-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SexISWCbXju5p8RMqsiPKMk28nF/z5kdltpOya+be2CZYKf30l6DAaCAmqw674zs wdbIa7Ti/uO5d5eMwXnSjg== /in/edgar/work/20000526/0000898430-00-001717/0000898430-00-001717.txt : 20000919 0000898430-00-001717.hdr.sgml : 20000919 ACCESSION NUMBER: 0000898430-00-001717 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000226 FILED AS OF DATE: 20000526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FINISH LINE INC /DE/ CENTRAL INDEX KEY: 0000886137 STANDARD INDUSTRIAL CLASSIFICATION: [5661 ] IRS NUMBER: 351537210 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-20184 FILM NUMBER: 644517 BUSINESS ADDRESS: STREET 1: 3308 N MITTHOEFFER RD CITY: INDINAPOLIS STATE: IN ZIP: 46236 BUSINESS PHONE: 3178991022 MAIL ADDRESS: STREET 1: 3308 N MITTHOEFFER ROAD CITY: INDIANAPOLIS STATE: IN ZIP: 46236 10-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________ FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended February 26, 2000 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 of Incorporation) (I.R.S. Employer ID No.) 3308 N. Mitthoeffer Road, Indianapolis, Indiana 46235 Registrant's telephone number, including area code: (317) 899-1022 _____________ Securities registered pursuant to Section 12(b) of the Act: (Title of Each Class) (Name of each exchange on which registered) None None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $.01 par value _____________ 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of April 28, 2000 was approximately $191,714,700 which was based on the last sale price reported for such date by NASDAQ. The number of shares of the Registrant's Common Stock outstanding on April 28, 2000 was: Class A Common Stock: 18,212,015 Class B Common Stock: 6,267,375 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement dated June 8, 2000 for the Annual Meeting of Stockholders to be held on July 20, 2000 (hereinafter referred to as the "2000 Proxy Statement") are incorporated into Part III. Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended February 26, 2000 (hereinafter referred to as the "2000 Annual Report to Stockholders") are incorporated into Parts II and IV. 1 PART I ------ Item 1 - Business General - ------- The Finish Line, Inc. together with its wholly owned subsidiary Spike's Holding, Inc. (the "Company" or "Finish Line") is one of the largest mall based specialty retailers of brand name athletic, outdoor and casual footwear, activewear and accessories in the United States. As of April 1, 2000, the Company operated 415 stores in 42 states. A Finish Line store generally carries a large selection of men's, women's and children's athletic and casual shoes, as well as a broad assortment of activewear and accessories. Brand names offered by the Company include Nike, adidas, Reebok, And 1, K-Swiss, New Balance, Timberland, Asics and Skechers. The Company attempts to distinguish itself from other athletic footwear specialty retailers through larger mall-based store formats. Finish Line stores average 6,061 square feet, and the Company's stores opened during fiscal 2000 averaged approximately 6,500 square feet. The Company's strategy is to create an exciting and entertaining retail environment by continually updating store designs, and to operate a larger store size, which permits greater product depth and merchandising flexibility. Since activewear and accessories generally carry higher gross margins, Finish Line devotes a greater percentage of its sales area to these products than typical athletic footwear specialty stores. Activewear and accessories accounted for approximately 23% of the Company's net sales in fiscal 2000. The Company's principal executive offices are located at 3308 N. Mitthoeffer Road, Indianapolis, Indiana 46235, and its telephone number is (317) 899-1022. Operating Strategies - -------------------- Finish Line seeks to be a leading specialty retailer of athletic footwear and activewear in the markets it serves. To achieve this, the Company has developed the following elements to its business strategy: Emphasis on Customer Service and Convenience. The Company is committed to making the shopping experience at Finish Line rewarding and enjoyable, and seeks to achieve this objective by providing convenient mall-based locations with highly functional store designs, offering competitive prices on brand name products, maintaining optimal in-stock levels of merchandise and employing knowledgeable and courteous sales associates. Inventory Management. The Company stresses effective replenishment and distribution to each store. The Company's advanced information and distribution systems enable it to track inventory in each store by stockkeeping unit (SKU) on a daily basis, giving Finish Line flexibility to merchandise its products effectively. In addition, these systems allow the Company to respond promptly to changing customer preferences and to maintain optimal inventory levels in each store. The Company's inventory management system features automatic replenishment driven by point-of-sale (POS) data capture and a highly automated distribution center, which enables Finish Line to ship merchandise to each store every third day. 2 Product Diversity; Broad Demographic Appeal. Finish Line stocks its stores with a combination of the newest high profile and brand name merchandise, unique products manufactured exclusively for the Company, as well as promotional and opportunistic purchases of other brand name merchandise. Product diversity, in combination with the Company's store formats and commitment to customer service, is intended to attract a broad demographic cross-section of customers. Expansion Strategies - -------------------- The Company's objective is to continue its store expansion program by introducing Finish Line stores into new markets as well as increase its visibility in previously established markets. New Store Openings. Since the Company's initial public offering in June 1992, Finish Line has expanded from 104 stores to 415 stores at April 1, 2000. The Company opened 55 new stores in fiscal 2000 and intends to open 25 to 30 new stores in fiscal 2001, which represents increases of approximately 14% in fiscal 2000 and 6% to 7% in fiscal 2001. Total square footage increased 18% in fiscal 2000 over the prior year as a result of the Company's strategy of opening larger traditional stores, as well as selected larger format stores. For fiscal 2001 the Company plans to increase its total square footage open by approximately 7% to 8%. Much of this square footage growth will result from a renewed emphasis on smaller traditional stores averaging approximately 5,000 square feet. The Company expects that its new stores will be in both new and existing geographic markets. Larger Stores. The Company has been adding larger stores to its chain over the past five years. This strategy allows for greater product depth and merchandising flexibility, which the Company believes improves its ability to compete against both mall-based and non-mall-based athletic retailers, and will result in total square footage increasing at a faster rate than store count. In conjunction with these large stores the Company has developed two store formats: Traditional Format Concept - These stores are less than 10,000 square feet in size. They typically are stocked with 600-700 footwear styles and 10,000+ shoes. While the average size of all traditional concept stores is 5,165 square feet, traditional concept stores opened in fiscal 2000 averaged 5,476 square feet. Larger Format Concept - These stores are more than 10,000 square feet in size. They are typically stocked with 1,000 - 1,300 footwear styles and 20,000- 30,000+ shoes. This format offers Finish Line the opportunity to establish a dominant presence in the best major malls throughout the country. The Company expects to reduce the number of larger store openings during the next fiscal year due to slower sales of activewear. Commitment to Continually Strengthen Infrastructure. Over the last five years, Finish Line has made a number of strategic infrastructure investments, including enhancements to its management, store operations, and distribution and information systems. Significant 3 management additions and organizational changes include recruiting additional management professionals with significant industry experience, as well as centralizing the supervision of the footwear and activewear/accessories departments to improve communication and coordination between the two areas. In addition, staffs in both departments have been increased to allow the buyers and merchandisers to focus more time and attention on specific product categories. The Company has also invested in management information systems and the distribution center by implementing Electronic Data Interchange (EDI) and radio frequency (RF) technologies in inventory management/distribution areas. Both technologies are designed to improve the efficiency of inventory management as well as response time and in-stock position. Merchandise - ----------- The following table sets forth the percentage of net sales attributable to the categories of footwear, activewear and related accessories during the periods indicated. These percentages fluctuate substantially during the different consumer buying seasons. To take advantage of this seasonality, the Company's stores have been designed to allow for a shift in emphasis in the merchandise mix between footwear and activewear/accessory items.
Year Ended ------------------------------- Feb. 26, Feb. 27, Feb. 28, Category 2000 1999 1998 -------- --------- -------- -------- Footwear 77% 72% 69% Activewear/Accessories 23% 28% 31% ---- ---- ---- Total 100% 100% 100% ==== ==== ====
All merchandising decisions, including merchandise mix, pricing, promotions and markdowns, are made at the corporate headquarters. The store manager and district manager, along with management at the Company's headquarters, review the merchandise mix to adapt to permanent or temporary changes or trends in the marketplace. Footwear - -------- Finish Line's distinctive shoe wall is stocked with the latest in athletic, casual and outdoor footwear that the industry has to offer, including: Nike, adidas, Reebok, Timberland, And 1, K-Swiss, New Balance, Asics, Converse, Fila, Skechers and many others. To make shopping easier for customers, footwear is categorized into definable sections including: basketball, cross-training, running, fitness, tennis, cleated, golf, outdoor, casual and lifestyle. Most categories are available in men's, women's and children's styles. Activewear/Accessories - ---------------------- Many of the same companies, which supply Finish Line with quality footwear, also supply activewear, including products made by Nike, adidas and Reebok. Additional suppliers include Logo Athletic, along with outdoor activewear from Columbia and Timberland. In addition, the Company offers fashion brands including NST Nautica Sport Tech, RLX Polo 4 Sport, and DADA. Many vendors offer footwear, activewear and accessories in "collections". Categories of activewear consist of jackets, caps, tops, pants, shorts, windwear, running wear, warm-ups, fleece, fitness wear and sport-casual wear. Among the accessories offered by the Company are socks, athletic bags, backpacks, sunglasses, watches and shoe-care products. In addition, the Company has continued to build a private label apparel program through the introduction of two new private label lines, SPK and 808. SPK meets the needs of our value/performance customers by offering high quality basic athletic apparel at introductory price points. 808's graphic driven t-shirts target a college age shopper looking for more contemporary lifestyle apparel. Marketing - --------- The Company attempts to reach its target audience by using a multifaceted approach to marketing and advertising on national, regional and local levels. The Company utilizes television, direct mail, consumer print, outdoor, and the internet in its marketing efforts. The Company also takes advantage of advertising and promotional assistance from many of its suppliers. This assistance takes the form of cooperative advertising programs, in-store sales incentives, point-of-purchase materials, product training for employees and other programs. Total advertising expense for fiscal 2000 and fiscal 1999 was 1.6% and 1.5%, respectively, of net sales, after deducting co-op reimbursements. These percentages fluctuate substantially during the different consumer buying seasons. The Company also believes that it benefits from the multimillion dollar advertising campaigns of its key suppliers, such as Nike, adidas, and Reebok. The Company also uses in-store contests, promotions and event sponsorships, as well as a comprehensive public relations effort to further market the Company. Purchasing and Distribution - --------------------------- Finish Line's footwear and activewear purchasing is coordinated through a centralized merchandising department under the direction of an Executive Vice President-Merchandise and Marketing. The buying and merchandise departments are comprised of approximately 35 people. The footwear and activewear/accessories divisions consist of a Senior Vice President-General Merchandise Manager, divisional merchandise managers, multiple buyers and associate buyers. Both buying divisions are supported by a planning and distribution division, which consists of planners, merchandisers and administrative assistants. The Company believes that its ability to buy in large quantities directly from suppliers enables it to obtain favorable pricing and trade terms. Currently, the Company purchases product from approximately 140 suppliers and manufacturers of athletic and fashion products, the largest of which (Nike) accounted for approximately 49% and 56% of total purchases in fiscal 2000 and fiscal 1999, respectively. The Company purchased approximately 79% and 87% of total merchandise in fiscal 2000 and fiscal 1999, respectively, from its five largest suppliers. The Company and its vendors use EDI technology to streamline purchasing and distribution operations. The Company has implemented warehouse management computer software for distribution center processing that features RF technology. This system has helped improve productivity and accuracy as well as reduce the time it takes to send merchandise to stores. The Company believes this innovative technology will continue to improve its operations as well as 5 allow for real-time tracking of inventory within the distribution center. Nearly all of the Company's merchandise is shipped directly from suppliers to the distribution center, where the Company processes and ships it by contract and common carriers to its stores. Each day shipments are made to one-third of the Company's stores. In any three-week period, each store will receive five shipments. A shipment is normally received one to four days from the date that the order is filled depending on the store's distance from the distribution center. Historically, the Company maintains approximately two-thirds of a month's supply of merchandise at the distribution center. Management Information System - ----------------------------- The Company has a computerized management information system, which includes a network of computers at corporate headquarters used by management to support decision-making along with PC-based POS computers at the stores. Store computers are connected via modem or frame relay to computers at corporate headquarters. A perpetual inventory system permits corporate management to review daily each store's inventory by department, class and SKU. This system includes an automated replenishment system that allows the Company to replace faster-selling items more quickly. Other functions in the system include accounting, distribution, inventory tracking and control. Store Operations - ---------------- The Company has an Executive Vice President - Store Operations, Senior Vice President-Store Personnel and regional and district managers who visit the stores regularly to review the implementation of Company plans and policies, monitor operations, and review inventories and the presentation of merchandise. Accounting and general financial functions for the stores are conducted at corporate headquarters. Each store has a store manager or co-managers that are responsible for supervision and overall operations, one or more assistant mangers and additional full and part-time sales associates. Regional, district and store managers receive a fixed salary and are eligible for bonuses, based primarily on sales, payroll and shrinkage performance goals of the stores for which they are responsible. All assistant store managers and sales associates are paid on an hourly basis. Real Estate - ----------- As of April 1, 2000, Finish Line operated 415 stores in 42 states. With the exception of nine strip-center stores, all Finish Line stores are located in enclosed shopping malls. The typical store format has a sales floor, which includes a try-on area, and a display area where each style of footwear carried in the store is displayed by category (e.g., basketball, tennis, running), and an adjacent stock room where the footwear inventory is maintained. Sales floors in all stores represent approximately 65% to 75% of the total space. In addition to its typical store format, the Company operates approximately 16 stores using a "rack store" format, where footwear inventory is kept directly on the sales floor. To keep its stores fresh and exciting, the Company has developed a strategy of consolidating older merchandise in one or more stores in each district for additional or final markdown. These stores are generally located in strip shopping centers or mixed-use outlet centers because these locations typically have lower occupancy costs and investments in leasehold improvements. 6 Finish Line believes that its ability to obtain attractive, high traffic store locations, such as enclosed malls, to be a critical element of its business and a key factor in its future growth and profitability. In determining new store locations, management evaluates market areas, in-mall locations, "anchor" stores, consumer traffic, mall sales per square foot, competition and occupancy, construction and other costs associated with opening a store. The Company believes that the number of desirable store sites likely to be available in the future will permit it to implement its growth strategy in total square footage. Finish Line leases all of its stores. Initial lease terms of the stores generally range from 5 to 10 years in duration without renewal options, although some of the stores are subject to leases for 5 years with one or more renewal options. The leases generally provide for a fixed minimum rental plus a percentage of sales in excess of a specified amount. Based upon expenditures for fiscal 2000, the Company estimates that the cash requirements for opening a traditional new store (under 10,000 square feet) will approximate $565,000. This estimate includes $340,000 for fixtures, equipment, leasehold improvements and pre-opening expenses plus $325,000 ($225,000 net of payables) in inventory investment. The estimate of opening a large format store (over 10,000 square feet) may vary significantly depending on exact square footage, landlord construction allowance and inventory investment needed to support expected sales levels. These estimates range from $900,000 to $1,900,000. Competition - ----------- The Company's business is highly competitive. Many of the products the Company sells are sold in department stores, national and regional full-line sporting goods stores, athletic footwear specialty stores, athletic footwear superstores, discount stores, traditional shoe stores mass merchandisers, and internet e-tailers. Some of the Company's primary competitors are large national and/or regional chains that have substantially greater financial and other resources than Finish Line. Among the Company's competition are stores that are owned by major suppliers to the Company. To a lesser extent, the Company competes with mail order and local sporting goods and athletic specialty stores. In many cases, the Company's stores are located in enclosed malls or shopping centers in which one or more competitors also operate. Typically, the leases, which the Company enters into, do not restrict the opening of stores by competitors. The Company attempts to differentiate itself from its competition by operating larger, more attractive, well-stocked stores in high retail traffic areas, with competitive prices and knowledgeable and courteous customer service. The Company attempts to keeps its prices competitive with athletic specialty and sporting goods stores in each trade area, including competitors that are not necessarily located inside the mall. The Company believes it accomplishes this by effectively mixing high profile and brand name merchandise with promotional and opportunistic purchases of other brand name merchandise and by controlling expenses, especially administrative and overhead expenses, with small, efficient departments throughout the organization. Seasonal Business - ----------------- The Company's business follows a seasonal pattern, peaking over a total of about 12 weeks during the late summer (late July through early September) and holiday (Thanksgiving through Christmas) periods. During the fiscal year ended February 26, 2000, these periods accounted for approximately 34% of the Company's annual sales. 7 Employees - --------- As of April 1, 2000, the Company employed approximately 8,630 persons, 1,970 of whom were full-time and 6,660 of whom were part-time. Of this total, 380 were employed at the Company's Indianapolis, Indiana corporate headquarters and distribution center and 36 were employed as regional and district managers. Additional part-time employees are typically hired during the back-to-school and holiday seasons. None of the Company's employees are represented by a union and employee relations are generally considered good. Profit Sharing Plan - ------------------- While no assurances can be given that it will do so in the future, the Company has in the past purchased on the open market its Class A Common Stock and later contributed it in lieu of cash to the Company's Profit Sharing Plan. During fiscal 2000 the Company contributed 50,000 shares of Class A Common Stock to the Profit Sharing Plan representing a non cash contribution of $682,825. Trademarks - ---------- The Company has registered in the United States Patent and Trademark Office several trademarks relating to its business. The Company believes its trademark and service mark registrations are valid, and it intends to be vigilant with regard to infringing or diluting uses by other parties, and to enforce vigorously its rights in its trademarks and service marks. Item 2 - PROPERTIES In November 1991, the Company moved into its existing corporate headquarters and distribution center located on 16 acres in Indianapolis, Indiana. The facility, which is owned by the Company, was designed and constructed to the Company's specifications and includes automated conveyor and storage rack systems designed to reduce labor costs, increase efficiency in processing merchandise and enhance space productivity. In 1992, the Company purchased an additional 17 adjacent acres, thus bringing the total size of the headquarters property to 33 acres. This facility includes 46,000 square feet of office space and 256,000 square feet of warehouse space. The 33 acres will permit the headquarters and distribution center to be expanded to an aggregate of approximately 800,000 square feet through the expansion of the existing building and construction of additional buildings. 8 Store Locations - --------------- At April 1, 2000, the Company operated 415 stores in 42 states. With the exception of nine strip center stores, all Finish Line stores are located in enclosed shopping malls. The following table sets forth information concerning the Company's stores.
STATE TOTAL STATE TOTAL - -------------------------- --------------- ---------------------------- --------------- 2 Alabama 7 Missouri 11 Arizona 4 Nebraska 4 Arkansas 11 Nevada 1 California 6 New Hampshire 4 Colorado 4 New Jersey 6 Connecticut 1 New Mexico 1 Delaware 22 New York 22 Florida 16 North Carolina 16 Georgia 1 North Dakota 2 Idaho 32 Ohio 38 Illinois 24 Oklahoma 7 Indiana 7 Oregon 1 Iowa 8 Pennsylvania 24 Kansas 8 South Carolina 5 Kentucky 5 South Dakota 1 Louisiana 1 Tennessee 13 Maine 14 Texas 30 Maryland 6 Virginia 15 Massachusetts 16 Washington 3 Michigan 2 West Virginia 5 Mississippi Wisconsin 9 --------------- Total 415
The Company leases all of its stores. Initial lease terms for the Company's stores generally range from five to ten years in duration without renewal options, although some of the stores are subject to leases for five years with one of more renewal options. The leases generally provide for a fixed minimum rental plus a percentage of sales in excess of a specified amount. Forward - Looking Statements and Risk Factors - --------------------------------------------- This annual report on Form 10-K and the documents incorporated by reference contain statements, which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the historical information contained herein, the matters discussed in the Form 10-K and the documents incorporated by reference are forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to: changing consumer 9 preferences; the Company's inability to successfully market its footwear, apparel, accessories and other merchandise; price, product and other competition from other retailers (including internet and direct manufacturer sales); the unavailability of products; the inability to locate and obtain favorable lease terms for the Company's stores; the loss of key employees, general economic conditions and adverse factors impacting the retail athletic industry; management of growth, and the other risks detailed in the Company's Securities and Exchange Commission filings. The Company undertakes no obligation to release publicly the results of any revisions to these forward looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Item 3 - LEGAL PROCEEDINGS The Company is from time to time, involved in certain legal proceedings in the ordinary course of conducting its business. Management believes there are no pending legal proceeding in which the Company is currently involved which will have a material adverse effect on the Company's financial position. Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ------- Item 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated herein by reference to pages 31 and the inside back cover of the 2000 Annual Report to Stockholders filed as Exhibit 13 to this Annual Report on Form 10-K. Item 6 - SELECTED FINANCIAL DATA The information required by this item is incorporated herein by reference to page 17 of the 2000 Annual Report to Stockholders filed as Exhibit 13 to this Annual Report on Form 10-K. Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated herein by reference to pages 18 through 21 of the 2000 Annual Report to Stockholders filed as Exhibit 13 to this Annual Report on Form 10-K. Item 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is incorporated by reference to page 21 of the 2000 Annual Report to Stockholders filed as Exhibit 13 to this Annual Report on Form 10-K. Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated herein by reference to page 19 and pages 22 through 30 of the 2000 Annual Report to Stockholders filed as Exhibit 13 to this Annual Report on Form 10-K. 10 Item 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements between the Registrant and its independent auditors on matters of accounting principles or practices. PART III -------- Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated herein by reference to the Sections entitled "Election of Directors--Nominees", and "Management-- Executive Officers and Directors" in the 2000 Proxy Statement to be filed within 120 days of February 26, 2000, the Company's most recent fiscal year end. Item 11 - EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the Section entitled "Executive Compensation" in the 2000 Proxy Statement to be filed within 120 days of February 26, 2000, the Company's most recent fiscal year end. Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the Section entitled "Securities Ownership of Certain Beneficial Owners and Management" in the 2000 Proxy Statement to be filed within 120 days of February 26, 2000, the Company's most recent fiscal year end. Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the Sections entitled "Certain Transactions" and "Compensation Committee Interlocks and Insider Participation" in the 2000 Proxy Statement to be filed within 120 days of February 26, 2000, the Company's most recent fiscal year end. PART IV ------- Item 14 - EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. The following financial statements of The Finish Line, Inc. and the report of independent auditors included in the 2000 Annual Report to Stockholders are incorporated herein by reference: Report of Independent Auditors Consolidated Balance Sheets as of February 26, 2000 and February 27, 1999. Consolidated Statements of Income for the years ended February 26, 2000, February 27, 1999, and February 28, 1998. 11 Consolidated Statements of Changes in Stockholders' Equity for the years ended February 26, 2000, February 27, 1999, and February 28, 1998. Consolidated Statements of Cash Flows for the years ended February 26, 2000, February 27, 1999 and February 26, 2000. Notes to Consolidated Financial Statements - February 26, 2000. 2. The Financial Statement Schedule of The Finish Line, Inc. is listed in Item 14(d). (b) Reports on Form 8-K None. (c) Exhibits Exhibit Number Description - -------- ----------- 3.1.1 Restated Certificate of Incorporation of The Finish Line, Inc.(1) 3.1.2 Certificate of Amendment to the Restated Certificate of Incorporation of The Finish Line, Inc.(1) 3.2 Bylaws of The Finish Line, Inc. as amended and restated.(1) 4.1 1992 Employee Stock Incentive Plan of The Finish Line, Inc., as amended and restated.(4) 10.6.2 Form of Incentive Stock Option Agreement pursuant to the 1992 Employee Stock Incentive Plan.(1) 10.6.3 Form of Non-Qualified Stock Option Agreement pursuant to the 1992 Employee Stock Incentive Plan.(1) 10.7 Form of Indemnity Agreement between The Finish Line Inc. and each of its Directors or Executive Officers.(1) 10.18 Amended and Restated Tax Indemnification Agreement.(2) 10.21.1 The Finish Line, Inc. Profit Sharing Plan as Amended and Restated.(3) 10.21.2 Amendment to The Finish Line, Inc. Profit Sharing Plan dated January 1, 1993.(3) 10.21.3 Second Amendment to The Finish Line, Inc. Profit Sharing Plan dated January 1, 1994.(3) 10.26 Revolving Credit Agreement among Spike's (5) Holding, Inc., and The Finish Line, Inc. dated May 4, 1997. 10.27 Credit Agreement among The Finish Line, Inc. and NBD Bank, N.A., National City Bank of Indiana, The Northern Trust Company, Suntrust Bank, Central Florida, N.A. and NBD Bank, N.A. as Agent dated July 10, 1998. (6) 12 10.27.1 Revolving Credit Note in the amount of $30,000,000 with NBD Bank, N.A. dated July 10, 1998. (6) 10.27.2 Revolving Credit Note in the amount of $15,000,000 with The Northern Trust Company dated July 10, 1998. (6) 10.27.3 Revolving Credit Note in the amount of $15,000,000 with The Northern Trust Company dated July 10, 1998. (6) 10.27.4 Revolving Credit Note in the amount of $15,000,000 with Suntrust Bank, Central Florida, N.A. dated July 10, 1998. (6) 10.28 Finish Line, Inc. Non-Employee Director Stock Option Plan, as amended and restated.(7) 10.29 Amendment to Revolving Credit Agreement among Spike's Holding, Inc., and The Finish Line, Inc. dated May 4, 1997.(8) 13 Annual Report to Stockholders for the year ended February 26, 2000 21 Subsidiaries of The Finish Line, Inc. 23 Consent of Ernst & Young LLP (independent auditors). 27 Financial Data Schedule (1) Previously filed as a like numbered exhibit to the Registrant's Registration Statement on Form S-1 and amendments thereto (File No. 33-47247) and incorporated herein by reference. (2) Previously filed as a like numbered exhibit to the Registrant's Quarterly Report on Form 10-Q (File No. 0-20184) for the quarter ended May 31, 1994 and incorporated herein by reference. (3) Previously filed as a like numbered exhibit to the Registrant's Annual Report on Form 10-K (File No. 0-20184) for the year ended February 28, 1995 and incorporated herein by reference. (4) Previously filed as a like numbered exhibit to the Registrant's Registration Statement on Form S-8 (File No.333-62063) and incorporated herein by reference. (5) Previously filed as a like numbered exhibit to the Registrants' Quarterly Report on Form 10Q (File No. 0-20184) for the quarter ended August 30, 1997 and incorporated herein by reference. (6) Previously filed as a like numbered exhibit to the Registrants' Quarterly Report on Form 10Q (File No. 0-20184) for the quarter ended August 29, 1998 and incorporated herein by reference. (7) Previously filed as a like numbered exhibit to the Registrant's Annual Report on Form 13 10-K (File No. 0-20184) for the year ended February 27, 1999 and incorporated herein by reference. (8) Previously filed as a like numbered exhibit to the Registrants' Quarterly Report on Form 10Q (File No. 0-20184) for the quarter ended November 27, 1999 and incorporated herein by reference. (d) Financial Statement Schedule Page ---- Schedule II -- Valuation and Qualifying Accounts 17 All supporting schedules other than the above have been omitted because they are not required or the information to be set forth therein is included in the financial statements or in the notes thereto. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) 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: May 24, 2000 By:/s/ Steven J. Schneider, ----------------------- Steven J. Schneider, Executive Vice President Finance, Chief Financial Officer and Assistant Secretary (Principal Financial and Accounting Officer) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature to this Annual Report on Form 10-K appears below hereby constitutes and appoints Alan H. Cohen and Steven J. Schneider as such person's true and lawful attorney-in-fact and agent with full power of substitution for such person and in such person's name, place and stead, in any and all capacities, to sign and to file with the Securities and Exchange Commission, any and all amendments to this Annual Report on Form 10-K, with exhibits thereto and other documents in connection therewith, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in- fact and agent, or any substitute therefore, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: May 24, 2000 /s/ Alan H. Cohen -------------------------- Alan H. Cohen, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Date: May 24, 2000 /s/ David I. Klapper -------------------------- David I. Klapper, Senior Executive Vice President, and Director Date: May 24, 2000 /s/ Larry J. Sablosky -------------------------- Larry J. Sablosky, Senior Executive Vice President and Director Date: May 24, 2000 /s/ Jonathan K. Layne -------------------------- Jonathan K. Layne, Director Date: May 24, 2000 /s/ Jeffrey H. Smulyan -------------------------- Jeffrey H. Smulyan, Director Date: May 24, 2000 /s/ Stephen Goldsmith ------------------------- Stephen Goldsmith, Director 15 INDEX TO FINANCIAL STATEMENT SCHEDULE PAGE - ------------------------------------- ---- II - Valuation and Qualifying Accounts 17 16 THE FINISH LINE, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands) COL A COL B COL C COL D COL E - ----- ----- ----- ----- ----- Additions --------------- Charged to Balance Charged to Other Deduc- Balance at Beg. Costs and Accounts tions- at End of Description of Period Expense Describe Describe Period - -------------------------------------------------------------------------------- Year ended February 28, 1998: Deducted from asset account: Reserve for inven- tory obsolescence...... $2,800 $ 200 -- -- $3,000 ------ ------ ------ ------ ------ Total.................. $2,800 $ 200 $0 $0 $3,000 ====== ====== ====== ====== ====== Year ended February 27, 1999: Deducted from asset account: Reserve for inven- tory obsolescence...... $3,000 $ 300 -- -- $3,300 ------ ------ ------ ------ ------ Total.................. $3,000 $ 300 $0 $0 $3,300 ====== ====== ====== ====== ====== Year ended February 26, 2000: Deducted from asset account: Reserve for inventory obsolescence........... $3,300 $1,000 -- -- $4,300 ------ ------ ------ ------ ------ Total.................. $3,300 $1,000 $0 $0 $4,300 ====== ====== ====== ====== ====== 17 Exhibit Index ------------- Exhibit Number Description - ------- ------------------------------------------------------ 13 Annual Report to Stockholders for the year ended February 26, 2000 21 Subsidiaries of The Finish Line, Inc. 23 Consent of Ernst & Young LLP (independent auditors). 27 Financial Data Schedule for year ended February 26, 2000 and February 27, 1999 18 EX-13 2 ANNUAL REPORT TO STOCKHOLDERS [COMPANY LOGO] [COMPANY LOGO][ Subject: Annual Report] [COMPANY LOGO] Financial Highlights
Dollars in thousands (except per share data) Fiscal Fiscal Fiscal 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ Net sales $ 585,963 $ 522,623 $ 438,911 Operating income 23,185 31,946 40,799 Operating income as a percent of net sales 4.0% 6.1% 9.3% Net income 15,607 20,687 26,734 Net income as a percent of net sales 2.7% 4.0% 6.1% Diluted earnings per share $ .62 $ .80 $ 1.02 Number of stores open at end of period 409 358 302 Total retail square footage at end of period 2,478,930 2,095,264 1,586,520 Average store size 6,061 5,853 5,253 Total assets $ 289,095 $ 278,555 $ 255,978 Cash and marketable securities 24,481 40,924 53,809 Total debt -- -- -- Total stockholders' equity 222,392 208,679 197,122 ========================================================================================================================
The Company's fiscal year ends on the Saturday nearest the end of February starting with fiscal 1998. For fiscal 1997 and prior, the Company's fiscal year ended at the end of February. As used in this Report, "fiscal 1996," "fiscal 1997," "fiscal 1998," "fiscal 1999," and "fiscal 2000" refer to the Company's fiscal years ended February 29, 1996; March 1, 1997; February 28, 1998; February 27,1999 and February 26, 2000 respectively. "Fiscal 2001" and "fiscal 2002" refer to the Company's fiscal years ending March 3, 2001 and March 2, 2002, respectively. [graphics appear here] [FASHION MODEL PRESENTING PRODUCT PICTURE APPEARS HERE] Finish Line, Inc. is a leading athletic retailer specializing in brand name athletic footwear, apparel and accessories. Known for its signature shoe wall, Finish Line works to provide customers with more styles and sizes of active footwear than any mall-based retailer. Finish Line began operations in 1976 in Indianapolis, Indiana and at year-end served customers in 41 states through 409 stores. ALABAMA Tallahassee Evansville MASSACHUSETTS Phillipsburg Dothan Tampa Fort Wayne Brockton Rockaway Montgomery Greenwood Hanover Voorhees GEORGIA Indianapolis Holyoke ARIZONA Alpharetta NEW MEXICO Kokomo Leominster Mesa Athens Albuquerque Lafayette Saugus Phoenix Atlanta Marion Taunton NEW YORK Scottsdale Decatur Merrillville Albany Tucson Duluth MICHIGAN Michigan City Bay Shore Kennesaw Adrian Mishawaka Buffalo ARKANSAS Morrow Muncie Battle Creek Fayetteville Blasdell Union City Bay City Richmond Williamsville Fort Smith Augusta South Bend Benton Harbor Little Rock Clay Buford Burton Terre Haute Dewitt N. Little Rock Douglasville Detroit IOWA Horseheads Macon Auburn Hills CALIFORNIA Ithaca Savannah Cedar Rapids Flint Fairfield Lakewood Coralville Fort Gratiot Los Angeles IDAHO Massapequa Davenport Grand Rapids Cerritos Boise Middletown Des Moines Holland Culver City Niagara Falls ILLINOIS Dubuque Lansing Montclair Poughkeepsie Alton Iowa City Midland Montebello Rochester Bloomington Sioux City Monroe Northridge Rotterdam Orange County Bourbonnais KANSAS Port Huron Saratoga Springs Mission Viejo Carbondale Portage Hutchinson Schenectady Westminster Champaign Traverse City Manhattan Staten Island San Diego Chicago Waterford Olathe Syracuse Stockton Aurora Overland Park MISSISSIPPI Wilton Bloomingdale Salina Ridgeland COLORADO Calumet City NORTH CAROLINA Topeka Tupelo Boulder Evergreen Park Burlington Wichita Colorado Springs Fairview Heights MISSOURI Cary Denver Forsyth KENTUCKY Charlotte Cape Girardeau Greeley Gurnee Ashland Gastonia Chesterfield Lombard Bowling Green Florissant Pineville CONNECTICUT Matteson Florence Independence Concord Meriden Niles Lexington Joplin Fayetteville Trumbell N. Riverside Louisville Kansas City Greensboro Waterbury Orland Park Paducah St. Ann Hickory Waterford St. Charles St. Louis High Point LOUISIANA DELAWARE Schaumburg St. Peters Morrisville Alexandria Wilmington Skokie Springfield Raleigh Bossier City University Park Rocky Mount FLORIDA Monroe NEBRASKA Vernon Hills Winston-Salem Brandon Shreveport Lincoln Waukegan Clearwater NORTH DAKOTA WestDundee MAINE Omaha Crystal River Bismark Danville Bangor NEVADA Grand Forks Daytona Beach Marion Fort Myers MARYLAND Las Vegas Moline OHIO Jacksonville Peoria Baltimore NEW HAMPSHIRE Akron Lakeland Peru Bethesda Concord Alliance Naples Rockford Cumberland Manchester Ashtabula Ocoee Springfield Frederick Newington Beaver Creek Orlando Sterling Forestville Salem Canton Panama City Glen Burnie INDIANA Cincinnati Pensacola Hagerstown NEW JERSEY Cleveland Port Richey Anderson Laurel Deptford Euclid St. Petersburg Bloomington Owings Mills Eatontown Mentor Sanford Carmel Salisbury Paramus Elkhart Towson Waldorf
N. Olmsted North Wales Midland N. Randall Pennsdale San Angelo Parma Philadelphia San Antonio Richmond Heights Pittsburgh Sherman Columbus Plymouth Temple Dayton Scranton Tyler Dublin Uniontown Waco Elyria Washington Wichita Falls Findlay West Mifflin VIRGINIA Franklin York Alexandria Heath SOUTH CAROLINA Chesapeake Lancaster Charleston Christiansburg Lima Columbia Dulles Mansfield Greenville Fredericksburg Marion Harrisonburg New Philadelphia SOUTH DAKOTA Lynchburg Niles Sioux Falls Newport News Northwood TENNESSEE Norfolk Piqua Antioch Richmond Reynoldsburg Chattanooga Colonial St. Clairsville Clarksville Glen Allen Sandusky Franklin Roanoke Springfield Goodlettsville Virginia Beach Toledo Johnson City Winchester OKLAHOMA Memphis WASHINGTON Midwest City Nashville Seattle Oklahoma City TEXAS Tacoma Tulsa Abilene WEST VIRGINIA OREGON Amarillo Barboursville Portland Austin Bridgeport PENNSYLVANIA Beaumont Charleston Dallas/Fort Worth Altoona Martinsburg Arlington Bensalem Morgantown Denton Bloomsburg Hurst WISCONSIN Butler Irving Green Bay Camp Hill Lewisville Greendale Chambersburg Mesquite Janesville Erie Plano Madison Exton Richardson Milwaukee Greensburg El Paso Racine Hanover Houston Wauwatosa Indiana Humble Johnstown Katy Lancaster Killeen Media Longview
- --------------------------- 2 LETTER TO SHAREHOLDERS - --------------------------- As we close our books on Finish Line's Fiscal 2000, the numbers tell the story of a company driven to perform in a changing retail environment. We broke sales records for the 23rd consecutive year posting more than $585,000,000 in net sales, an increase of 12 percent versus last year. We continued our store and retail square footage growth and remained profitable in a difficult marketplace delivering dilut-ed earnings per share of $.62. Although trends in apparel kept us from reporting same store sales increases, we did achieve comparable store sales gains of four percent for the year in our primary category - footwear. But measuring Finish Line's performance in Fiscal 2000 goes deeper than the numbers. The challenges of this year pushed us to find new ways of doing business, of marketing our stores, and most importantly meeting the needs of our customers. We will not be satisfied to simply wait for trends to change. We are searching for and implementing new ways to operate and grow the business, creating new partnerships and stepping ahead of the competition. Last year we raised the bar by challenging ourselves to become the best athletic footwear retailer in the mall. No small task in a year with shifting apparel fashion trends and other obstacles dramatically reshaping the athletic retail landscape. Still, through focused management and a product-driven sales strategy, we maintained our competitive edge as the best athletic footwear retailer in the mall, and have now reset our goal and raised the bar to become the best athletic footwear and apparel retailer, in or out of the mall. While our competitors closed doors, we grew strategically, took advantage of new opportunities, and added 55 new stores to truly make Finish Line a national player. We are closer to our customers than ever, not only operating more than 415 stores in 42 states, but now providing the opportunity to buy athletic footwear and apparel online at www.finishline.com. With this fiscal year's addition of new stores, Finish Line now operates approximately 2.5 million square feet of retail space, an increase of 18 percent from last year. Our compelling store formats and superior product offerings continue to set the pace for athletic retailers. Throughout the year we worked diligently to revitalize our most important customer brand contact, the Finish Line store. This revitalization of our in- store merchandising coupled with exclusive product, key vendor partnerships and new private label initiatives are building a strong foundation for the Finish Line brand. We have succeeded in raising the level of public awareness of our stores and our brand in a contracting marketplace. To begin the new fiscal year we have developed an important partnership with Nike to further differentiate Finish Line from the competition. By positioning our stores as the premier destination for Nike running products, we will seize the momentum of this important and fast-growing category, both from a fashion and performance standpoint. With Nike's assistance we will develop and introduce exclusive running shoe styles and also take advantage of introductory lead times on other key product silhouettes and make-ups to create a vital point of difference from our competition -- positioning Finish Line as the premier and most visible retailer in the running category. While we deliver the goods in- store, our highly effective advertisements and promotions remind viewers that Finish Line loves runners - or as our recent television spots state, "Maybe We Love Runners Too Much." On the apparel side, proprietary brands like our performance-based SPK(TM) line and 808(TM), our more casual category entry, have allowed Finish Line more control and greater speed with which to react to the quick and ever-changing apparel ---------- 3 ---------- market. Through these brands, Finish Line is better able to control its own destiny and enhance the product offerings of our traditional athletic brands. The rules of retail are changing. Location means much more than choosing the right malls and getting the high-traffic locations within them. Today location includes our web site address and virtual affiliations that provide our customers easy access to our products 24-hours-a-day. Customer service now goes far beyond the mall, reaching into mailboxes and appearing on computer screens. Today, we even compete against businesses that have only a warehouse and a URL. Having anticipated such changes, we are ready and committed to meeting the needs of our customers, no matter how they shop Finish Line. We intend to remain a leader in our industry and are making the difficult long-term decisions and commitments needed to succeed. The toughest challenges and questions we face are those that we place upon ourselves. How can we make a difference? How can we get better? What must we do to secure and then maintain our position as the country's best athletic footwear and apparel retailer? We have the vision. We have the commitment and drive. We have the people. As long as we stay focused, we can make a difference. /S/ Alan Cohen Alan Cohen President and CEO, Finish Line Inc. [LOGO OF FINISH LINE YOUTH FOUNDATION] [PHOTO OF PARK] When volunteers from the community and local Finish Line stores showed up in Chicago's Irving Park early on a Saturday, they were greeted by a vacant lot, shovels and wheelbarrows. When they left, the sun was beginning to set and the kids in this close-knit community had a safer place to play. The playground left behind is just one example of Finish Line giving back to the communities in which we operate. 1999 marked the second year of existence for The Finish Line Youth Foundation(TM). We created the Youth Foundation to facilitate our ability to provide funding and assistance to youth athletics and programs - like the park in Chicago. During the past two years we've raised more than $1.1 million with the help of our customers, employees and stores. This year, half of the $580,000 raised in 1999 was earmarked for use by the Foundation's charter partner, the Boys & Girls Clubs of America. These dollars will benefit both the national association and local clubs near neighborhood Finish Line stores. The remaining funds will be distributed by the Youth Foundation based on need. Our primary focus is to support youth athletic and wellness programs in areas where we operate. Finish Line believes that education, sports and exercise are vital to the development of our youths' ability to maintain a healthy lifestyle, build confidence and leadership skills, and understand the importance of working as a team. We look forward to another year of making a difference in our home communities. - ---------------------------------------------- 4 Plan Your Work Business Strategy Work Your Plan - ---------------------------------------------- During the last fiscal year, we realized changes in the way we do business were necessary if we were to regain the momentum of meaningful growth as we enter the new year. We carefully analyzed and broke down our business, refocused and got back to basics. In a time where the only constant is change, we reshaped ourselves around the time-tested principle of delivering superior product in an enticing store with old-fashioned customer service. We are ready. Through outstanding product, new vendor partnerships, exciting private label initiatives and new information technologies, we are extending our philosophy of providing an outstanding assortment of products that satisfies key customer wants and needs. When it comes to athletic footwear and apparel, Finish Line will offer shoppers the right product at the right time at the right price. We are positioning our stores as the destination for customers searching for any of three key product attributes - function, fashion and value. Function Fashion [Photos of Shoes] Value Function - Authentic. Athletic. Performance. Trend-proof. Designed for the world's best athletes. Available for use on a track, field, court or neighborhood. Fashion - Comfort and style. At home in any arena. Meeting personal needs. Providing options. Making a statement from head-to-toe. Value - The right gear at the right price. Staying competitive. Meeting the needs of our customers, who want functional brand name products at a lower price. By focusing on the basics, Finish Line meets the needs of our customers - and has become the athletic specialty retailer of choice for men, women and children of all ages. The Right Product The Right Time Finish Line spent last year driving home a footwear message. Through every contact point in and out of the store, our customers saw that above all, Finish Line is the destination for the best and broadest selection in athletic and casual footwear. Our customers knew we had their shoe. Now we are taking the next step. Exclusive product from key vendors including Nike, adidas and Reebok will allow Finish Line to meet customer needs better than ever. It's an exciting time to examine the shoe display walls in our stores - filled with goods available nowhere else. In addition to exclusive and special make-up product, Finish Line strives to be first with key items that keep us one step ahead of the competition. Additional offerings from industry leaders like Timberland, New Balance,And 1 and K-Swiss, to name a few, round out an enticing assortment. No one offers a broader or more compelling product mix. While footwear makes up almost 80 percent of Finish Line sales, apparel also plays a key role in creating a complete athletic destination for our customers. A challenging apparel environment has prompted Finish Line to introduce two new private label apparel brands, SPK and 808. --------------------------------------------------------- The Store Footwear Apparel The Look Compelling Shoppable --------------------------------------------------------- [PICTURE OF STORE APPEARS HERE] College Mall, Bloomington, Indiana, 4,695 sq. ft [FASHION MODEL PRESENTING PRODUCT PICTURE APPEARS HERE] [FASHION MODEL PRESENTING PRODUCT PICTURE APPEARS HERE] Walk through a Finish Line today and you'll notice two exciting brands available nowhere else, SPK and 808. SPK meets the needs of our value/performance customers by offering high quality basic athletic apparel at introductory price points. For this current fiscal year, the SPK line has been expanded in our stores to include: basic t-shirts, performance running apparel, women's workout apparel, basketball tops and bottoms, and many more new products for men, women and children. 808 was designed with another customer in mind. This brand's graphic driven t-shirts target a college-aged shopper looking for more contemporary lifestyle apparel. Through 808 we can quickly react to fashion trends in the marketplace, bringing hot new product into our stores quicker than ever. To keep 808 on the leading edge of fashion, new graphics are slated to be introduced every quarter, with an emphasis on emerging trends from the West Coast. Value-driven customers will enjoy the performance of our athletic, on-field apparel, at a great price. Meanwhile, 808 offers a more affordable casual style with compelling graphics and contemporary looks. Finally, we will continue to seek out value merchandise in both footwear and apparel. Our continued growth and excellent reputation with our vendors has allowed us to take advantage of opportunity buys. These buys allow us to meet the needs of our value-conscious customers with great prices on brand name products. And It Shows Having the right product is an important aspect of our business. Displaying and merchandising the product to create excitement is just as vital. From the store- front windows to the back wall, Finish Line is striving to improve the way we tell our product story. New window treatments now invite customers to check out the newest product while improved display techniques tempt customers to pick up and touch the merchandise. By working with our vendors, Finish Line is able to deliver a consistent brand message while highlighting the hottest items available. [FASHION MODEL PRESENTING PRODUCT PICTURE APPEARS HERE] College Mall, Bloomington, Indiana [PHOTO] ------------------------------------------------------ The Right Place The Right Combinations Apparel Accessories ------------------------------------------------------ - ---------------- 8 People - ---------------- We understand the role Finish Line people play in making a statement about the store and products we carry. That's why Finish Line works non-stop to recruit quality employees and provide them with the right tools and training to offer our customers a satisfying store visit. As we've grown, we have not forgotten the importance of staffing our stores with well-trained, motivated sales associates to assist our customers. Finish Line strives to provide our sales associates with the right tools and training to ensure our customers the best possible shopping experience. We will continue to focus on the basics, stressing customer service and product knowledge. We are driving this message into our stores where it is being received and understood, creating a visible difference on the sales floor where it matters most. When customers walk into the Finish Line in Barton Creek Mall in Austin, Texas, they get a first hand look at the efforts of Cesar Ortiz, the store's general manager. Cesar started with the Company in 1992 as an assistant manager in Irving, Texas. Five stores and eight years later, Cesar runs the Company's flagship Texas location and has energized employees with his infectious enthusiasm. Since his arrival the store has posted dramatic sales gains. According to Cesar, Finish Line creates an atmosphere where you can succeed. "No matter where I've been with the Company, the Finish Line people have been committed to helping me do the best job possible. When I'm recruiting, I love to tell people that you can make what you want of your opportunities; Finish Line isn't a job, it's a career." Cesar attacks the job with a pride and enthusiasm that sets the tone for his employees and other managers. When Finish Line recruits, we look for people like Cesar. [PHOTO OF CESAR ORTIZ] [FASHION MODEL PRESENTING PRODUCT PICTURE APPEARS HERE] --------------------------------------------------------- More Styles Footwear Statement More Exclusives --------------------------------------------------------- [Photo of Store] College Mall, Bloomington, Indiana - ------------------------- 10 Knowing Our Business - ------------------------- Never has our success hinged so greatly on the accurate and timely delivery of information. To that end, we've recently completed implementation of a chain- wide, in-store, point-of-sale register system which allows for improved store reporting, including quicker, more flexible data and report delivery. Now, our stores and the home office are better able to make decisions regarding product sales, inventory levels and labor allocation - ultimately leading to more efficient operation. Communication from the home office to the field is pivotal in our quest for further improvement. To that end, we are investing in a new technology infrastructure, including a wide area network employing frame relay for real- time voice and data transmission. When completed, access to key information and instructions between the stores and home office will be instantaneous. This quicker flow of information will create more consistent, reliable store operations in all markets. Finally, we are implementing a new merchandise planning system that more accurately forecasts product needs and allocations for each store. By improving the quality and accuracy of information at each step of the business process, Finish Line is creating a stronger foundation which will allow us to make intelligent, proactive decisions in order to best serve our customers. [FASHION MODEL PRESENTING PRODUCT PICTURE APPEARS HERE] SHOES [PHOTO OF SHOES] - --------------------------------------------------------------- For Her The Right Look Shoes What She's Looking For Apparel - --------------------------------------------------------------- [Photo of Store] College Mall, Bloomington, Indiana - ---------------------- 12 The Right Place - ---------------------- In Fiscal Year 2000 we opened our 400th store. By fiscal year end, we were operating 409 stores in 41 states, having opened 55 new stores during the year. While many of our competitors reduced store fronts, we continued our expansion into new markets and reinforced our presence with additional stores in markets in which we were already operating. In addition to the new stores, we updated and remodeled 18 existing stores during the fiscal year. These new stores and the expansion and remodeling of existing stores totaled 384,000 square feet of additional retail space in fiscal 2000. By fiscal year end, we were operating nearly 2.5 million square feet of retail space. In addition to our bricks and mortar retail stores, Finish Line customers can now shop on-line at www.finishline.com for their athletic footwear and apparel needs. - ------------------------------- www.finishline.com the [LOGO] web - ------------------------------- [PHOTOS OF SCREEN SHOTS] This year, for the first time, Finish Line customers were able to purchase their favorite shoes and apparel from the comfort of their own homes. The introduction of e-commerce to our existing web site marked a key step in reaching potential customers in the Internet marketplace. [PHOTOS OF SCREEN SHOTS] Prior to making product available for sale on-line, Finish Line worked to make sure all support and customer service systems were in place. Once these were ready, a new, customer-friendly homepage greeted virtual shoppers. Currently a large segment of our in-store product offering is available to shoppers 24-hours-a-day, seven-days-a-week. The site allows Finish Line to compete with web-based retailers, without losing our in-mall focus, and more importantly provides us with another way to conveniently serve our customers. Actually, our two-pronged approach has benefited both the web site and stores alike. The stores and Finish Line marketing efforts are able to drive new customers to our web site, while the web site reinforces Finish Line's national brand image and commitment to unmatched customer service - and meets the needs of customers who may not live near a Finish Line location or would rather shop from home. In addition, programs like our Winner's Circle, which offers free shipping and many other valuable benefits to participating customers, provide Finish Line with unique customer information that helps us better understand our customers and their product needs. --------------------------------- [LOGO] [FINISH LINE LOGO] [LOGO] www.FINISHLINE.COM --------------------------------- College Mall, Bloomington, Indiana [ Photo of Store ] ----------------------------------- A Little Something For Kids The Right Fit ----------------------------------- - ------------------------ 14 Telling The Story - ------------------------ After everything else is in place--the store, the product and the employees--it is marketing's job to tell our story to our customers. In today's marketplace, it's not enough to have cool commercials. You have to build a brand by building a relationship. [PHOTO OF GIFT CERTIFICATE] We have intensified our marketing efforts in the development of a truly loyal Finish Line customer. We tested and introduced the Winner's Circle, Finish Line's first preferred customer program. The program provides our best customers with reward certificates for future use, earned based on purchases. In addition to building customer loyalty, this program will provide Finish Line with important data and information, helping us better understand the wants and needs of our customers. While we have been building these relationships for the past three years through our self-published magalog, SPIKE, the Winner's Circle will help us take this brand contact to a higher plane. SPIKE will remain an integral part of this program that also includes more targeted direct mailings and Internet information. [PHOTO OF SPIKE MAGALOG] [SERIES OF PHOTOS REPRESENTING FRAMES OF THE COMPANY'S TELEVISION COMMERCIAL] - -2:6 Imagine a leisurely run through the neighborhood - the breeze in your hair, birds quietly chirp - no other sound but the pounding rhythm of Survivor's Eye of the Tiger blaring from the jambox of your new running companion, a dedicated Finish Line employee. This is just one of the scenarios we've placed our employees in to drive home how much we love runners. The campaign, created by New York's Cliff Freeman & Partners, uses their own brand of humor to showcase Finish Line's exclusive Nike product offering while positioning the Finish Line as the premier destination for runners. See the spots and you'll understand. Maybe We Love Runners Too Much. -------------------------------------------------------- Footwear & Apparel [ LOGO The Best Athletic OF Retailer THE COMPANY ] -------------------------------------------------------- [Photo of Store] Castelton Square Mall, Indianapolis, Indiana, 9,740 sq. ft. No matter where a customer experiences Finish Line, we are working to make sure that every contact reinforces our commitment to provide the best possible service and products. We want to make the Finish Line our customers' destination.
Table of contents............... Selected Financial Data 17 [FASHION MODEL PRESENTING PRODUCT PICTURE APPEARS HERE] - ----------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations 18 - ----------------------------------------------------------- Consolidated Balance Sheets 22 - ----------------------------------------------------------- Consolidated Statements of Income 23 - ----------------------------------------------------------- Consolidated Statements of Cash Flows 24 - ----------------------------------------------------------- Consolidated Statements of Changes in Stockholders' Equity 25 - ----------------------------------------------------------- Notes to Consolidated Financial Statements 26 - ----------------------------------------------------------- Report of Independentent Auditors 31 - ----------------------------------------------------------- Market Price of Common Stock 31 - ----------------------------------------------------------- Senior Officers and Directors 32 - ----------------------------------------------------------- Shareholder Information 33
-------------------------- Selected Financial Data 17 --------------------------
Year Ended - ---------------------------------------------------------------------------------------------------------------------------------- February 26, February 27, February 28, (In thousands, except per share and store operating data) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Income Statement Data: - ---------------------------------------------------------------------------------------------------------------------------------- Net sales $585,963 $522,623 $438,911 Cost of sales (including occupancy expenses) 423,505 373,170 303,809 - ---------------------------------------------------------------------------------------------------------------------------------- Gross profit 162,458 149,453 135,102 Selling, general and administrative expenses 139,273 117,507 94,303 - ---------------------------------------------------------------------------------------------------------------------------------- Operating income 23,185 31,946 40,799 Interest expense (income)--net (826) (1,421) (2,495) - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 24,011 33,367 43,294 Income taxes 8,404 12,680 16,560 - ---------------------------------------------------------------------------------------------------------------------------------- Net income $ 15,607 $ 20,687 $ 26,734 ================================================================================================================================== Earnings Per Share Data: - ---------------------------------------------------------------------------------------------------------------------------------- Basic earnings per share $ .63 $ .81 $ 1.03 - ---------------------------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ .62 $ .80 $ 1.02 ================================================================================================================================== Share Data(1): - ---------------------------------------------------------------------------------------------------------------------------------- Weighted-average shares 24,848 25,541 25,963 - ---------------------------------------------------------------------------------------------------------------------------------- Diluted weighted-average shares 25,039 25,833 26,317 ================================================================================================================================== Selected Store Operating Data: - ---------------------------------------------------------------------------------------------------------------------------------- Number of stores: Opened during period 55 59 53 Closed during period 4 3 2 Open at end of period 409 358 302 Total square feet(2) 2,478,930 2,095,264 1,586,520 Average square feet per store(2) 6,061 5,853 5,253 Net sales per square foot for comparable stores $ 272 $ 310 $ 345 Increase (decrease) in comparable store net sales(3 ) (2.6)% (1.7)% 5.6% ================================================================================================================================== Balance Sheet Data: - ---------------------------------------------------------------------------------------------------------------------------------- Working capital $124,898 $106,661 $120,822 Total assets 289,095 278,555 255,978 Total debt - - - Stockholders' equity 222,392 208,679 197,122 ==================================================================================================================================
Year Ended - ---------------------------------------------------------------------------------------------------------------------------------- March 1, February 29, (In thousands, except per share and store operating data) 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Income Statement Data: - ---------------------------------------------------------------------------------------------------------------------------------- Net sales $ 332,002 $ 240,155 Cost of sales (including occupancy expenses) 229,187 168,912 - ---------------------------------------------------------------------------------------------------------------------------------- Gross profit 102,815 71,243 Selling, general and administrative expenses 72,282 54,254 - ---------------------------------------------------------------------------------------------------------------------------------- Operating income 30,533 16,989 Interest expense (income)--net (824) 892 - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 31,357 16,097 Income taxes 12,544 6,439 - ---------------------------------------------------------------------------------------------------------------------------------- Net income $ 18,813 $ 9,658 ================================================================================================================================== Earnings Per Share Data: - ---------------------------------------------------------------------------------------------------------------------------------- Basic earnings per share $ .81 $ .47 - ---------------------------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ .80 $ .47 ================================================================================================================================== Share Data(1): - ---------------------------------------------------------------------------------------------------------------------------------- Weighted-average shares 23,100 20,630 - ---------------------------------------------------------------------------------------------------------------------------------- Diluted weighted-average shares 23,502 20,671 ================================================================================================================================== Selected Store Operating Data: - ---------------------------------------------------------------------------------------------------------------------------------- Number of stores: Opened during period 35 35 Closed during period 4 5 Open at end of period 251 220 Total square feet(2) 1,088,419 870,340 Average square feet per store(2) 4,336 3,956 Net sales per square foot for comparable stores $ 352 $ 308 Increase (decrease) in comparable store net sales(3) 16.0% 3.4% ================================================================================================================================== Balance Sheet Data: - ---------------------------------------------------------------------------------------------------------------------------------- Working capital $ 112,079 $ 32,453 Total assets 217,718 114,972 Total debt - 9,500 Stockholders' equity 169,875 63,148 ================================================================================================================================== (1) Consists of weighted-average common and common equivalent shares outstanding for the period and was adjusted to give effect for the November 15, 1996 two-for-one stock split. (2) Computed as of the end of each fiscal period. (3) Calculated using those stores that were open for the full current fiscal period and were also open for the full prior fiscal period.
- --------------------------------------------------------------- 18 Management's Discussion and Analysis of Financial Condition and Results of Operations - --------------------------------------------------------------- General The following discussion and analysis should be read in conjunction with the information set forth under "Selected Financial Data" and the Financial Statements and Notes thereto included elsewhere herein. The table below sets forth operating data of the Company as a percentage of net sales for the periods indicated below.
Year Ended - --------------------------------------------------------------------------------------------------------- February 26, February 27, February 28, 2000 1999 1998 - --------------------------------------------------------------------------------------------------------- Income Statement Data: Net sales 100.0% 100.0% 100.0% Cost of sales (including occupancy expenses) 72.3 71.4 69.2 - --------------------------------------------------------------------------------------------------------- Gross profit 27.7 28.6 30.8 Selling, general and administrative expenses 23.7 22.5 21.5 - --------------------------------------------------------------------------------------------------------- Operating income 4.0 6.1 9.3 Interest income--net .1 .3 .6 - --------------------------------------------------------------------------------------------------------- Income before income taxes 4.1 6.4 9.9 Income taxes 1.4 2.4 3.8 - --------------------------------------------------------------------------------------------------------- Net income 2.7% 4.0% 6.1% =========================================================================================================
Fiscal 2000 Compared to Fiscal 1999 Net sales for fiscal 2000 were $586.0 million, an increase of $63.3 million or 12.1% over fiscal 1999. Of this increase, $40.3 million was attributable to a 14.2% increase in the number of stores open during the period from 358 at the end of fiscal 1999 to 409 at the end of fiscal 2000. The balance of the increase in net sales was attributable to an increase of $32.7 million from the 59 existing stores open only part of fiscal 1999 along with an increase in sales from stores remodeled. These increases were partially offset by a comparable store net sales decrease of 2.6% in fiscal 2000. Comparable net footwear sales increased 3.9% for fiscal 2000 while comparable net activewear and accessories sales decreased 19.4%. Net sales per square foot decreased in fiscal 2000 to $272 from $310 in fiscal 1999. Activewear and accessories continue to be negatively effected by a fashion shift by customers to contemporary non-athletic brands and by significant reduction in the average unit selling price. Sales per square foot have been negatively impacted by the decrease in activewear sales along with a 3.6% increase in the average store size from 5,853 square feet at February 27, 1999 to 6,061 square feet at February 26, 2000. Gross profit, which includes product margin less store occupancy costs, for fiscal 2000 was $162.5 million, an increase of $13.0 million or 8.7% over fiscal 1999, and a decrease of approximately 0.9% as a percentage of net sales. Of this 0.9% decrease, 1.4% was due to an increase in occupancy costs as a percentage of net sales, partially offset by a 0.3% decrease in inventory shrink and 0.2% increase in margins for product sold. Selling, general and administrative expenses were $139.3 million, an increase of $21.8 million or 18.5% over fiscal 1999, and increased to 23.7% from 22.5% as a percentage of net sales. The dollar increase was primarily attributable to the operating costs related to the 55 additional stores opened during 2000. The increase as a percentage of net sales is a result of increased costs related to store payroll, depreciation and freight along with a comparable store decrease in net sales for fiscal 2000. Net interest income for fiscal 2000 was $826,000 compared to net interest income of $1.4 million for fiscal 1999. This decrease was the result of reduced levels of invested cash and marketable securities due to the Company's funding of fiscal 2000 expansion and the purchase of treasury stock under the Company's stock repurchase program. Income tax expense was $8.4 million for fiscal 2000 compared to $12.7 million for fiscal 1999. The decrease in the Company's provision for federal and state taxes in 2000 is due to the decreased level of income before taxes along with a decrease in the effective tax rate to 35% for fiscal 2000 from 38% in fiscal 1999. Net income decreased 24.6% to $15.6 million for fiscal 2000 compared to $20.7 million for fiscal 1999. Diluted net income per share decreased 22.5% to $.62 for fiscal 2000 compared to $.80 for fiscal 1999. Diluted weighted average shares outstanding were 25,039,000 and 25,833,000, for fiscal 2000 and 1999, respectively. The reduction in the diluted weighted average shares outstanding reflects the repurchase during fiscal 2000 of 472,000 shares of Class A Common Stock through the Company's stock repurchase program. ----------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 19 -----------------------------------------------------------------------------
Quarter Ended - ------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) May 29, 1999 August 28, 1999 - ------------------------------------------------------------------------------------------------------------------------------- Net sales $132,296 100.0% $165,994 100.0% Cost of sales (including occupancy expenses) 95,170 71.9 117,303 70.7 - ------------------------------------------------------------------------------------------------------------------------------- Gross profit 37,126 28.1 48,691 29.3 Selling, general and administrative expenses 31,705 24.0 37,037 22.3 - ------------------------------------------------------------------------------------------------------------------------------- Operating income (loss) 5,421 4.1 11,654 7.0 Interest income--net 281 .2 278 .2 - ------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 5,702 4.3 11,932 7.2 Income taxes 1,996 1.5 4,176 2.5 - ------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 3,706 2.8% $ 7,756 4.7% - ------------------------------------------------------------------------------------------------------------------------------- Basic earnings (loss) per share $ .15 $ .31 Diluted earnings (loss) per share $ .15 $ .31 ===============================================================================================================================
Quarter Ended - ------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) November 27, 1999 February 26, 2000 - ------------------------------------------------------------------------------------------------------------------------------- Net sales $120,776 100.0% $166,897 100.0% Cost of sales (including occupancy expenses) 91,358 75.6 119,674 71.7 - ------------------------------------------------------------------------------------------------------------------------------- Gross profit 29,418 24.4 47,223 28.3 Selling, general and administrative expenses 33,208 27.5 37,323 22.4 - ------------------------------------------------------------------------------------------------------------------------------- Operating income (loss) (3,790) (3.1) 9,900 5.9 Interest income--net 204 .2 63 .1 - ------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes (3,586) (2.9) 9,963 6.0 Income taxes (1,255) (1.0) 3,487 2.1 - ------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (2,331) (1.9)% $ 6,476 3.9% - ------------------------------------------------------------------------------------------------------------------------------- Basic earnings (loss) per share $ (.09) $ .26 Diluted earnings (loss) per share $ (.09) $ .26 ===============================================================================================================================
Quarter Ended - ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) May 30,1998 August 29, 1998 - ---------------------------------------------------------------------------------------------------------------------- Net sales $ 116,602 100.0% $ 144,719 100.0% Cost of sales (including occupancy expenses) 81,379 69.8 100,211 69.2 - ---------------------------------------------------------------------------------------------------------------------- Gross profit 35,223 30.2 44,508 30.8 Selling, general and administrative expenses 26,472 22.7 32,170 22.2 - ---------------------------------------------------------------------------------------------------------------------- Operating income 8,751 7.5 12,338 8.6 Interest income--net 490 .4 397 .3 - ---------------------------------------------------------------------------------------------------------------------- Income before income taxes 9,241 7.9 12,735 8.9 Income taxes 3,512 3.0 4,839 3.4 - ---------------------------------------------------------------------------------------------------------------------- Net income $ 5,729 4.9% $ 7,896 5.5% - ---------------------------------------------------------------------------------------------------------------------- Basic earnings per share $ .22 $ .30 Diluted earnings per share $ .22 $ .30 ======================================================================================================================
Quarter Ended - ------------------------------------------------------------------------------------------------------------ (Dollars in thousands, except per share data) November 28, 1998 February 27, 1999 - ------------------------------------------------------------------------------------------------------------ Net sales $109,655 100.0% $151,647 100.0% Cost of sales (including occupancy expenses) 81,874 74.7 109,706 72.3 - ------------------------------------------------------------------------------------------------------------ Gross profit 27,781 25.3 41,941 27.7 Selling, general and administrative expenses 27,454 25.0 31,411 20.7 - ------------------------------------------------------------------------------------------------------------ Operating income 327 .3 10,530 7.0 Interest income--net 313 .3 221 .1 - ------------------------------------------------------------------------------------------------------------ Income before income taxes 640 .6 10,751 7.1 Income taxes 244 .2 4,085 2.7 - ------------------------------------------------------------------------------------------------------------ Net income $ 396 .4% $ 6,666 4.4% - ------------------------------------------------------------------------------------------------------------ Basic earnings per share $ .02 $ .27 Diluted earnings per share $ .02 $ .27 ============================================================================================================
Fiscal 1999 Compared to Fiscal 1998 Net sales for fiscal 1999 were $522.6 million, an increase of $83.7 million or 19.1% over fiscal 1998. Of this increase, $48.3 million was attributable to an 18.5% increase in the number of stores open during the period from 302 at the end of fiscal 1998 to 358 at the end of fiscal 1999. The balance of the increase in net sales was attributable to an increase of $30.9 million from the 53 existing stores open only part of fiscal 1998 along with an increase in sales from stores remodeled. These increases were partially offset by a comparable store net sales decrease of 1.7% in fiscal 1999. Comparable net footwear sales increased 2.4% for fiscal 1999 and comparable net activewear and accessories sales decreased 11.0%. Net sales per square foot decreased in fiscal 1999 to $310 from $345 in fiscal 1998. The decrease in 1999 was the result of the competitive and promotional retail environment and negative apparel trends due to a fashion shift by customers to contemporary - --------------------------------------------------------------- 20 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) - --------------------------------------------------------------- non-athletic brands. In addition, an 11.4% increase in the average store size from 5,253 square feet in fiscal 1998 to 5,853 square feet in fiscal 1999 contributed to the decline in sales per square foot. Gross profit, which includes product margin less store occupancy costs, for fiscal 1999 was $149.5 million, an increase of $14.4 million or 10.6% over fiscal 1998, and a decrease of approximately 2.2% as a percentage of net sales. Of this 2.2% decrease, 1.5% was due to an increase in occupancy costs as a percentage of net sales, 0.4% was due to lower margins for product sold and 0.3% was due to an increase in inventory shrink. Selling, general and administrative expenses were $117.5 million, an increase of $23.2 million or 24.6% over fiscal 1998, and increased to 22.5% from 21.5% as a percentage of net sales. The dollar increase was primarily attributable to the operating costs related to the 59 additional stores opened during 1999. The increase as a percentage of net sales is a result of higher store payroll costs and weaker sales from the end of July through February. Net interest income for fiscal 1999 was $1.4 million compared to net interest income of $2.5 million for fiscal 1998. This decrease was the result of reduced invested cash balances due to the Company's funding of fiscal 1999 expansion and the purchase of treasury stock under the Company's stock repurchase program. Income tax expense was $12.7 million for fiscal 1999 compared to $16.6 million for fiscal 1998. The decrease in the Company's provision for federal and state taxes in 1999 is due to the decreased level of income before taxes along with a decrease in the effective tax rate to 38% for fiscal 1999 from 38.25% in fiscal 1998. Net income decreased 22.6% to $20.7 million for fiscal 1999 compared to $26.7 million for fiscal 1998. Diluted net income per share decreased 21.6% to $.80 for fiscal 1999 compared to $1.02 for fiscal 1998. Diluted weighted average shares outstanding were 25,833,000 and 26,317,000, for fiscal 1999 and 1998, respectively. The reduction in the diluted weighted average shares outstanding reflects the repurchase of 1,313,000 shares of Class A Common Stock through the stock buyback program authorized by the Board of Directors in September 1998. Quarterly Comparisons The Company's merchandise is marketed during all seasons, with the highest volume of merchandise sold during the second and fourth fiscal quarters as a result of back-to-school and holiday shopping. The third fiscal quarter has traditionally had the lowest volume of merchandise sold and the lowest results of operations. The table on the previous page sets forth quarterly operating data of the Company, including such data as a percentage of net sales, for fiscal 2000 and fiscal 1999. This quarterly information is unaudited but, in management's opinion, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods presented. Liquidity and Capital Resources The Company finances the opening of new stores and the resulting increase in inventory requirements principally from operating cash flow and cash on hand. Net cash provided by operations was $12,082,000, $37,734,000 and $212,000 respectively, for fiscal 2000, 1999 and 1998. At February 26, 2000, the Company had cash and cash equivalents of $13.1 million and an additional $11.4 million in marketable securities. Cash equivalents are primarily invested in tax exempt instruments with maturities of one to twenty-eight days. Marketable securities represent securities that range in maturity from 90 days to four years and are primarily invested in tax exempt municipal obligations. Marketable securities are classified at February 26, 2000 as available-for-sale and are available to support current operations. Merchandise inventories were $149.0 million at February 26, 2000 compared to $135.3 million at February 27, 1999. On a per square foot basis, merchandise inventories at February 26, 2000 decreased 6.9% compared to February 27, 1999. The company believes current inventory levels are appropriate based on the industry environment. The Company has an unsecured committed Credit Agreement (the "Facility") with a syndicate of commercial banks in the amount of $75,000,000, which expires on July 10, 2003. The Company periodically reviews its ongoing credit needs with its syndicate of commercial banks and currently expects to be able to renew or renegotiate the Facility prior to its expiration for an additional period beyond the current maturity date of July 10, 2003. The interest rate on the Facility is, at the Company's election, either a negotiated rate approximating the federal funds effective rate plus 1.25% (this rate is available on the first $10,000,000 of borrowings), the bank's LIBOR Rate plus .80% or the bank's prime commercial lending rate. The margin percentage added to the LIBOR Rate is subject to adjustment quarterly based on the fixed charge coverage ratio (as defined). At February 26, 2000, there were no borrowings outstanding under the Facility. The Facility contains restrictive covenants that limit, among other things, the Company's ability to declare or pay dividends, incur or guarantee debt, redeem shares of its capital stock, be a party to a merger, acquire or dispose of assets or engage in any other transactions outside the ordinary course of business. In addition, the Company must maintain a fixed charge coverage ratio (as defined) of not less than 1.5 to 1.0, a consolidated tangible net worth of not less than $176,148,000 and a leverage ratio (as defined) of not greater than .63 to 1.0. The Company is in compliance with all such covenants at February 26, 2000. -------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 21 -------------------------------------------------------------------- Capital expenditures were $26,274,000 and $41,398,000 for fiscal 2000 and 1999, respectively. Expenditures in 2000 were primarily for the build-out of 55 stores that were opened during fiscal 2000 (including 7 large format stores), the remodeling of 18 existing stores and various corporate projects. Expenditures in 1999 were primarily for the build-out of 59 stores that were opened in fiscal 1999 (including 7 large format stores), the remodeling of 26 existing stores, the completion of a 22,000 square foot addition to the existing office building and the completion of mezzanine levels in the existing distribution center which added 100,000 square feet of floor space. The Company anticipates that total capital expenditures for fiscal 2001 will be approximately $20,000,000 primarily for the build-out of 25-30 new stores, (including 2 large format stores), the remodeling of 8-12 existing stores and various corporate projects. The Company estimates that its cash requirement to open a traditional format new store (up to 10,000 square feet) will range from $500,000 to $600,000 (net of construction allowance) and from $900,000 to $1.9 million (net of construction allowance) for a large format new store (10,000 to 25,000 square feet). These requirements for a traditional store include approximately $340,000 for fixtures, equipment, and leasehold improvements and $325,000 ($225,000 net of payables) in new store inventory. The cash requirements for a large format store include approximately $500,000 to $1.0 million for fixtures, equipment and leasehold improvements and $1.5 million ($1.0 million net of payables) in new store inventory. During fiscal 2000, the Company contributed 50,000 shares of Finish Line Class A Common Stock to the Company's retirement plan for its employees. The Company had purchased the shares in fiscal 1999 at an aggregate cost of $683,000. Effective September 2, 1998 the Board of Directors approved a stock repurchase program. The Company was authorized to purchase on the open market or in privately negotiated transactions, through December 31, 1999, up to 2.6 million shares of the Company's Class A Common Stock outstanding. Effective December 28,1999 the Board of Directors extended the stock repurchase program through December 31, 2000. As of February 26, 2000, the Company holds 1,785,000 shares of its Class A Common Stock purchased on the open market at an average price of $8.19 per share for an aggregate purchase amount of $14,611,000. The treasury shares may be issued upon the exercise of employee stock options or for other corporate purposes. Management believes that cash on hand, operating cash flow and borrowings under the Company's existing Facility will be sufficient to complete the Company's fiscal 2001 store expansion program and to satisfy the Company's other capital requirements through fiscal 2001. Market Risk The Company is exposed to changes in interest rates primarily from its investments in available-for-sale marketable securities. The Company does not use interest rate derivative instruments to manage exposure to interest rate changes. A hypothetical 100 basis point increase in interest rates would adversely effect the net fair value of marketable securities by $165,000 at February 26, 2000. Impact of Year 2000 In prior years, the Company has disclosed the nature and progress of its plans to be Year 2000 compliant. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $125,000 during fiscal 2000 in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues in regards to its internal systems or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its material suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 issues that may arise are addressed immediately. Effects of Inflation As the costs of inventory and other expenses of the Company have increased, the Company has generally been able to increase its selling prices. In periods of high inflation, increased build out and other costs could adversely affect the Company's expansion plans. - ------------------------------ 22 Consolidated Balance Sheets - ------------------------------
February 26, February 27, (in thousands) 2000 1999 - ------------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 13,061 $ 23,113 Marketable securities 11,420 2,155 Accounts receivable 9,555 6,951 Merchandise inventories 148,979 135,303 Income taxes recoverable 756 - Deferred income taxes - 2,432 Other 1,473 1,241 - ------------------------------------------------------------------------------- Total current assets 185,244 171,195 =============================================================================== Property and Equipment Land 315 315 Building 10,391 10,251 Leasehold improvements 89,909 74,948 Furniture, fixtures, and equipment 40,737 30,418 Construction in progress 2,087 4,251 - ------------------------------------------------------------------------------- 143,439 120,183 Less accumulated depreciation 41,820 29,749 - ------------------------------------------------------------------------------- 101,619 90,434 Other Assets Marketable securities - 15,656 Deferred income taxes 2,023 1,022 Other 209 248 - ------------------------------------------------------------------------------- 2,232 16,926 - ------------------------------------------------------------------------------- Total assets $289,095 $278,555 =============================================================================== See accompanying notes.
February 26, February 27, (in thousands) 2000 1999 - ------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 42,188 $ 50,672 Employee compensation 4,637 5,025 Accrued income taxes - 446 Accrued property and sales tax 4,097 3,533 Deferred income taxes 3,839 - Other liabilities and accrued expenses 5,585 4,858 - ---------------------------------------------------------------------------- Total current liabilities 60,346 64,534 ============================================================================ Long-term deferred rent payments 6,357 5,342 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 (2000--19,988; 1999--18,961) Shares outstanding (2000--18,203; 1999--17,598) 200 190 Class B: Shares authorized--12,000 Shares issued and outstanding (2000--6,268; 1999--7,244) 63 72 Additional paid-in capital 122,269 121,954 Retained earnings 114,512 98,905 Accumulated other comprehensive loss (41) - Treasury stock (2000--1,785; 1999--1,363) (14,611) (12,442) - --------------------------------------------------------------------------- Total stockholders' equity 222,392 208,679 - --------------------------------------------------------------------------- Total liabilities and stockholders' equity $289,095 $278,555 ===========================================================================
See accompanying notes. ----------------------------------------- Consolidated Statements of Income 23 -----------------------------------------
Year Ended - --------------------------------------------------------------------------------------------------------------------- February 26, February 27, February 28, (in thousands, except per share amounts) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Net sales $585,963 $522,623 $438,911 Cost of sales (including occupancy expenses) 423,505 373,170 303,809 - --------------------------------------------------------------------------------------------------------------------- Gross profit 162,458 149,453 135,102 Selling, general and administrative expenses 139,273 117,507 94,303 - --------------------------------------------------------------------------------------------------------------------- Operating income 23,185 31,946 40,799 Interest income--net 826 1,421 2,495 - --------------------------------------------------------------------------------------------------------------------- Income before income taxes 24,011 33,367 43,294 Income taxes 8,404 12,680 16,560 - --------------------------------------------------------------------------------------------------------------------- Net income $ 15,607 $ 20,687 $ 26,734 ===================================================================================================================== Basic earnings per share $ .63 $ .81 $ 1.03 ===================================================================================================================== Diluted earnings per share $ .62 $ .80 $ 1.02 ===================================================================================================================== See accompanying notes.
- ------------------------------------------ 24 Consolidated Statements of Cash Flows - ------------------------------------------
Year Ended - ---------------------------------------------------------------------------------------------------------------------------------- February 26, February 27, February 28, (in thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Operating activities Net income $ 15,607 $ 20,687 $ 26,734 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,369 10,987 7,359 Contribution of treasury stock to pension plan 682 981 1,039 Loss on sale of available-for-sale marketable securities 19 -- -- Deferred income taxes 5,292 772 669 (Gain) loss on disposal of property and equipment 354 (1) (42) Changes in operating assets and liabilities: Accounts receivable (2,604) (2,283) 181 Merchandise inventories (13,676) (5,153) (48,159) Other current assets (232) 747 1,643 Other assets 39 (23) (225) Accounts payable (8,484) 11,882 11,201 Employee compensation (388) (129) 301 Accrued income taxes (1,202) (2,931) (1,799) Other liabilities and accrued expenses 1,291 1,454 650 Deferred rent payments 1,015 744 660 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 12,082 37,734 212 Investing activities Purchases of property and equipment (26,274) (41,398) (29,555) Proceeds from disposals of property and equipment 366 890 844 Purchases of short-term marketable securities -- (1,971) (3,511) Proceeds from maturity of held-to-maturity short-term marketable securities 2,155 9,856 12,066 Proceeds from sale of available-for-sale marketable securities 4,154 -- -- Purchase of marketable securities -- -- (2,629) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (19,599) (32,623) (22,785) Financing activities Proceeds from short-term debt 84,800 32,200 13,650 Principal payments on short-term debt (84,800) (32,200) (13,650) Proceeds and tax benefits from exercise of stock options 317 2,331 704 Purchase of treasury stock (2,852) (12,442) (1,230) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (2,535) (10,111) (526) - ---------------------------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (10,052) (5,000) (23,099) Cash and cash equivalents at beginning of year 23,113 28,113 51,212 - ---------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 13,061 $ 23,113 $ 28,113 ==================================================================================================================================
- --------------------------------------------------------------- Consolidated Statements of Changes in Stockholders' Equity 25 - ---------------------------------------------------------------
Number of Shares Amount ---------------------------------- --------------------- (in thousands) Class A Class B Treasury Class A Class B - -------------------------------------------------------------------------------------------------------------------------------- Balance at March 1, 1997 17,192 8,750 - $172 $87 ================================================================================================================================ Net income for 1998 - -------------------------------------------------------------------------------------------------------------------------------- Conversion of Class B Common Stock to Class A Common Stock 908 (908) 9 (9) - -------------------------------------------------------------------------------------------------------------------------------- Non-qualified Class A Common Stock options exercised 70 1 - -------------------------------------------------------------------------------------------------------------------------------- Treasury Stock purchased (94) 94 - -------------------------------------------------------------------------------------------------------------------------------- Contribution of Treasury Stock to profit sharing plan 54 (54) - -------------------------------------------------------------------------------------------------------------------------------- Balance at February 28, 1998 18,130 7,842 40 182 78 ================================================================================================================================ Net income for 1999 - -------------------------------------------------------------------------------------------------------------------------------- Conversion of Class B Common Stock to Class A Common Stock 598 (598) 6 (6) - -------------------------------------------------------------------------------------------------------------------------------- Non-qualified Class A Common Stock options exercised 193 2 - -------------------------------------------------------------------------------------------------------------------------------- Treasury Stock purchased (1,363) 1,363 - -------------------------------------------------------------------------------------------------------------------------------- Contribution of Treasury Stock to profit sharing plan 40 (40) - -------------------------------------------------------------------------------------------------------------------------------- Balance at February 27, 1999 17,598 7,244 1,363 190 72 ================================================================================================================================ Comprehensive income: Net income for 2000 - -------------------------------------------------------------------------------------------------------------------------------- Other comprehensive loss - Net unrealized loss on available-for-sale securities, net of tax benefit of $22 ================================================================================================================================ Total comprehensive income - -------------------------------------------------------------------------------------------------------------------------------- Conversion of Class B Common Stock to Class A Common Stock 976 (976) 9 (9) - -------------------------------------------------------------------------------------------------------------------------------- Non-qualified Class A Common Stock options exercised 51 1 - -------------------------------------------------------------------------------------------------------------------------------- Treasury Stock purchased (472) 472 - -------------------------------------------------------------------------------------------------------------------------------- Contribution of Treasury Stock to profit sharing plan 50 (50) - -------------------------------------------------------------------------------------------------------------------------------- Balance at February 26, 2000 18,203 6,268 1,785 $200 $ 63 ================================================================================================================================
Accumulated Additional Other Paid-In Retained Comprehensive Treasury (in thousands) Capital Earnings Loss Stock Totals - ------------------------------------------------------------------------------------------------------------------------------------ Balance at March 1, 1997 $ 118,132 $ 51,484 $ -- $ -- $ 169,875 ==================================================================================================================================== Net income for 1998 26,734 26,734 - ------------------------------------------------------------------------------------------------------------------------------------ Conversion of Class B Common Stock to Class A Common Stock -- - ------------------------------------------------------------------------------------------------------------------------------------ Non-qualified Class A Common Stock options exercised 703 704 - ------------------------------------------------------------------------------------------------------------------------------------ Treasury Stock purchased (1,230) (1,230) - ------------------------------------------------------------------------------------------------------------------------------------ Contribution of Treasury Stock to profit sharing plan 346 693 1,039 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at February 28, 1998 119,181 78,218 -- (537) 197,122 ==================================================================================================================================== Net income for 1999 20,687 20,687 - ------------------------------------------------------------------------------------------------------------------------------------ Conversion of Class B Common Stock to Class A Common Stock -- - ------------------------------------------------------------------------------------------------------------------------------------ Non-qualified Class A Common Stock options exercised 2,329 2,331 - ------------------------------------------------------------------------------------------------------------------------------------ Treasury Stock purchased (12,442) (12,442) - ------------------------------------------------------------------------------------------------------------------------------------ Contribution of Treasury Stock to profit sharing plan 444 537 981 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at February 27, 1999 121,954 98,905 -- (12,442) 208,679 ==================================================================================================================================== Comprehensive income: Net income for 2000 15,607 15,607 - ------------------------------------------------------------------------------------------------------------------------------------ Other comprehensive loss - Net unrealized loss on available-for-sale securities, net of tax benefit of $22 (41) (41) ==================================================================================================================================== Total comprehensive income 15,607 (41) 15,566 - ------------------------------------------------------------------------------------------------------------------------------------ Conversion of Class B Common Stock to Class A Common Stock -- - ------------------------------------------------------------------------------------------------------------------------------------ Non-qualified Class A Common Stock options exercised 316 317 - ------------------------------------------------------------------------------------------------------------------------------------ Treasury Stock purchased (2,852) (2,852) - ------------------------------------------------------------------------------------------------------------------------------------ Contribution of Treasury Stock to profit sharing plan (1) 683 682 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at February 26, 2000 $ 122,269 $ 114,512 $ (41) $(14,611) $222,392 ====================================================================================================================================
See accompanying notes. - ----------------------------------------------- 26 Notes To Consolidated Financial Statements - ----------------------------------------------- 1. Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of The Finish Line, Inc. and its wholly-owned subsidiary Spike's Holding, Inc. (collectively the "Company"). Throughout these notes to the financial statements, the fiscal years ended February 26, 2000, February 27, 1999 and February 28, 1998 are referred to as 2000, 1999 and 1998, respectively. The Company uses a "Retail" calendar. The Company's fiscal year ends on the Saturday closest to the last day of February and included 52 weeks in 2000, 1999, and 1998. Nature of Operations Finish Line is a specialty retailer of men's, women's and children's brand-name athletic, outdoor and lifestyle footwear, activewear and accessories. The Company manages it business on the basis of one reportable segment. Finish Line stores average approximately 6,060 square feet in size and are primarily located in enclosed malls throughout most of the United States. In 2000, the Company purchased approximately 79% of its merchandise from its five largest suppliers. The largest supplier, Nike, accounted for approximately 49%, 56% and 63% of merchandise purchases in 2000, 1999 and 1998, respectively. Use of Estimates 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 those estimates. Earnings Per Share Earnings per share are calculated based on the weighted- average number of outstanding common shares. Diluted earnings per share are calculated based on the weighted-average number of outstanding common shares, plus the effect of dilative stock options. All per-share amounts, unless otherwise noted, are presented on a diluted basis, that is, based on the weighted-average number of outstanding common shares and the effect of all potentially dilative common shares (primarily unexercised stock options). Revenue Recognition Revenues from retail sales are recognized at the time of sale. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with a maturity date of three months or less when purchased. Merchandise Inventories Merchandise inventories are valued at the lower of cost or market using a weighted-average cost method, which approximates the first-in, first-out method. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are generally provided using the straight-line method over the estimated useful lives of the assets, or where applicable, the terms of the respective leases, whichever is shorter. Store Opening and Closing Costs Store opening costs and other non-capitalized expenditures incurred prior to opening new retail stores are expensed as incurred. When a decision to close a retail store is made, the Company expenses any remaining future net lease obligation, nonrecoverable investment in property and equipment and other costs related to the store closure. Deferred Rent Payments The Company is a party to various lease agreements which require scheduled rent increases over the noncancelable lease term. Rent expense for such leases is recognized on a straight-line basis over the related lease term. The difference between rent based upon scheduled monthly payments and rent expense recognized on a straight-line basis is recorded as deferred rent payments. Advertising The Company expenses the cost of advertising as incurred. Advertising expense net of co-op credits for the years ended 2000, 1999 and 1998 amounted to $9,203,000, $7,657,000, and $7,326,000, respectively. Financial Instruments Financial instruments consist of cash and cash equivalents, accounts receivable, marketable securities and accounts payable. The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value. The fair value of marketable securities is determined on the basis of market quotes by brokers and is disclosed in Note 2. At February 26, 2000 and February 27, 1999, the Company had not invested in any derivative financial instruments. The Company classifies its marketable securities in one of three categories: trading, available-for-sale, or held-to-maturity. Held-to-maturity securities are those securities which the Company has the positive intent and ability to hold until maturity. Marketable securities not included in trading or held-to- maturity are classified as available-for-sale. Management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designations as of each balance sheet date. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Available-for-sale securities are carried at fair value with unrealized gains and losses recorded as a seperate component of accumulated other comprehensive income. The Company has no trading securities. ---------------------------------------------------------- Notes To Consolidated Financial Statements (Continued) 27 ---------------------------------------------------------- 2. Marketable Securities In January 2000, the Company sold $2,155,000 of investments that were previously classified as held-to-maturity. The Company's decision was based on increased borrowing costs in comparison to the rate of return on the investments. At that time, the Company also transferred all remaining investments from held-to-maturity to available-for-sale. The amortized cost transferred was $14,001,000 and the net unrealized loss on these investments at the date of transfer was $69,000. The following is a summary of marketable securities (in thousands):
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value - --------------------------------------------------------------------------------------------------------- February 26, 2000--available-for-sale securities-municipal obligations $11,483 $10 $(73) $11,420 - --------------------------------------------------------------------------------------------------------- February 27, 1999--held-to-maturity securities-municipal obligations $17,811 $350 $(15) $18,146 =========================================================================================================
The amortized cost and estimated fair value of marketable securities at February 26, 2000 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
Estimated Amortized Fair Cost Value - --------------------------------------------------------------------------------- Due in one year or less $ 3,002 $ 3,006 Due after one year through three years 7,981 7,920 Due after three years through four years 500 494 - --------------------------------------------------------------------------------- $11,483 $11,420 =================================================================================
3. Debt Agreement The Company has an unsecured committed Credit Agreement (the "Facility") with a syndicate of commercial banks in the amount of $75,000,000, which expires on July 10, 2003. At February 26, 2000, there were no borrowings outstanding under the Facility. The Facility contains restrictive covenants which limit, among other things, mergers, and acquisitions, redemptions of common stock, and payment of dividends. In addition, the Company must maintain a minimum fixed charge coverage ratio (as defined) and consolidated tangible net worth, and a maximum leverage ratio (as defined). The Company was in compliance with all restrictive covenants of the debt agreement in effect at February 26, 2000. The interest rate on the Facility is, at the Company's election, either a negotiated rate approximating the federal funds effective rate plus 1.25% (this rate is available on the first $10,000,000 of borrowings), the bank's LIBOR Rate plus .80% or the bank's prime commercial lending rate. The margin percentage added to the LIBOR Rate is subject to adjustment quarterly based on the fixed charge coverage ratio (as defined). Interest expense, which approximated interest paid, for 2000, 1999 and 1998 was $185,000, $57,000 and $4,000, respectively. The Company pays a commitment fee on the unused portion of the Facility at an effective annual rate of .20%. 4. Leases The Company leases retail stores under noncancelable operating leases which generally have lease terms ranging from five to ten years. Most of these lease arrangements do not provide for renewal periods. Many of the leases contain contingent rental provisions computed on the basis of store sales. In addition to rent payments, these leases generally require the Company to pay real estate taxes, insurance, maintenance, and other costs. The components of rent expense incurred under these leases is as follows (in thousands):
2000 1999 1998 - -------------------------------------------------------------------------- Base Rent $44,211 $34,697 $ 25,067 Deferred Rent 1,628 744 660 Contingent Rent 1,014 2,871 2,940 - -------------------------------------------------------------------------- Rent Expense $46,853 $38,312 $ 28,667 ==========================================================================
A schedule of future base rent payments by fiscal year for signed operating leases at February 26, 2000 with initial or remaining noncancelable terms of one year or more is as follows (in thousands): 2001 $ 48,610 2002 48,992 2003 48,770 2004 46,717 2005 43,527 Thereafter 157,150 - -------------------------------------------------------------------------- $393,766 ==========================================================================
This schedule of future base rent payments includes lease commitments for five new stores and one remodel which were not open as of February 26, 2000. - ---------------------------------------------------------- 28 Notes To Consolidated Financial Statements (Continued) - ---------------------------------------------------------- 5. Income Taxes The components of income taxes are as follows (in thousands):
2000 1999 1998 - ------------------------------------------------------------------------------------ Currently payable: Federal $2,756 $10,028 $13,268 State 356 1,880 2,623 - ------------------------------------------------------------------------------------ 3,112 11,908 15,891 Deferred: Federal 4,687 650 560 State 605 122 109 - ------------------------------------------------------------------------------------ 5,292 772 669 - ------------------------------------------------------------------------------------ $8,404 $12,680 $16,560 ====================================================================================
Deferred income taxes reflect the net tax effects of temporary differences between the amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
February 26, February 27, 2000 1999 - ----------------------------------------------------------------------------------- Deferred tax assets: Deferred rent accrual $ 2,225 $ 2,030 Uniform capitalization 1,111 1,513 Vacation accrual 476 471 Pension accrual 240 279 Bonus accrual -- 114 Other 122 163 - ----------------------------------------------------------------------------------- Total deferred tax assets 4,174 4,570 - ----------------------------------------------------------------------------------- Deferred tax liabilities: Inventory (5,707) -- Property and Equipment (283) (1,116) - ----------------------------------------------------------------------------------- Total deferred tax liabilities (5,990) (1,116) - ----------------------------------------------------------------------------------- Net deferred tax asset (liability) $(1,816) $ 3,454 ===================================================================================
The effective income tax rate varies from the statutory federal income tax rate for 2000, 1999 and 1998 due to the following:
2000 1999 1998 - --------------------------------------------------------------------------------------------------------- Tax at statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 2.6% 3.9% 4.1% Tax exempt interest (4.3)% (4.4)% (5.8)% Other 1.7% 3.5% 4.9% - --------------------------------------------------------------------------------------------------------- 35.0% 38.0% 38.2% =========================================================================================================
Payments of income taxes for 2000, 1999 and 1998 were $4,751,000, $13,672,000 and $17,572,000, respectively. 6. Profit Sharing Plan The Company sponsors a defined contribution profit sharing plan which covers substantially all employees who have completed one year of service. Contributions to this plan are discretionary and are allocated to employees as a percentage of each covered employee's wages. The Company's total expense for the plan in 2000, 1999 and 1998 amounted to $1,626,000, $1,621,000 and $1,789,000, respectively. 7. Stock Options The Board of Directors has reserved 3,500,000 shares of Class A Common Stock for issuance upon exercise of options or other awards under the option plan. Stock options have been granted to directors, officers and other key employees. All options outstanding under the plans as of the end of fiscal 2000 are exercisable at a price equal to the fair market value on the date of grant, vest over four years and expire ten years after the date of grant. 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, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. However, SFAS No. 123, "Accounting for Stock-Based Compensation," requires presentation of pro forma information as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994, under the fair value method. For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the vesting period. -------------------------------------------------------------- Notes To Consolidated Financial Statements (Continued) 29 -------------------------------------------------------------- Under the fair value method, the Company's net income and earnings per share would have been as follows:
2000 1999 1998 - -------------------------------------------------------------------------------------------------- Net income (in thousands) As reported $15,607 $20,687 $26,734 Pro forma 14,154 19,165 25,768 - -------------------------------------------------------------------------------------------------- Diluted earnings per share As reported $ .62 $ .80 $ 1.02 Pro forma .58 .75 .99 ==================================================================================================
The estimated weighted-average fair value of the individual options granted during 2000, 1999 and 1998 was $4.20, $7.59 and $12.70, respectively, on the date of grant. The fair values for all years were determined using a Black- Scholes option-pricing model with the following assumptions:
2000 1999 1998 - ---------------------------------------------------------------------------------- Dividend yield 0% 0% 0% - ---------------------------------------------------------------------------------- Volatility 77.9% 81.6% 74.8% - ---------------------------------------------------------------------------------- Risk-free interest rate 6.58% 5.70% 6.18% - ---------------------------------------------------------------------------------- Expected life 7 years 7 years 7 years ==================================================================================
A reconciliation of the Company's stock option activity and related information is as follows:
Number Weighted-Average of Options Exercise Price - --------------------------------------------------------------------------- March 1, 1997 838,852 $ 4.52 Granted 691,675 17.11 Exercised (70,000) 4.77 Canceled (50,500) 14.50 - --------------------------------------------------------------------------- February 28, 1998 1,410,027 10.33 Granted 406,000 9.96 Exercised (192,791) 4.67 Canceled (35,920) 14.88 - --------------------------------------------------------------------------- February 27, 1999 1,587,316 10.81 Granted 439,300 5.52 Exercised (50,751) 3.92 Canceled (166,825) 12.73 - --------------------------------------------------------------------------- February 26, 2000 1,809,040 $9.55
The following table summarizes information concerning outstanding and exercis- able options at February 26, 2000:
Weighted- Average Weighted- Weighted- Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life Price Exercisable Price - --------------------------------------------------------------------------------------------------------- $ 3-$ 5 417,700 5.3 $ 3.97 417,700 $ 3.97 $ 5-$10 807,500 9.0 $ 7.10 90,800 $ 7.81 $10-$15 345,345 7.9 $13.72 114,132 $13.77 $15-$25 238,495 7.1 $21.53 98,560 $21.68 =========================================================================================================
Options exercisable were 721,192, 425,128 and 317,126 at fiscal year end 2000, 1999 and 1998, respectively. 8. Earnings Per Share The following is a reconciliation of the numerators and denominators used in computing earnings per share (in thousands, except per share amounts).
2000 1999 1998 - --------------------------------------------------------------------------------------------------------- Income available to common stockholders $15,607 $20,687 $26,734 - --------------------------------------------------------------------------------------------------------- Basic earnings per share: Weighted-average number of common shares outstanding 24,848 25,541 25,963 Basic earnings per share $ .63 $ .81 $ 1.03 - --------------------------------------------------------------------------------------------------------- Diluted earnings per share: Weighted-average number of common shares outstanding 24,848 25,541 25,963 Stock options 191 292 354 - --------------------------------------------------------------------------------------------------------- Diluted weighted-average number of common shares outstanding 25,039 25,833 26,317 - --------------------------------------------------------------------------------------------------------- Diluted earnings per share $ .62 $ .80 $ 1.02 =========================================================================================================
- ---------------------------------------------------------- 30 Notes To Consolidated Financial Statements (Continued) - ---------------------------------------------------------- 9. Common Stock At February 26, 2000, shares of the Company's stock outstanding consisted of Class A and Class B Common Stock. Class A and Class B Common Stock have identical rights with respect to dividends and liquidation preference. However, Class A and Class B Common Stock differ with respect to voting rights, convertibility and transferability. Holders of Class A Common Stock are entitled to one vote for each share held of record, and holders of Class B Common Stock are entitled to ten votes for each share held of record. The Class A Common Stock and the Class B Common Stock vote together as a single class on all matters submitted to a vote of stockholders (including the election of directors), except that, in the case of a proposed amendment to the Company's Restated Certificate of Incorporation that would alter the powers, preferences or special rights of either Class A Common Stock or the Class B Common Stock, the class of Common Stock to be altered shall vote on the amendment as a separate class. Shares of Class A and Class B Common Stock do not have cumulative voting rights. While shares of Class A Common Stock are not convertible into any other series or class of the Company's securities, each share of Class B Common Stock is freely convertible into one share of Class A Common Stock at the option of the Class B Stockholders. Shares of Class B Common Stock may not be transferred to third parities (except for transfer to certain family members of the holders and in other limited circumstances). All of the shares of Class B Common Stock are held by the founding stockholders and their family members. Effective September 2, 1998, the Company's Board of Directors approved a stock repurchase program. The Company was authorized to purchase on the open market or in privately negotiated transactions, through December 31, 1999, up to 2,600,000 shares of Class A Common Stock outstanding. Effective December 28, 1999, the Company's Board of Directors extended the stock repurchase program through December 31, 2000. As of February 26, 2000, the Company holds as treasury shares under this repurchase plan 1,785,000 shares of its Class A Common Stock at an average price of $8.19 per share for an aggregate purchase amount of $14,611,000. The treasury shares may be issued upon the exercise of employee stock options or for other corporate purposes. ---------------------------------- Report of Independent Auditors 31 ---------------------------------- The Board of Directors and Stockholders of The Finish Line, Inc. We have audited the accompanying consolidated balance sheets of The Finish Line, Inc. as of February 26, 2000 and February 27, 1999, and the related consolidated statements of income, cash flows, and changes in stockholders'equity for each of the three years in the period ended February 26, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Finish Line, Inc. at February 26, 2000 and February 27, 1999 and the consolidated results of its operations and its cash flows for each of the three years in the period ended February 26, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Fort Wayne, Indiana March 21, 2000 MARKETPRICE OF COMMON STOCK
Quarter Ended Fiscal 2000 Fiscal 1999 - --------------------------------------------------------------------- High Low High Low - --------------------------------------------------------------------- May $15.88 $11.13 $26.50 $15.63 August 12.50 8.00 31.06 8.25 November 9.38 5.56 11.44 7.50 February 7.00 4.44 12.19 7.00 =====================================================================
The Class A Common Stock has traded on the Nasdaq National Market under the symbol FINL since the Company became a public entity in June 1992. Since its initial public offering in June 1992, the Company has not declared any cash dividends and does not anticipate paying any cash dividends in the foreseeable future. See Management's Discussion and Analysis and Note 3 of Notes to Consolidated Financial Statements for restrictions on the Company's ability to pay dividends. - --------------------------------- 32 Senior Officers and Directors - ---------------------------------
Name Age Position Officer or Director Since ==================================================================================================================================== Alan H. Cohen(1) 53 Chairman of the Board of Directors President and Chief Executive Officer 1976 - ------------------------------------------------------------------------------------------------------------------------------------ David I. Klapper(3) 51 Senior Executive Vice President, Director 1976 - ------------------------------------------------------------------------------------------------------------------------------------ Larry J. Sablosky 51 Senior Executive Vice President, Director 1982 - ------------------------------------------------------------------------------------------------------------------------------------ Steven J. Schneider 44 Executive Vice President--Finance, CFO and Assistant Secretary 1989 - ------------------------------------------------------------------------------------------------------------------------------------ Gary D. Cohen 47 Executive Vice President--General Counsel and Secretary 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Joseph W. Wood 52 Executive Vice President--Merchandising and Marketing 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Donald E. Courtney 45 Executive Vice President--MIS and Distribution 1989 - ------------------------------------------------------------------------------------------------------------------------------------ George S. Sanders 42 Executive Vice President--Real Estate and Store Development 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Michael L. Marchetti 49 Executive Vice President--Store Operations 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Kevin S. Wampler 37 Senior Vice President--Corporate Controller and Asst. Secretary 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Robert A. Edwards 37 Senior Vice President--Distribution 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas R. Sicari 46 Senior Vice President--General Merchandise Manager 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Kevin G. Flynn 36 Senior Vice President--Marketing 1997 - ------------------------------------------------------------------------------------------------------------------------------------ James B. Davis 37 Senior Vice President--Real Estate 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Joseph L. Gravitt 40 Senior Vice President--Store Personnel 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Jonathan K. Layne(2)(3)(4) 46 Director 1992 - ------------------------------------------------------------------------------------------------------------------------------------ Jeffrey H. Smulyan(1)(2)(5) 52 Director 1992 - ------------------------------------------------------------------------------------------------------------------------------------ Stephen Goldsmith(1)(6) 53 Director 1999 - ------------------------------------------------------------------------------------------------------------------------------------
(1) Member of the Audit Committee (2) Member of the Compensation and Stock Option Committee (3) Member of the Finance Committee (4) Mr. Layne is a partner in the law firm of Gibson, Dunn & Crutcher LLP (5) Mr. Smulyan is Chairman of the Board and President of Emmis Communications Corporation (6) Mr. Goldsmith is a partner in the law firm of Baker & Daniels LLP [Shareholder Information] [Company Logo] [2000] Transfer Agent and Registrar: American Stock Transfer & Trust Co. Shareholder Services 40 Wall Street New York, NY 10005 Stock Market Information: The Company's Class A Common Stock is traded on the NASDAQ National Market under the symbol FINL. As of March 31, 2000, the approximate number of holders of record of Class A Common Stock was 341. The Company believes that the number of beneficial holders of its Class A Common Stock was in excess of 500 as of that date. On March 31, 2000, the closing price for the Company's Class A Common Stock, as reported by NASDAQ was $9.75. Financial Reports: A copy of Form 10-K, the Company's annual report to the Securities and Exchange Commission, for the current period can be obtained without charge by writing to: The Finish Line, Inc. Attn: Chief Financial Officer 3308 N. Mitthoeffer Road Indianapolis, IN 46235 Internet Address: www.finishline.com Certain statements contained in this Annual report regard matters that are not historical facts and are forward looking statements (as such term is defined in the rules promulgated pursuant to the Securities Act of 1933, as amended). Because such forward looking statements contain risks and uncertainties, actual results may differ materially from those expressed in or implied by such forward looking statements. Factors that could cause actual results to differ materially include, but are not limited to: changing consumer preferences; the Company's inability to successfully market its footwear, apparel, accessories and other merchandise; price, product and other competition from other retailers (including internet and direct manufacturer sales); the unavailability of products; the inability to locate and obtain favorable lease terms for the Company's stores; the loss of key employees, general economic conditions and adverse factors impacting the retail athletic industry; management of growth, and the other risks detailed in the Company's Securities and Exchange Commission filings. The Company undertakes no obligation to release publicly the results of any revisions to these forward looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Architectural Photography - Dan Francis/Mardan Photography Fashion Photography - E. Anthony Valainis [COMPANY LOGO] Corporate Mark: Address: Web Address/Phone: - ------------------- ----------------- www.finishline.com [LOGO] Finish Line --------------------- 3308 North Mitthoeffer Rd. 317.899.1022 Indianapolis, IN 46235 EX-21 3 SUBSIDIARIES OF THE FINISH LINE, INC. EXHIBIT 21 SUBSIDIARIES OF THE FINISH LINE, INC. Subsidiary State of Incorporation Percentage of Ownership - ---------- ---------------------- ----------------------- Spike's Holding, Inc. Delaware 100% 19 EX-23 4 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 [LETTERHEAD OF ERNST & YOUNG LLP] Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of The Finish Line, Inc. of our report dated March 21, 2000, included in the 2000 Annual Report to Stockholders of The Finish Line, Inc. Our audits also included the financial statement schedule of The Finish Line, Inc. listed in Item 14(d). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-95720, 33-51392 and 333-62063) pertaining to The Finish Line, Inc. 1992 Employee Stock Incentive Plan and the Registration Statement (Form S-8 No. 33-84590) pertaining to The Finish Line, Inc. Non-Employee Director Stock Option Plan of our report dated March 21, 2000, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of The Finish Line, Inc. Ernst & Young LLP Fort Wayne, Indiana May 23, 2000 20 EX-27 5 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from financial statements for the years ended February 26, 2000 and February 27, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR YEAR FEB-26-2000 FEB-27-1999 FEB-28-1999 MAR-01-1998 FEB-26-2000 FEB-27-1999 13,061 23,113 11,420 2,155 9,555 6,951 0 0 148,979 135,303 185,244 171,195 143,439 120,183 41,820 29,749 289,095 278,555 60,346 64,534 0 0 0 0 0 0 263 262 222,129 208,417 289,095 278,555 585,963 522,623 585,963 522,623 423,505 373,170 423,505 373,170 139,273 117,507 0 0 (826) (1,421) 24,011 33,367 8,404 12,860 15,607 20,687 0 0 0 0 0 0 15,607 20,687 .63 .81 .62 .80
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