialty at an agreed upon price approximating fair value. Also, as part of the transaction, GCPI issued to the Company a $4.0 million related-party promissory note which is collateralized with GCPI’s interest in Running Specialty due March 31, 2021 or earlier depending on certain stipulated events in the control of GCPI. The promissory note calls for interest payments based in part on a fixed rate and in part on participation in the value of other investments held by GCPI. The balance of the promissory note and related accrued interest is $4.0 million at December 1, 2012 and has been netted against the “redeemable noncontrolling interest.”

The redeemable noncontrolling interest is classified as mezzanine equity and measured at the greater of estimated fair value at the end of each reporting period or the historical cost basis of the redeemable noncontrolling interest, net of the $4.0 million promissory note and related accrued interest and adjusted for cumulative earnings or loss allocations. The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings, or in the absence of retained earnings, additional paid in capital.

The redeemable noncontrolling interest is classified at historical cost basis, net of the $4.0 million promissory note and related accrued interest and adjusted for cumulative earnings or loss allocations as of December 1, 2012.

On October 6, 2012, Running Specialty acquired substantially all the assets and assumed certain liabilities of Run On, Inc., for a purchase price of $2.3 million, net of cash acquired, which was funded through the Company’s existing cash. As of the acquisition date, Run On, Inc. operated five specialty running shops in Texas. In addition to the cash consideration, the transaction includes contingent consideration which is included within other long-term liabilities. The Company determined the estimated fair values based on discounted cash flow analyses and estimates made by management. The purchase price allocation is considered preliminary. Goodwill from the acquisition is deductible for tax purposes.

3. Fair Value Measurements

Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows:

 

Level 1:      Observable inputs such as quoted prices in active markets;
Level 2:    Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:   

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own

assumptions.

The Company has cash equivalents in short-term money market funds. The primary objective of our short-term investment activity is to preserve our capital for the purpose of funding operations and we do not enter into short-term investments for trading or speculative purposes. However, the Company does from time to time evaluate other investment strategies for its cash. The fair values are based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1). Also included in Level 1 assets are mutual fund investments under the non-qualified deferred compensation plan. The Company estimates the fair value of these investments on a recurring basis using market prices that are readily available.

The Company has a liability that is measured at fair value on a non-recurring basis related to the contingent consideration disclosed in Note 2. The liability is adjusted to fair value only when the carrying value exceeds the fair value. The categorization of the framework used to price the liability is considered a Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.

There were no transfers into or out of Level 1, Level 2, or Level 3 assets for any of the periods presented.

4. Debt Agreement

On November 30, 2012, the Company entered into an unsecured $100 million Amended and Restated Revolving Credit Facility Credit Agreement (the “Amended Credit Agreement”) with certain Lenders, which expires on November 30, 2017. The Amended Credit Agreement provides that, under certain circumstances, the Company may increase the maximum amount of the credit facility in an aggregate principal amount not to exceed $200 million. The Amended Credit Agreement will be used by the Company, among other things, to issue letters of credit, support working capital needs, fund capital expenditures and other general corporate purposes.

The Amended Credit Agreement and related loan documents replace the Company’s prior $50 million Revolving Credit Facility (the “Prior Credit Agreement”). All commitments under the Prior Credit Agreement were terminated effective November 30, 2012. No advances were outstanding under the Prior Credit Agreement as of November 30, 2012.

Approximately $4.1 million in stand-by letters of credit was outstanding as of December 1, 2012 under the Amended Credit Agreement. No advances were outstanding under the Amended Credit Agreement as of December 1, 2012. Accordingly, the total revolving credit availability under the Amended Credit Agreement was $95.9 million as of December 1, 2012.

The Company’s ability to borrow monies in the future under the Amended Credit Agreement is subject to certain conditions, including compliance with certain

 

7


covenants and making certain representations and warranties. The Amended Credit Agreement contains restrictive covenants that limit, among other things, mergers and acquisitions. In addition, the Company must maintain a maximum leverage ratio (as defined in the Amended Credit Agreement) and minimum consolidated tangible net worth (as defined in the Amended Credit Agreement). The Company was in compliance with all such covenants as of December 1, 2012.

The Amended Credit Agreement pricing grid is adjusted quarterly and is based on the Company’s leverage ratio (as defined in the Amended Credit Agreement). The minimum pricing is LIBOR plus 0.90% or Base Rate (as defined in the Amended Credit Agreement) and the maximum pricing is LIBOR plus 1.75% or Base Rate (as defined in the Amended Credit Agreement) plus 0.75%. The Company is subject to an unused commitment fee based on the Company’s leverage ratio with minimum pricing of 0.10% and maximum pricing of 0.25%. In addition, the Company is subject to a letter of credit fee based on the Company’s leverage ratio with minimum pricing of 0.40% and maximum pricing of 1.25%.

5. Earnings Per Share

Basic earnings per share is calculated by dividing net income attributable to the Company’s common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share attributable to the Company’s common shareholders assumes the issuance of additional shares of common stock by the Company upon exercise of all outstanding stock options and contingently issuable securities if the effect is dilutive, in accordance with the treasury stock method or two class method (whichever is more dilutive) discussed in ASC 260-10, “Earnings Per Share”.

ASC 260-10 requires the inclusion of restricted stock as participating securities, when they have the right to share in dividends, if declared, equally with common shareholders. During periods of net income, participating securities are allocated a proportional share of net income attributable to the Company’s common shareholders determined by dividing total weighted average participating securities by the sum of total weighted average common shares and participating securities (“the two-class method”). During periods of net loss, no effect is given to participating securities since they do not share in the losses of the Company. Participating securities have the effect of diluting both basic and diluted earnings per share attributable to the Company’s common shareholders during periods of net income.

The following is a reconciliation of the numerators and denominators used in computing earnings per share attributable to the Company’s common shareholders (in thousands, except per share amounts):

 

     Thirteen Weeks Ended      Thirty-Nine Weeks Ended  
     (unaudited)      (unaudited)  
     December 1,
2012
    November 26,
2011
     December 1,
2012
     November 26,
2011
 

Net (loss) income attributable to The Finish Line, Inc.

   $ (107 )   $ 5,548       $ 37,144       $ 42,884   

Net income attributable to participating securities

     —          45         312         343   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net (loss) income available to The Finish Line, Inc. shareholders

   $ (107 )   $ 5,503       $ 36,832       $ 42,541   
  

 

 

   

 

 

    

 

 

    

 

 

 

Basic earnings per share:

       

Weighted-average number of common shares outstanding

     49,949        51,338         50,277         52,267   

Basic earnings per share

   $ —        $ 0.11       $ 0.73       $ 0.81   

Diluted earnings per share:

       

Weighted-average number of common shares outstanding

     49,949        51,338         50,277         52,267   

Stock options(a)

     —          744         700         809   
  

 

 

   

 

 

    

 

 

    

 

 

 

Diluted weighted-average number of common shares outstanding

     49,949        52,082         50,977         53,076   
  

 

 

   

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ —        $ 0.11       $ 0.72       $ 0.80   

 

(a) The computation of diluted earnings per share excludes options to purchase approximately 0.5 million shares of common stock in the thirteen weeks ended November 26, 2011 and 0.8 million and 0.4 million shares of common stock in the thirty-nine weeks ended December 1, 2012 and November 26, 2011, respectively, because the impact of such options would have been anti-dilutive.

6. Common Stock

On July 21, 2011, the Company’s Board of Directors authorized a stock repurchase program (the “Plan”) to repurchase up to 5,000,000 shares of the Company’s common stock outstanding through December 31, 2014. On January 3, 2013, the Company’s Board of Directors amended the Plan (the “Amended Plan”) and authorized an additional 5,000,000 shares of the Company’s common stock, which authorization shall expire on December 31, 2017. The Company purchased 1,038,285 shares at an average price of $20.46 per share for an aggregate amount of $21.2 million for the thirteen weeks ended December 1, 2012. The Company purchased 2,549,404 shares at an average price of $21.03 per share for an aggregate amount of $53.6 million for the thirty-nine weeks ended December 1, 2012. The remaining shares available for repurchase under the Amended Plan are 5,923,457 shares as of January 3, 2013.

The Company’s treasury shares may be issued upon the exercise of employee stock options, issuance of shares for the Employee Stock Purchase Plan, issuance of restricted stock, or for other corporate purposes. Further purchases by the Company will occur from time to time as market conditions warrant and as the Company deems appropriate when judged against other alternative uses of cash.

On October 17, 2012, the Company announced a quarterly cash dividend of $0.06 per share of the Company’s Class A common shares. The Company declared dividends of $3.0 million during the thirteen weeks ended December 1, 2012. The cash dividends of $3.0 million were paid on December 17, 2012 to shareholders of record on November 30, 2012 and was included as of December 1, 2012 in “Other liabilities and accrued expenses” on the Company’s consolidated balance sheet. Further declarations of dividends remain at the discretion of the Company’s Board of Directors.

On July 20, 2012, all of the Company’s shares of Class B common stock were converted on a one-for-one basis into an equal number of shares of Class A common stock in accordance with the terms of the Company’s Restated Articles of Incorporation, and the Company eliminated its dual class stock structure. The Company did not receive any proceeds from the conversion of the Class B shares, and the Company will not receive any proceeds from the sale of any Class A shares issued as a result of the conversion. Per the Company’s Restated Articles of Incorporation, as of the conversion, all Class B shares are no longer authorized.

 

8


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This quarterly report on Form 10-Q may contain certain statements that we believe are, or may be considered to be, “forward-looking” statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally can be identified by use of statements that include phrases such as “believe”, “expect”, “future”, “anticipate”, “intend”, “plan”, “foresee”, “may”, “should”, “will”, “estimates”, “potential”, “continue” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. All of these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statement. The principal risk factors that could cause actual performance and future actions to differ materially from the forward-looking statements include, but are not limited to, the Company’s reliance on a few key vendors for a majority of its merchandise purchases (including a significant portion from one key vendor); the availability and timely receipt of products; the ability to timely fulfill and ship products to customers; fluctuations in oil prices causing changes in gasoline and energy prices, resulting in changes in consumer spending as well as increases in utility, freight, and product costs; product demand and market acceptance risks; deterioration of macro-economic and business conditions; the inability to locate and obtain or retain acceptable lease terms for the Company’s stores; the effect of competitive products and pricing; loss of key employees; execution of strategic growth initiatives (including actual and potential mergers and acquisitions and other components of our capital allocation strategy); and the other risks detailed in the Company’s Securities and Exchange Commission filings. Readers are urged to consider these factors carefully in evaluating the forward-looking statements. The forward-looking statements included in this Form 10-Q are made only as of the date of this report and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.

General

The following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, including Critical Accounting Policies, contained in the Company’s Annual Report on Form 10-K for the year ended March 3, 2012.

The following table sets forth store and square feet information of the Company by brand for each of the following periods:

 

     Thirteen Weeks Ended     Thirty-Nine Weeks Ended  

Number of Stores:

   December 1,
2012
    November 26,
2011
    December 1,
2012
    November 26,
2011
 

Finish Line

        

Beginning of period

     638        647        637        664   

Opened

     14        4        27        4   

Closed

     (1     (3 )     (13     (20
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

     651        648        651        648   

Running Specialty

        

Beginning of period

     19        —          19        —     

Acquired

     5        18        5        18   

Opened

     1        1        1        1   

Closed

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

     25        19        25        19   

Total

        

Beginning of period

     657        647        656        664   

Acquired

     5        18        5        18   

Opened

     15        5        28        5   

Closed

     (1     (3     (13     (20
  

 

 

   

 

 

   

 

 

   

 

 

 

End of period

     676        667        676        667   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     December 1,
2012
     November 26,
2011
 

Square feet information as of:

     

Finish Line

     

Square feet

     3,531,426         3,491,396   

Average store size

     5,425         5,388   

Running Specialty

     

Square feet

     78,120         57,302   

Average store size

     3,125         3,016   

Total

     
  

 

 

    

 

 

 

Square feet

     3,609,546         3,548,698   
  

 

 

    

 

 

 

 

9


Results of Operations

The following tables set forth net sales of the Company by major category for each of the following periods (in thousands):

 

     Thirteen Weeks Ended (Unaudited)  

Category

   December 1, 2012     November 26, 2011  

Footwear

   $ 240,162         81   $ 232,623         82

Softgoods

     56,461         19     49,388         18
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $    296,623         100   $ 282,011         100
  

 

 

    

 

 

   

 

 

    

 

 

 

 

     Thirty-Nine Weeks Ended (Unaudited)  

Category

   December 1, 2012     November 26, 2011  

Footwear

   $ 860,421         86   $ 788,463         86

Softgoods

     140,262         14     124,536         14
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 1,000,683         100   $ 912,999         100
  

 

 

    

 

 

   

 

 

    

 

 

 

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     Thirty-Nine Weeks Ended  
     December 1,
2012
    November 26,
2011
    December 1,
2012
    November 26,
2011
 
     (Unaudited)     (Unaudited)  

Net sales

     100.0     100.0     100.0     100.0

Cost of sales (including occupancy costs)

     69.7        67.7        67.1        66.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     30.3        32.3        32.9        34.0   

Selling, general and administrative expenses

     30.8        29.5        27.1        26.5   

Store closing costs

     —          0.1        —          0.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (0.5 )     2.7        5.8        7.4   

Interest income, net

     —          —          —          0.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax

     (0.5 )     2.7        5.8        7.5   

Income tax (benefit) expense

     (0.3 )     0.7        2.2        2.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (0.2 )     2.0        3.6        4.7   

Net loss attributable to redeemable noncontrolling interest

     0.2        —          0.1        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to The Finish Line, Inc.

     —       2.0     3.7     4.7
  

 

 

   

 

 

   

 

 

   

 

 

 

 

10


THIRTEEN AND THIRTY-NINE WEEKS ENDED DECEMBER 1, 2012 COMPARED TO THE THIRTEEN AND THIRTY-NINE WEEKS ENDED NOVEMBER 26, 2011

Net Sales

 

     Thirteen Weeks Ended     Thirty-Nine Weeks Ended  
     December 1,
2012
    November 26,
2011
    December 1,
2012
    November 26,
2011
 
     (dollars in thousands)     (dollars in thousands)  
     (Unaudited)     (Unaudited)  

Net sales

   $ 296,623      $ 282,011      $ 1,000,683      $ 912,999   

Comparable store sales increase:

        

Finish Line

     3.6     7.7     8.3     8.5

Running Specialty

     19.9     N/A        N/A        N/A   

Net sales increased 5.2% for the thirteen weeks ended December 1, 2012 compared to the thirteen weeks ended November 26, 2011. The increase was attributable to a comparable store sales increase for Finish Line of 3.6% for the thirteen weeks ended December 1, 2012 resulting primarily from a 3.9% increase in store average dollar per transaction, a 0.3% increase in store traffic, and a 25.0% increase in digital sales. Comparable store footwear sales for the thirteen weeks ended December 1, 2012 increased 3.1% while comparable store softgoods sales increased 6.1%. Also, Running Specialty had a comparable store sales increase of 19.9% for the thirteen weeks ended December 1, 2012. The remainder of the increase in total net sales is a result of new store openings and stores acquired. The total net store count increased by nine as compared to the corresponding prior-year period.

Net sales increased 9.6% for the thirty-nine weeks ended December 1, 2012 compared to the thirty-nine weeks ended November 26, 2011. The increase was attributable to a comparable store sales increase for Finish Line of 8.3% for the thirty-nine weeks ended December 1, 2012 resulting primarily from a 5.8% increase in store average dollar per transaction, a 2.4% increase in store traffic, and a 27.5% increase in digital sales. Comparable store footwear sales for the thirty-nine weeks ended December 1, 2012 increased 8.8% while comparable store softgoods sales increased 4.8%. The remainder of the increase in total net sales is a result of new store openings and stores acquired. The total net store count increased by nine as compared to the corresponding prior-year period.

Cost of Sales (Including Occupancy Costs) and Gross Profit

 

     Thirteen Weeks Ended     Thirty-Nine Weeks Ended  
     December 1,
2012
    November 26,
2011
    December 1,
2012
    November 26,
2011
 
     (dollars in thousands)     (dollars in thousands)  
     (Unaudited)     (Unaudited)  

Cost of sales (including occupancy costs)

   $ 206,833      $ 191,002      $ 671,684      $ 602,393   

Gross profit

   $ 89,790      $ 91,009      $ 328,999      $ 310,606   

Gross profit as a percentage of net sales

     30.3     32.3     32.9 %     34.0 %

The 2.0% decrease in gross profit, as a percentage of net sales, for the thirteen weeks ended December 1, 2012 as compared to the thirteen weeks ended November 26, 2011 was due to a 1.1% decrease in product margin, net of shrink, as a percentage of net sales, and a 0.9% increase in occupancy costs, as a percentage of net sales. The 1.1% decrease in product margin, as a percentage of net sales, was primarily due to getting more aggressive with markdowns to improve our inventory position ahead of the holiday season due to a category shift by consumers within athletic footwear, and digital sales, which typically have a lower overall product margin than stores, increasing as a percentage of total net sales as compared to the prior period. The 0.9% increase in occupancy costs, as a percentage of net sales, reflects more store openings than closings and rent increases as a result of longer lease term agreements entered into for some of our best performing stores.

The 1.1% decrease in gross profit, as a percentage of net sales, for the thirty-nine weeks ended December 1, 2012 as compared to the thirty-nine weeks ended November 26, 2011 was primarily due to a 0.6% decrease in product margin, net of shrink, as a percentage of net sales, and a 0.5% increase in occupancy costs, as a percentage of net sales. The 0.6% decrease in product margin, as a percentage of net sales, was primarily due to selling a lower proportion of full price product compared to the strong performance in the thirty-nine weeks ended November 26, 2011, as well as, digital sales increasing as a percentage of total net sales as compared to the prior period. The 0.5% increase in occupancy costs, as a percentage of net sales, reflects more store openings than closings, percentage rent increases due to comparable store sales increases, as well as, longer lease term agreements entered into for some of our best performing stores.

Selling, General and Administrative Expenses

 

     Thirteen Weeks Ended     Thirty-Nine Weeks Ended  
     December 1,
2012
    November 26,
2011
    December 1,
2012
    November 26,
2011
 
     (dollars in thousands)     (dollars in thousands)  
     (Unaudited)     (Unaudited)  

Selling, general and administrative expenses

   $ 91,447      $ 83,067      $ 271,004      $ 241,818   

Selling, general and administrative expenses as a percentage of net sales

     30.8     29.5     27.1 %     26.5 %

The $8.4 million increase in selling, general and administrative expenses for the thirteen weeks ended December 1, 2012 as compared to the thirteen weeks ended November 26, 2011 was primarily due to the following: 1.) variable costs in fulfillment, freight, and payroll in conjunction with the 25.0% increase in comparable digital sales; 2.) a 0.6% increase in marketing expense, as a percentage of net sales, to drive traffic to our website and our stores; 3.) $1.6 million of excess variable costs associated with not reacting soon enough to lower than planned sales; and 4.) investments to support the Company’s store technology and the replacement of our core merchandising, supply chain and CRM systems.

The $29.2 million increase in selling, general and administrative expenses for the thirty-nine weeks ended December 1, 2012 as compared to the thirty-nine weeks ended November 26, 2011 was primarily due to the following: 1.) variable costs in fulfillment, freight, and payroll in conjunction with the 27.5% increase in comparable digital sales as well as the increase in store sales; 2.) a 0.3% increase in marketing expense, as a percentage of net sales, to drive traffic to our website and our stores; and 3.) investments to support the Company’s technology upgrades, web-site relaunch, and omni-channel strategy.

 

11


Store Closing Costs

 

     Thirteen Weeks Ended     Thirty-Nine Weeks Ended  
     December 1,
2012
    November 26,
2011
    December 1,
2012
    November 26,
2011
 
     (dollars in thousands)     (dollars in thousands)  
     (Unaudited)     (Unaudited)  

Store closing costs

   $ 1      $ 368      $ 421      $ 965   

Store closing costs as a percentage of net sales

     —       0.1 %     —   %     0.1 %

Number of stores closed

     1        3        13        20   

Store closing costs represent the non-cash write-off of any property and equipment upon a store closing.

Interest Income, Net

 

     Thirteen Weeks Ended     Thirty-Nine Weeks Ended  
     December 1,
2012
    November 26,
2011
    December 1,
2012
    November 26,
2011
 
     (dollars in thousands)     (dollars in thousands)  
     (Unaudited)     (Unaudited)  

Interest income, net

   $ 38      $ 109      $ 167      $ 390   

Interest income, net as a percentage of net sales

     —       —       —       0.1

The decrease of $0.1 million and $0.2 million during the thirteen and thirty-nine weeks ended December 1, 2012 compared to thirteen and thirty-nine weeks ended November 26, 2011, respectively, was due to lower interest rates on lower invested balances.

Income Tax (Benefit) Expense

 

     Thirteen Weeks Ended     Thirty-Nine Weeks Ended  
     December 1,
2012
    November 26,
2011
    December 1,
2012
    November 26,
2011
 
     (dollars in thousands)     (dollars in thousands)  
     (Unaudited)     (Unaudited)  

Income tax (benefit) expense

   $ (811 )   $ 2,135      $ 22,033      $ 25,329   

Income tax (benefit) expense as a percentage of net sales

     (0.3 )%     0.7 %     2.2 %     2.8 %

Effective income tax rate

     50.0 %     27.8 %     38.2 %     37.1 %

The increase in the effective tax rate for the thirteen weeks ended December 1, 2012 compared to the thirteen weeks ended November 26, 2011 relates to the relative impact of discrete items, which included, the release of a reserve for uncertain positions of $0.3 million related to the resolution of a U.S. income tax audit during the thirteen weeks ended December 1, 2012. The increase in the effective tax rate for the thirty-nine weeks ended December 1, 2012 compared to the thirty-nine weeks ended November 26, 2011 exists due to the Company only recording a tax benefit on the Company’s percentage share of the Running Specialty loss. In addition, the release of a reserve for uncertain positions of approximately $0.9 million related to the resolution of a state income tax audit during the thirty-nine weeks ended November 26, 2011 that was only partially offset by the release of a reserve for uncertain positions of $0.3 million related to the resolution of a U.S. income tax audit for the thirty-nine weeks ended December 1, 2012.

Redeemable Noncontrolling Interest

 

     Thirteen Weeks Ended     Thirty-Nine Weeks Ended  
     December 1,
2012
    November 26,
2011
    December 1,
2012
    November 26,
2011
 
     (dollars in thousands)     (dollars in thousands)  
     (Unaudited)     (Unaudited)  

Net loss attributable to redeemable noncontrolling interest

   $ 702      $ —        $ 1,436      $ —     

Net loss attributable to redeemable noncontrolling interest as a percentage of net sales

     0.2 %     —   %     0.1 %     —   %

Net losses attributable to the redeemable noncontrolling interest for the thirteen weeks ended December 1, 2012 represents 49% of the net loss generated by Running Specialty.

Net losses attributable to the redeemable noncontrolling interest for the thirty-nine weeks ended December 1, 2012, represents 49% of the net loss generated by Running Specialty since March 29, 2012, which was the date of the investment by GCPI.

 

12


Net (loss) income attributable to The Finish Line, Inc.

 

     Thirteen Weeks Ended     Thirty-Nine Weeks Ended  
     December 1,
2012
    November 26,
2011
    December 1,
2012
    November 26,
2011
 
     (dollars in thousands)
(Unaudited)
    (dollars in thousands)
(Unaudited)
 

Net (loss) income attributable to The Finish Line, Inc. shareholders

   $ (107 )   $ 5,548      $ 37,144      $ 42,884   

Net (loss) income attributable to The Finish Line, Inc. shareholders as a percentage of net sales

     —       2.0 %     3.7     4.7

Net (loss) income attributable to The Finish Line, Inc. shareholders per diluted share

   $ 0.00      $ 0.11      $ 0.72      $ 0.80   

The $5.7 million decrease in net income attributable to The Finish Line, Inc. shareholders for the thirteen weeks ended December 1, 2012 compared to the thirteen weeks ended November 26, 2011 was primarily due to the decrease in product margin and an increase in occupancy costs, as a percentage of net sales, along with the investments to support the Company’s omni-channel strategy and excess variable costs within selling, general and administrative expenses, partially offset by net sales improvement.

The $5.7 million decrease in net income attributable to The Finish Line, Inc. for the thirty-nine weeks ended December 1, 2012 compared to the thirty-nine weeks ended November 26, 2011 was primarily due to the decrease in product margin and an increase in occupancy costs, as a percentage of net sales, along with the investments to support the Company’s omni-channel strategy within selling, general and administrative expenses, partially offset by net sales improvement.

Liquidity and Capital Resources

The Company’s primary source of working capital is cash-on-hand and cash flow from operations. The following table sets forth material balance sheet and liquidity measures of the Company (in thousands):

 

     December 1,
2012
     November 26,
2011
     March 3,
2012
 
     (Unaudited)      (Unaudited)         

Cash and cash equivalents

   $ 168,154       $ 216,570       $ 307,494   

Merchandise inventories, net

   $ 301,654       $ 280,409       $ 220,405   

Interest-bearing debt

   $ —         $ —         $ —     

Working capital

   $ 355,103       $ 370,362       $ 414,065   

Operating Activities

The Company had cash flows used in operating activities during the thirty-nine weeks ended December 1, 2012 of $22.5 million compared to $7.6 million for the thirty-nine weeks ended November 26, 2011. The increase in net cash used in operating activities was primarily the result of an increase in the cash outflow related to a decrease in net income and a net increase in working capital balances as compared to the same period in the prior year.

Consolidated inventories increased 7.6% at December 1, 2012 compared to November 26, 2011, and were 36.9% higher than at March 3, 2012. Finish Line inventories increased 6.3% at December 1, 2012 compared to November 26, 2011 and increased 35.9% from March 3, 2012. The increase over the prior year is to support the positive comparable store sales as well as an increase in store openings, net of closings. The increase from fiscal 2012 year end is due to seasonality around building inventory for the holiday season, positive comparable store sales, and an increase in store openings, net of closings.

Investing Activities

Net cash used in investing activities for the thirty-nine weeks ended December 1, 2012 was $65.3 million compared to $31.0 million for the thirty-nine weeks ended November 26, 2011. The increase in cash used in investing activities was primarily a result of an increase in capital expenditures over the thirty-nine weeks ended November 26, 2011 of $40.1 million related to 28 new stores, the remodeling of existing stores, digital investments, store technology and core merchandising, supply chain and CRM system investments.

For the fiscal year ending March 2, 2013, the Company anticipates opening approximately 30 new stores (28 were opened during the thirty-nine weeks ended December 1, 2012), remodeling 30 to 35 existing stores (29 were remodeled during the thirty-nine weeks ended December 1, 2012), and closing 15 to 20 stores (13 were closed during the thirty-nine weeks ended December 1, 2012). The Company expects capital expenditures for the current fiscal year to approximate $85 to $90 million ($62.7 million (including capital expenditures incurred but not yet paid) during the thirty-nine weeks ended December 1, 2012). The source of funds for these capital expenditures is expected to be the Company’s cash and cash equivalents on-hand.

The Company converted back to its legacy website on December 6, 2012 from its new platform that was launched on November 19, 2012 as it became apparent that the customer experience was negatively impacted evidenced by a decline in several key performance indicators. The specific plans for the future of the website will be determined in the coming months. As of December 1, 2012, the Company had $2.3 million recorded within “construction in progress” on the Company’s consolidated balance sheet related to the new platform.

Financing Activities

Net cash used in financing activities for the thirty-nine weeks ended December 1, 2012 was $51.5 million compared to $44.2 million for the thirty-nine weeks ended November 26, 2011. The $7.3 million increase in cash used in financing activities is due to a $9.9 million decrease in proceeds received from the issuance of common stock in connection with employee stock programs and funding of a related-party note receivable for $4.0 million, offset by proceeds from the sale of redeemable noncontrolling interest of $10.0 million related to Running Specialty.

On July 21, 2011, the Company’s Board of Directors authorized a stock repurchase program (the “Plan”) to repurchase up to 5,000,000 shares of the Company’s common stock outstanding through December 31, 2014. On January 3, 2013, the Company’s Board of Directors amended the Plan (the “Amended Plan”) and authorized an additional 5,000,000 shares of the Company’s common stock, which authorization shall expire on December 31, 2017. The Company purchased 1,038,285 shares at an average price of $20.46 per share for an aggregate amount of $21.2 million for the thirteen weeks ended December 1, 2012. The Company purchased 2,549,404 shares at an average price of $21.03 per share for an aggregate amount of $53.6 million for the thirty-nine weeks ended December 1, 2012. The remaining shares available for repurchase under the Amended Plan are 5,923,457 shares as of January 3, 2013.

 

13


The Company’s treasury shares may be issued upon the exercise of employee stock options, issuance of shares for the Employee Stock Purchase Plan, issuance of restricted stock, or for other corporate purposes. Further purchases will occur from time to time as market conditions warrant and as the Company deems appropriate when judged against other alternative uses of cash.

On October 17, 2012, the Company announced a quarterly cash dividend of $0.06 per share of the Company’s Class A common shares. The Company declared dividends of $3.0 million during the thirteen weeks ended December 1, 2012. The cash dividends of $3.0 million were paid on December 17, 2012 to shareholders of record on November 30, 2012 and was included as of December 1, 2012 in “Other liabilities and accrued expenses” on the Company’s consolidated balance sheet. Further declarations of dividends remain at the discretion of the Company’s Board of Directors.

On July 20, 2012, all of the Company’s shares of Class B common stock were converted on a one-for-one basis into an equal number of shares of Class A common stock in accordance with the terms of the Company’s Restated Articles of Incorporation, and the Company eliminated its dual class stock structure. The Company did not receive any proceeds from the conversion of the Class B shares, and the Company will not receive any proceeds from the sale of any Class A shares issued as a result of the conversion. Per the Company’s Restated Articles of Incorporation, as of the conversion, all Class B shares are no longer authorized.

On November 30, 2012, the Company entered into an unsecured $100 million Amended and Restated Revolving Credit Facility Credit Agreement (the “Amended Credit Agreement”) with certain Lenders, which expires on November 30, 2017. The Amended Credit Agreement provides that, under certain circumstances, the Company may increase the maximum amount of the credit facility in an aggregate principal amount not to exceed $200 million. The Amended Credit Agreement will be used by the Company, among other things, to issue letters of credit, support working capital needs, fund capital expenditures and other general corporate purposes.

The Amended Credit Agreement documented in the investing section above and related loan documents replace the Company’s prior $50 million Revolving Credit Facility (the “Prior Credit Agreement”). All commitments under the Prior Credit Agreement were terminated effective November 30, 2012. No advances were outstanding under the Prior Credit Agreement as of November 30, 2012.

Approximately $4.1 million in stand-by letters of credit was outstanding as of December 1, 2012 under the Amended Credit Agreement. No advances were outstanding under the Amended Credit Agreement as of December 1, 2012. Accordingly, the total revolving credit availability under the Amended Credit Agreement was $95.9 million as of December 1, 2012.

The Company’s ability to borrow monies in the future under the Amended Credit Agreement is subject to certain conditions, including compliance with certain covenants and making certain representations and warranties. The Amended Credit Agreement contains restrictive covenants that limit, among other things, mergers and acquisitions. In addition, the Company must maintain a maximum leverage ratio (as defined in the Amended Credit Agreement) and minimum consolidated tangible net worth (as defined in the Amended Credit Agreement). The Company was in compliance with all such covenants as of December 1, 2012.

The Amended Credit Agreement pricing grid is adjusted quarterly and is based on the Company’s leverage ratio (as defined in the Amended Credit Agreement). The minimum pricing is LIBOR plus 0.90% or Base Rate (as defined in the Amended Credit Agreement) and the maximum pricing is LIBOR plus 1.75% or Base Rate (as defined in the Amended Credit Agreement) plus 0.75%. In addition, the Company is subject to an unused commitment fee based on the Company’s leverage ratio with minimum pricing of 0.10% and maximum pricing of 0.25%. In addition, the Company is subject to a letter of credit fee based on the Company’s leverage ratio with minimum pricing of 0.40% and maximum pricing of 1.25%.

Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment.” This update amended the procedures for testing the impairment of indefinite-lived intangible assets by permitting an entity to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible assets are impaired. An entity’s assessment of the totality of events and circumstances and their impact on the entity’s indefinite-lived intangible assets will then be used as a basis for determining whether it is necessary to perform the quantitative impairment test as described in Accounting Standard Codification 350-30, “Intangibles – Goodwill and Other – General Intangibles Other than Goodwill.” This ASU will be effective for the Company on March 3, 2013, with early adoption permitted. The adoption of this guidance is not expected to have a significant effect on the Company’s consolidated financial statements.

Other recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

Contractual Obligations

The Company’s contractual obligations primarily consist of operating leases and purchase orders for merchandise inventory. For the thirty-nine weeks ended December 1, 2012, there were no significant changes to the Company’s contractual obligations from those identified in the Company’s Annual Report on Form 10-K for the fiscal year ended March 3, 2012, other than those which occur in the normal course of business (primarily changes in the Company’s merchandise inventory related to purchase obligations, which fluctuate throughout the year as a result of the seasonal nature of the Company’s operations, and changes to operating leases due to store openings and closings), and those mentioned below.

The Company announced in a Form 8-K filed with the SEC on September 28, 2012 that it had entered into an agreement with Macy’s, Inc., to operate Finish Line-branded athletic footwear shops in more than 450 Macy’s department stores in the U.S. In addition, the Company will manage the athletic footwear assortment and inventory for approximately 225 other Macy’s stores in the U.S. that carry footwear. As part of the agreement with Macy’s, the Company will purchase inventory of athletic footwear on hand as of April 7, 2013. With respect to the portion of the inventory on hand by Macy’s with a receipt date on or before December 31, 2012, the Company will purchase up to $12.0 million at cost. Also, with respect to the inventory on hand with a receipt date on or after January 1, 2013, the Company will purchase 100% of the inventory at cost.

 

 

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Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to adopt accounting policies related to estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, management evaluates its accounting policies, estimates and judgments, including those related to inventories, long–lived assets and contingencies. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of the Company’s market risk associated with interest rates as of March 3, 2012, see “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of Part II of the Company’s Annual Report on Form 10-K for the fiscal year ended March 3, 2012. For the thirty-nine weeks ended December 1, 2012, there has been no significant change in related market risk factors.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. With the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective in ensuring that (i) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this Report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject, from time to time, to certain legal proceedings and claims in the ordinary course of conducting its business. Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, the Company’s legal proceedings are not expected to have a material adverse effect on the Company’s financial position or results of operations.

ITEM 1A. RISK FACTORS

Risk factors that affect the Company’s business and financial results are discussed in “Item 1A: Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended March 3, 2012. There has been no significant change to identified risk factors for the thirty-nine weeks ended December 1, 2012.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 21, 2011, the Company’s Board of Directors authorized a stock repurchase program (the “Plan”) to repurchase up to 5,000,000 shares of the Company’s Class A common stock outstanding through December 31, 2014. On January 3, 2013, the Company’s Board of Directors amended the Plan and authorized an additional 5,000,000 shares of the Company’s common stock, which authorization shall expire on December 31, 2017. Information on the shares repurchased under the Plan during the thirteen weeks ended December 1, 2012 is as follows:

 

Month

   Total Number of
Shares Purchased
     Average Price
Paid per Share (1)
     Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans or Programs
     Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Program (2)
 

September (9/2/12 – 10/6/12)

     —         $           —           2,288,981   

October (10/7/12 – 11/3/12)

     447,437       $ 20.82         447,437         1,841,544   

November (11/4/12 – 12/1/12)

     590,848       $ 20.19         590,848         1,250,696   
  

 

 

    

 

 

    

 

 

    
     1,038,285       $ 20.46         1,038,285      
  

 

 

    

 

 

    

 

 

    

 

(1) The average price paid per share includes any brokerage commissions.
(2) The 2011 stock repurchase plan was announced on July 21, 2011, whereby the Company is authorized to repurchase up to 5,000,000 shares of the Company’s Class A common stock outstanding through December 31, 2014. On January 3, 2013, the Company’s Board of Directors amended the Plan (the “Amended Plan”) and authorized an additional 5,000,000 shares of the Company’s common stock, which authorization shall expire on December 31, 2017. The remaining shares available for repurchase under the Amended Plan are 5,923,457 shares as of January 3, 2013.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Exhibits

 

10.1    Amended and Restated Revolving Credit Facility Credit Agreement, dated as of November 30, 2012, by and among The Finish Line, Inc., The Finish Line USA, Inc., The Finish Line Distribution, Inc., Finish Line Transportation Co., Inc., and Spike’s Holdings, LLC, as Borrowers, The Finish Line MA, Inc., as Guarantor, certain Lenders named therein, Bank of America, N.A., as Syndication Agent, and PNC Bank, National Association, as Administrative Agent, Lead Arranger, and Sole Book Runner (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed by the Company on December 6, 2012).
10.2    Amended and Restated Continuing Agreement of Guaranty and Suretyship – Subsidiaries, dated as of November 30, 2012, by The Finish Line MA, Inc. (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed by the Company on December 6, 2012).
31.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
31.2    Certification of Chief Financial Officer Pursuant to Rule 13a–14(a) and 15d-14(a) of the Securities Exchange Act, as amended.

 

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32    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101    The following materials from The Finish Line, Inc.’s Form 10-Q for the quarterly period ended December 1, 2012, formatted in an XBRL Interactive Data File: (i) Consolidated Balance Sheets-unaudited; (ii) Consolidated Statements of Operations-unaudited; (iii) Consolidated Statements of Cash Flows-unaudited; and (iv) Notes to Consolidated Financial Statements-unaudited, with detailed tagging of notes and financial statement schedules.*

 

* Users of the XBRL-related information in Exhibit 101 of this Quarterly Report on Form 10-Q are advised, in accordance with Regulation S-T Rule 406T, that this Interactive Data File is deemed not filed or as a part of a registration statement for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections. The financial information contained in the XBRL-related documents is unaudited and unreviewed.

 

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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: January 7, 2013     By:   /S/    EDWARD W. WILHELM    
      Edward W. Wilhelm
      Executive Vice President, Chief Financial Officer

 

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Exhibit Index

 

Exhibit

Number

  

Description

10.1    Amended and Restated Revolving Credit Facility Credit Agreement, dated as of November 30, 2012, by and among The Finish Line, Inc., The Finish Line USA, Inc., The Finish Line Distribution, Inc., Finish Line Transportation Co., Inc., and Spike’s Holdings, LLC, as Borrowers, The Finish Line MA, Inc., as Guarantor, certain Lenders named therein, Bank of America, N.A., as Syndication Agent, and PNC Bank, National Association, as Administrative Agent, Lead Arranger, and Sole Book Runner (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed by the Company on December 6, 2012).
10.2    Amended and Restated Continuing Agreement of Guaranty and Suretyship – Subsidiaries, dated as of November 30, 2012, by The Finish Line MA, Inc. (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed by the Company on December 6, 2012).
31.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
31.2    Certification of Chief Financial Officer Pursuant to Rule 13a–14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
32    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101    The following materials from The Finish Line, Inc.’s Form 10-Q for the quarterly period ended December 1, 2012, formatted in an XBRL Interactive Data File: (i) Consolidated Balance Sheets-unaudited; (ii) Consolidated Statements of Operations-unaudited; (iii) Consolidated Statements of Cash Flows-unaudited; and (iv) Notes to Consolidated Financial Statements-unaudited, with detailed tagging of notes and financial statement schedules.*

 

* Users of the XBRL-related information in Exhibit 101 of this Quarterly Report on Form 10-Q are advised, in accordance with Regulation S-T Rule 406T, that this Interactive Data File is deemed not filed or as a part of a registration statement for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections. The financial information contained in the XBRL-related documents is unaudited and unreviewed.

 

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