EX-13 4 dex13.txt ANNUAL REPORT [LOGO OF FINISH LINE] [PICTURE OF SHOE APPEARS HERE] -------------------------------------------------------------------------------- annual report -------------------------------------------------------------------------------- 2001 FINANCIAL HIGHLIGHTS
Fiscal Fiscal Fiscal Dollars in thousands (except per share data) 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------- Net sales $ 663,906 $ 585,963 $ 522,623 Operating income 4,975 23,185 31,946 Operating income as a percent of net sales 0.8% 4.0% 6.1% Net income 3,745 15,607 20,687 Net income as a percent of net sales 0.6% 2.7% 4.0% Diluted earnings per share $ .15 $ .62 $ .80 Number of stores open at end of period 436 409 358 Total retail square footage at end of period 2,653,886 2,478,930 2,095,264 Average store size 6,087 6,061 5,853 Total assets $ 308,868 $ 289,095 $ 278,555 Cash and marketable securities 51,935 24,481 40,924 Total debt -- -- -- Total stockholders' equity 226,747 222,392 208,679 =======================================================================================================================
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 1997," "fiscal 1998," "fiscal 1999," "fiscal 2000," and "fiscal 2001" refer to the Company's fiscal years ended March 1, 1997; February 28, 1998; February 27, 1999; February 26, 2000 and March 3, 2001 respectively. "Fiscal 2002" and "fiscal 2003" refer to the Company's fiscal years ending March 2, 2002 and March 1, 2003, respectively. [GRAPH] [GRAPH] [GRAPH] [GRAPH] 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 than any other mall-based retailer. Finish Line began operations in 1976 in Indianapolis, Indiana and at year-end served customers in 42 states through 436 stores and online. ALABAMA Birmingham Dothan Montgomery ARIZONA Mesa Phoenix Scottsdale Tucson ARKANSAS Fayetteville Fort Smith Little Rock N. Little Rock CALIFORNIA Fairfield Los Angeles -Cerritos -Culver City -Montclair -Montebello -Northridge -West Covina Orange County -Mission Viejo -Westminster Salinas San Diego -Roseville Stockton COLORADO Boulder Colorado Springs Denver Fort Collins Greeley CONNECTICUT Meriden Trumbull Waterbury Waterford DELAWARE Wilmington FLORIDA Altamonte Brandon Clearwater Crystal River Daytona Beach Fort Myers Jacksonville Lakeland Naples Ocoee Orlando Panama City Pensacola Port Richey Sanford St. Petersburg Tallahassee Tampa GEORGIA Alpharetta Athens Atlanta -Decatur -Duluth -Kennesaw -Morrow -Union City Augusta Buford Douglasville Macon Savannah IDAHO Boise ILLINOIS Alton Bloomington Bourbonnais Carbondale Champaign Chicago -Aurora -Bloomingdale -Calumet City -Evergreen Park -Fairview Heights -Gurnee -Lombard -Matteson -Niles -N. Riverside -Orland Park -Schaumburg -Skokie -University Park -Vernon Hills -Waukegan -West Dundee Danville Forsythe Marion Moline Peoria Peru Rockford Springfield Sterling INDIANA Anderson Bloomington Carmel Elkhart Evansville Fort Wayne Greenwood Indianapolis Kokomo Lafayette Marion Merrillville Michigan City Mishawaka Muncie Richmond South Bend Terre Haute IOWA Cedar Rapids Coralville Davenport Des Moines Dubuque Iowa City Sioux City KANSAS Hutchinson Manhattan Olathe Overland Park Salina Topeka Wichita KENTUCKY Ashland Bowling Green Florence Lexington Louisville Paducah LOUISIANA Alexandria Bossier City Lake Charles Monroe Shreveport MAINE Bangor MARYLAND Baltimore Bethesda Cumberland Forestville Frederick Glen Burnie Hagerstown Laurel Owings Mills Salisbury Towson Waldorf MASSACHUSETTS Brockton Hanover Holyoke Leominster Saugus Taunton MICHIGAN Adrian Battle Creek Bay City Benton Harbor Burton Detroit -Auburn Hills Flint Fort Gratiot Grand Rapids Holland Lansing Midland Monroe Port Huron Portage Taylor Traverse City Waterford MISSISSIPPI Ridgeland Tupelo MISSOURI Cape Girardeau Chesterfield Florissant Independence Joplin Kansas City St. Ann St. Louis St. Peters Springfield NEBRASKA Lincoln Omaha NEVADA Las Vegas NEW HAMPSHIRE Concord Manchester Newington Salem NEW JERSEY Eatontown Deptford Lawrenceville Paramus Phillipsburg Rockaway Voorhees NEW MEXICO Albuquerque NEW YORK Albany Bay Shore Buffalo -Blasdell -Williamsville Clay Dewitt Horseheads Ithaca Lakewood Massapequa Middletown Nanuet Niagara Falls Poughkeepsie Rochester Rotterdam Saratoga Springs Schenectady Staten Island Syracuse Wilton NORTH CAROLINA Asheville Burlington Cary Charlotte -Gastonia -Pineville Concord Fayetteville Greensboro Hickory High Point Morrisville Raleigh Rocky Mount Winston-Salem NORTH DAKOTA Bismarck Grand Forks Ohio Akron Alliance Ashtabula Beaver Creek Canton Cincinnati Cleveland -Euclid -Mentor -N. Olmsted -N. Randall -Parma -Richmond Heights Columbus Dayton Dublin Elyria Findlay Franklin Heath Lancaster Lima Mansfield Marion New Philadelphia Niles Northwood Piqua Reynoldsburg Sandusky Springfield St. Clairsville Toledo OKLAHOMA Midwest City Norman Oklahoma City Tulsa OREGON Portland PENNSYLVANIA Altoona Bensalem Bloomsburg Butler Camp Hill Chambersburg Erie Exton Greensburg Hanover Indiana Johnstown Lancaster Media Monaca North Wales Pennsdale Philadelphia Pittsburgh Plymouth Scranton Uniontown Washington West Mifflin York SOUTH CAROLINA Charleston Columbia Greenville SOUTH DAKOTA Sioux Falls TENNESSEE Antioch Chattanooga Clarksville Franklin Goodlettsville Johnson City Memphis Nashville TEXAS Abilene Amarillo Austin Beaumont Dallas/Fort Worth -Arlington -Denton -Frisco -Hurst -Irving -Lewisville -Mesquite -Plano -Richardson El Paso Houston Humble Katy Killeen Longview Midland San Angelo San Antonio Sherman Temple Tyler Waco Wichita Falls VIRGINIA Alexandria Chesapeake Christiansburg Dulles Fredericksburg Harrisonburg Lynchburg Newport News Norfolk Richmond -Colonial Heights -Glen Allen Roanoke Virginia Beach Winchester Washington Bellingham Seattle Spokane Tacoma WEST VIRGINIA Barboursville Bridgeport Charleston Martinsburg Morgantown Wisconsin Green Bay Greendale Janesville Madison Milwaukee Racine Wauwatosa 1 TO OUR STOCKHOLDERS Finish Line completed fiscal 2001 with over $660 million in sales, a gain of 13% over last year - our 24th straight year of increases. For fiscal 2001, comparable-store sales increased 1%, reversing a negative same-store sales performance during the two previous fiscal years. In spite of improved sales performance, we were not able to stop the slide in net earnings and earnings per share for the year. Repositioning Plan Due to the continued deterioration of earnings, we have reviewed our business practices to look for ways to improve productivity and performance. During the 1st quarter of fiscal 2002, we announced a repositioning plan designed to increase long-term profitability of our stores and generate long-term value for stockholders. The primary component of the plan includes a more aggressive approach to reducing aged inventory by reconfiguring merchandise assortments to place greater emphasis on better performing, fresher merchandise. This should lead to improved inventory turns and product margins. In addition, the Company announced plans to close approximately 17 under-performing stores, including all five of our outlet stores. The closing of under-performing stores will direct assets and attention to more productive uses. We will complete the repositioning plan as quickly as possible so that we may continue forward with our long-term strategies for meaningful growth and improved productivity. Growth and Productivity Growing our store base has been an important Finish Line goal throughout the last decade. This aggressive growth strategy has taken us from being a regional athletic chain to one of the top three national athletic specialty stores in the mall. From 1996 to fiscal year-end 2001 we have nearly doubled our stores, growing from 220 to 436. Today, we operate stores in 42 states, from coast-to-coast, in all regions of the country. Growth is important; meaningful growth is critical. It's not enough for us simply to continue our sales growth, we must find ways to become more productive. Our previously announced repositioning plan is a positive move in this direction and a logical evolutionary step in the way we do business. Because of existing business conditions and the need for increased store productivity, we have decided to temporarily slow our store expansion with fewer new store openings. Stores that may be under-performing, but are not designated to close, will be scrutinized by all Company departments to assure everything is being done to reverse negative performance trends. By adjusting our existing product mix and introducing new footwear and apparel products into our stores, we will refine our product assortments to optimize sales-per-square-foot. We will continue to aggressively manage the Company's expenses and capital expenditures, which over the years has contributed to Finish Line's position as one of the most profitable and financially secure retailers in our industry. At the end of fiscal 2001, our balance sheet showed no interest-bearing debt and reflected cash and investments of over $50 million. Over the years as we have grown, the athletic retail environment has also changed. Consumers now have more shopping choices to satisfy their athletic product needs, including: new mall retailers, direct mail outlets and e-commerce options. Additionally, athletic retailing has become more promotional putting pressure on product margins while mall rents and other occupancy expenses continue to increase. At Finish Line we understand that to be a successful retailer, we must recognize these changes and adapt to the new business environment. Opportunities Despite having been in existence for more than 25 years, in many ways we still think of ourselves as a young company - eager to grow and take advantage of the opportunities that exist within the industry to 2 Finish Line is positioned to meet the needs___(PICTURE OF FINISH LINE of an active, athletic customer base. STORE FRONT) improve our business. These opportunities include an active consumer base for whom health, fitness, and sports participation is an important part of their lifestyle. Also, opportunities exist to expand our market share because most of our competitors have been shrinking their mall-based store presence during the last few years. Our national stature has allowed us to create strategic partnerships with prominent vendors such as Nike and Reebok, which positions us to sell the exciting new technologies and products our customer seeks. SHOX and Air Presto footwear from Nike, Reebok's Iverson basketball shoe and slip-on and postgame styles from And 1 are just a few examples of the excitement being generated in the marketplace. Working with the industry's leading vendors including: Nike, adidas, Reebok and the increasingly important niche brands such as New Balance, And 1, K-Swiss, and Timberland, Finish Line offers customers a complete athletic footwear collection. As a result our footwear business, which currently represents approximately 80% of our overall product mix, performed well in fiscal 2001 with a 17% sales increase over fiscal 2000. Further, these vendor partnerships have allowed us to increase national advertising expenditures and raise Finish Line brand awareness among potential and existing customers in markets throughout the United States. Going forward, our challenge is to continue this momentum in our footwear business and stabilize (and eventually turn around) our under- performing apparel business. While product and marketing are key ingredients for success, knowing and understanding our customer is more critical today than ever. We have gained valuable information about who is walking into our stores and what they expect during their visit, through focus groups, surveys, and a new customer loyalty program (Winner's Circle). We believe our stores have a much broader and varied consumer base than most of our mall competitors, which provides opportunities for us to gain market share in the malls. This information, which we are now able to capture and analyze, should result in additional sales from repeat customers and better position us to meet the needs of new consumers. Bright Future We are excited about the future of our Company. We believe Finish Line will continue to grow nationally while improving productivity and profit levels. Through difficult times in our industry, we have been able to expand our store base and maintain a strong balance sheet. We have confidence in our Company, the industry, and our vendors; and we believe that any slow-down or downturn in business is only temporary. The future of athletic specialty retailing remains bright. We thank our customers and vendors for their support over the years, and our stockholders for their loyalty and commitment to the Company. We are committed to the sustained creation of long-term stockholder value, and feel we have the vision and team to succeed. We are dedicated, hard working, and remain focused on our goal of being the best athletic specialty store in or out of the mall. I would also like to thank and praise our Board of Directors for their guidance and wise counsel over the years. We have all completed a difficult year and we think we have made important strategic decisions that will lead us back to the levels of productivity, profits and increased stockholder value we all desire. Sincerely, /s/ Alan H. Cohen Alan H. Cohen President and CEO, Finish Line, Inc. 3 THE STORE An important point of difference between Finish Line and the competition has always been our store. Our retail environment is unique within the mall based athletic specialty category. We understand that product is king, so we have built stores that allow the product to reign. Our signature shoe wall showcases an impressive selection of footwear that attracts the attention of every customer who enters the store. We also bring important footwear collections off the wall into the store front windows and onto sales floor tables to allow brands, categories, and new products to stand out. This point of difference becomes more clear when comparing store size. Our average store is approximately 6,100 square feet, which is larger than our competitors' average stores. This gives us space to feature products for the whole family (men, women, and children) and allows us to showcase a broader selection of apparel and accessories that hook up with our footwear. As a result, Finish Line stores appeal to a broader segment of the population than the stores of most of our competition. Finish Line is shopped not just by the sought-after teen demographic, but also by 20-45 year old customers. Athletic shoes are worn by people of all ages for many different reasons. Sport is more about attitude than it is about age. So, whether it's an athletic shoe for a specific sport or a casual shoe to wear for looks or comfort, Finish Line has the product customers are looking for. [FASHION MODEL PRESENTING PRODUCT PICTURE APPEARS HERE] 4 Finish Line stores are designed to highlight product in a clean, organized, and inviting manner. [PICTURE OF FINISH LINE STORE APPEARS HERE] Quaker Bridge Mall Lawrenceville, NJ THE PRODUCT This is an exciting time to be a part of the athletic footwear industry. Demand from consumers for marque product continues to climb, and manufacturers continue to deliver new and innovative styles to meet this demand. Our exclusive running initiative with Nike (RNG), which began in fiscal 2001 and continues into the new fiscal year, has allowed us to gain even greater market share in this key footwear category. Customers were directed to Finish Line as the destination for Nike running shoes by powerful in-store merchandising and a national TV advertising campaign. And Nike continues to deliver the product-from the recent introduction of the sport-inspired, fashion-forward Air Presto to their latest technological innovation, SHOX, which made its debut last holiday season. Other footwear brands are also creating excitement and strong sales: Reeboks Iverson Answer basketball shoe has gained momentum at each introduction while And 1 has created a whole new category of athletic shoes with their "slip-on" styles like the Post Game or Tochillin. Timberland and Lugz catapulted the brown boot category to new heights during the holiday season with their classic outdoor styles. And, whats old is new again. Retro styles from Nike, Reebok, and adidas enjoy renewed enthusiasm in the marketplace. Although footwear remained strong in fiscal 2001, our apparel sales continued to struggle. Deep discounting in the marketplace and lower average-price-points have kept this portion of our business from improving. There were bright spots in certain apparel items, and we plan to expand upon these successes next year and to eliminate under performing items. Our private label apparel brand, SPK, continues to grow during this difficult time in apparel sales. Consisting mostly of athletic basics, SPK gives Finish Line quality, functional product at introductory price-points while improving product margins. 6 At Finish Line customers can find the latest athletic footwear, apparel and accessories, whether they're looking for performance, fashion or value. [PICTURE OF MEN'S SHOE WALL APPEARS HERE] PRODUCTIVITY To gain productivity in our existing base of stores, we must focus on three key factors Product, Systems, and People. We have to optimize our inventory mix to make sure the right product gets to each store in the correct quantity. To help accomplish this, Finish Line has completed a planning system review and has begun to implement a new planning tool to help better understand the specific needs of each store and to allocate product accordingly. Additionally, Finish Line announced a partnership this past year with found.com, which has a Web-based inventory management tool that will integrate Finish Line's inventory in all stores and in our distribution center. This system will give each of our stores, including our online store, real-time access to all inventory in our system, improving our ability to better meet our customers' product needs. Beyond product and systems to improve productivity, Finish Line needs motivated and energetic people in the stores and the home office. We have always prided ourselves on having a knowledgeable staff determined to provide a high level of service customers. Our store operations department is working hard to retain this point of difference by launching a new training program that gets back to the fundamentals of selling athletic shoes and taking care of the customer. After all, that is what retail is all about. 8 Finish Line's signature shoe wall communicates an incredible selection of footwear - from retro - styled classics to the newest in fashionable slip-ons. [PICTURE OF SHOE WALL APPEARS HERE] MARKETING In todays changing market economy, the customer is in control. With the advent of the Web and an abundance of retail stores, customers have a large number of options when buying athletic footwear and apparel. As a result, Finish Line believes it is increasingly important to know as much about our customer as possible. Finish Line worked diligently in fiscal 2001 to gain a better understanding of who is walking in our doors and what they want to buy. This past year we introduced our customer loyalty card program, Winners Circle, which rewards customers for shopping at Finish Line. This program not only provides great incentives to our best customers, but also gives us a better understanding of our customers purchasing habits. This information helps us optimize our purchasing and marketing strategies to build stronger long-term relationships with our customers. Through the use of our quarterly magalog, Finish Line (formerly SPIKE), and our website at www.finishline.com, we have additional ways to communicate with our customers. This year Finish Line initiated our largest advertising campaign in the Companys history to increase national brand awareness. We accomplished this by partnering with two of our key vendors, Nike and Reebok. We continued our award-winning running campaign (RNG) with Nike that positions Finish Line as the destination for the latest Nike running product. The TV spots illustrate how much Finish Line and our employees love runners. As the innovative spots state, Maybe We Love Runners Too Much. Last summer Finish Line also partnered with Reebok to advertise during the most watched prime-time show on television - CBSs Survivor series. This advertising created millions of additional consumer impressions, keeping Finish Line top of mind during the key back-to-school time period. The net effect of all of these efforts has taken Finish Lines national brand awareness from 45% to over 70% in one year among our core customer. 10 Finish Line's selection of men's, women's and children's products provide one-stop-shopping for the entire family. [PICTURE OF YOUTH AND WOMEN'S SHOE WALL APPEARS HERE] THE FUTURE Today, more than ever, we realize that everything we do affects our brand and its perception by our customers. That's why we are committed to constant improvement on every front. From product offerings based on pertinent customer information to mall-based and online stores that deliver a compelling shopping experience, Finish Line is positioned and committed to be the best athletic footwear retailer in the industry. Selected Financial Data 13 Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Consolidated Balance Sheets 18 Consolidated Statements of Income 19 Consolidated Statements of Cash Flow 20 Consolidated Statements of Changes in Stockholders' Equity 21 Notes to Consolidated Financial Statements 22 Report of Independent Auditors 27 Market Price of Common Stock 27 Senior Officers and Directors 28 Shareholder Information 28 [PICTURE OF FASHION MODEL PRESENTING PRODUCT APPEARS HERE] 12 SELECT FINANCIAL DATA
Year Ended ------------------------------------------------------------------------------------------------------------------------------------ March 3, February 26, February 27, February 28, March 1, (In thousands, except per share and store operating data) 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------------------------ Income Statement Data: ------------------------------------------------------------------------------------------------------------------------------------ Net sales $ 663,906 $ 585,963 $ 522,623 $ 438,911 $ 332,002 Cost of sales (including occupancy expenses) 491,527 423,505 373,170 303,809 229,187 ------------------------------------------------------------------------------------------------------------------------------------ Gross profit 172,379 162,458 149,453 135,102 102,815 Selling, general and administrative expenses 156,820 139,273 117,507 94,303 72,282 Repositioning and asset impairment charges 10,584 -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ Operating income 4,975 23,185 31,946 40,799 30,533 Interest income--net 970 826 1,421 2,495 824 ------------------------------------------------------------------------------------------------------------------------------------ Income before income taxes 5,945 24,011 33,367 43,294 31,357 Income taxes 2,200 8,404 12,680 16,560 12,544 ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 3,745 $ 15,607 $ 20,687 $ 26,734 $ 18,813 ==================================================================================================================================== Earnings Per Share Data: ------------------------------------------------------------------------------------------------------------------------------------ Basic earnings per share $ .15 $ .63 $ .81 $ 1.03 $ .81 ------------------------------------------------------------------------------------------------------------------------------------ Diluted earnings per share $ .15 $ .62 $ .80 $ 1.02 $ .80 ==================================================================================================================================== Share Data/(1)/: ------------------------------------------------------------------------------------------------------------------------------------ Weighted-average shares 24,458 24,848 25,541 25,963 23,100 ------------------------------------------------------------------------------------------------------------------------------------ Diluted weighted-average shares 24,663 25,039 25,833 26,317 23,502 ==================================================================================================================================== Selected Store Operating Data: ------------------------------------------------------------------------------------------------------------------------------------ Number of stores: Opened during period 34 55 59 53 35 Closed during period 7 4 3 2 4 Open at end of period 436 409 358 302 251 Total square feet/(2)/ 2,653,886 2,478,930 2,095,264 1,586,520 1,088,419 Average square feet per store/(2)/ 6,087 6,061 5,853 5,253 4,336 Net sales per square foot for comparable stores $ 262 $ 272 $ 310 $ 345 $ 352 Increase (decrease) in comparable store net sales/(3)/ 1.3% (2.6)% (1.7)% 5.6% 16.0% ==================================================================================================================================== Balance Sheet Data: ------------------------------------------------------------------------------------------------------------------------------------ Working capital $ 133,640 $ 124,898 $ 106,661 $ 120,822 $ 112,079 Total assets 308,868 289,095 278,555 255,978 217,718 Total debt -- -- -- -- -- Stockholders' equity 226,747 222,392 208,679 197,122 169,875 ====================================================================================================================================
(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. 13 MANAGEMENT'S DISCUSSION AND 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 ----------------------------------------------------------------------------------- March 3, February 26, February 27, 2001 2000 1999 ----------------------------------------------------------------------------------- Income Statement Data: Net sales 100.0% 100.0% 100.0% Cost of sales (including occupancy expenses) 74.0 72.3 71.4 ----------------------------------------------------------------------------------- Gross profit 26.0 27.7 28.6 Selling, general and administrative expenses 23.6 23.7 22.5 Repositioning and asset impairment charges 1.6 - - ----------------------------------------------------------------------------------- Operating income 0.8 4.0 6.1 Interest income--net 0.1 .1 .3 ----------------------------------------------------------------------------------- Income before income taxes 0.9 4.1 6.4 Income taxes 0.3 1.4 2.4 ----------------------------------------------------------------------------------- Net income 0.6% 2.7% 4.0% -----------------------------------------------------------------------------------
Fiscal 2001 Compared to Fiscal 2000 Net sales for fiscal 2001 were $663.9 million, an increase of $77.9 million or 13.3% over fiscal 2000. Of this increase, $33.9 million was attributable to an increase from the 55 existing stores open only part of fiscal 2000 and $26.7 million was from a 6.6% increase in the number of stores open during the period from 409 at the end of fiscal 2000 to 436 at the end of fiscal 2001. The balance of the increase in net sales was attributable to an approximate $14.0 increase due to fiscal 2001 having 7 additional days as compared to fiscal 2000 and a comparable store net sales increase of 1.3% in fiscal 2001. Comparable net footwear sales increased 4.9% for fiscal 2001 while comparable net activewear and accessories sales decreased 10.6%. Net sales per square foot decreased in fiscal 2001 to $262 from $272 in fiscal 2000. Activewear and accessories continue to be negatively effected by a significant reduction in the average unit selling price. Net sales per square foot have been negatively impacted by the decrease in activewear sales. Gross profit, which includes product margin less store occupancy costs, for fiscal 2001 was $172.4 million. Excluding the effect of non-recurring charges of $9.2 million in fiscal 2001 representing inventory writedowns associated with the repositioning plan discussed below gross profit was $181.6 million, an increase of approximately $19.1 million or 11.8% over fiscal 2000, and a decrease of approximately 0.4% as a percent of net sales. Of this 0.4% decrease, 0.3% was due to a decrease in margin for product sold, 0.2% was due to an increase in occupancy costs as a percentage of net sales, partially offset by a decrease in inventory shrink of 0.1%. Selling, general and administrative expenses were $156.8 million, an increase of $17.5 million or 12.6% over fiscal 2000, and decreased to 23.6% from 23.7% as a percentage of net sales. The dollar increase was primarily attributable to the operating costs related to the 34 additional stores opened during 2001. The decrease as a percentage of net sales is a result of the 53 week year in fiscal 2001 which added approximately $14.0 million in sales to the year. In the 4th quarter of 2001, the Company approved a repositioning plan (the "Plan") designed to increase long-term profitability of its retail stores and generate long term value for stockholders. As part of that plan the Company recorded pre-tax non-recurring repositioning and asset impairment charges totaling $19.8 million ($12.5 million after tax or $.51 per share) in connection with additional inventory mark downs, lease costs and asset impairment charges for 17 planned store closings, and asset impairment charges for 14 identified under-performing stores. The most significant component of the Plan included a more aggressive approach to reducing aged inventory by reconfiguring merchandise assortments to place greater emphasis on better performing fresher merchandise. The additional markdown reserve, which totaled $9.2 million has been recorded as a component of cost of sales. In connection with the store closings, the Company established a reserve for future lease payments after store closures of $3.8 million all of which is included in accrued expenses at March 3, 2001. Costs will be charged against this reserve as paid (expected to be primarily in 2002) and the reserve will be reviewed periodically to determine its adequacy. The Company recorded an asset impairment charge, pursuant to the requirements of SFAS No. 121, of $3.1 million related to the planned store closings. The fixed assets written off could not readily be used at other store locations nor was there a ready market outside the Company to determine fair value. The assets, consisting principally of fixtures and leasehold improvements, are expected to be discarded at the time of store closing. Accordingly, the asset impairment charge recorded represents the carrying value of the assets at the time of approval of the repositioning plan and depreciation of these 14 MANAGEMENT'S DISCUSSION AND FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont.)
Quarter Ended ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands, except per share data) May 27, 2000 August 26,2001 November 25, 2000 March 3, 2001 ----------------------------------------------------------------------------------------------------------------------------------- Net sales $146,657 100.0% $190,542 100.0% $134,503 100.0% $192,204 100.0% Cost of sales (including occupancy expenses) 106,013 72.3 137,296 72.1 101,378 75.4 146,840 76.4 ----------------------------------------------------------------------------------------------------------------------------------- Gross profit 40,644 27.7 53,246 27.9 33,125 24.6 45,364 23.6 Selling, general and administrative expenses 34,846 23.8 42,207 22.1 37,404 27.8 42,363 22.0 Repositioning and asset impairment charges - - - - - - 10,584 5.5 ----------------------------------------------------------------------------------------------------------------------------------- Operating income (loss) 5,798 3.9 11,039 5.8 (4,279) (3.2) (7,583) (3.9) Interest income--net 223 .2 169 .1 328 .2 250 .1 ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 6,021 4.1 11,208 5.9 (3,951) (3.0) (7,333) (3.8) Income taxes (benefit) 2,228 1.5 4,147 2.2 (1,462) (1.1) (2,713) (1.4) ----------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 3,793 2.6% $ 7,061 3.7% $ (2,489) (1.9)% $ (4,620) (2.4)% ----------------------------------------------------------------------------------------------------------------------------------- Basic earnings (loss) per share $ .16 $ .29 $ (.10) $ (.19) Diluted earnings (loss) per share $ .15 $ .29 $ (.10) $ (.19) ===================================================================================================================================
Quarter Ended ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) May 29, 1999 August 28, 1999 November 27, 1999 February 26, 2000 ----------------------------------------------------------------------------------------------------------------------------------- Net sales $132,296 100.0% $165,994 100.0% $120,776 100.0% $166,897 100.0% Cost of sales (including occupancy expenses) 95,170 71.9 117,303 0.7 91,358 75.6 119,674 71.7 ---------------------------------------------------------------------------------------------------------------------------------- Gross profit 37,126 28.1 48,691 9.3 29,418 24.4 47,223 28.3 Selling, general and administrative expenses 31,705 24.0 37,037 2.3 33,208 27.5 37,323 22.4 ---------------------------------------------------------------------------------------------------------------------------------- Operating income (loss) 5,421 4.1 11,654 7.0 (3,790) (3.1) 9,900 5.9 Interest income--net 281 .2 278 .2 204 .2 63 .1 ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 5,702 4.3 11,932 7.2 (3,586) (2.9) 9,963 6.0 Income taxes (benefit) 1,996 1.5 4,176 2.5 (1,255) (1.0) 3,487 2.1 ---------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 3,706 2.8% $ 7,756 4.7% $ (2,331) (1.9)% $ 6,476 3.9% ---------------------------------------------------------------------------------------------------------------------------------- Basic earnings (loss) per share $ .15 $ .31 $ (.09) $ .26 Diluted earnings (loss) per share $ .15 $ .31 $ (.09) $ .26 ==================================================================================================================================
assets was discontinued at that time. Operating results for the individual stores will be included in operations through the closing dates of the respective stores. The Company also reviewed its under-performing stores for asset impairment charges. The asset impairment test was applied to all stores with negative contribution and cash flows. An asset impairment charge of $3.6 million was calculated as the difference between the carrying amount of the assets and each store's estimated future discounted cash flows. Sales in 2001 of the 17 stores to be closed as part of the Plan were $16.9 million. The 13 remaining stores (the Company closed four of the stores in the fourth quarter of 2001) are expected to be closed by the end of 2002. Thus, sales in 2002 for these stores will be substantially less than in 2001. The stores to be closed (which includes five outlet stores) had a negative contribution of $4.8 million in 2001. Because these stores will not be open all of 2002 and because the fixed assets for these stores have been written 15 MANAGEMENT'S DISCUSSION AND FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont.) off as part of the asset impairment charge, we expect losses on these stores will be lower in 2002 than in 2001. Future exit costs to be recorded in 2002 in connection with these stores is not expected to be material. With regards to the 14 underperforming stores for which the fixed assets were written off as part of the asset impairment charge, depreciation in 2001 was $.5 million and will be zero related to these assets in 2002. Net interest income for fiscal 2001 was $1.0 million compared to net interest income of $.8 million for fiscal 2000. The increase was the result of increased levels of invested cash and marketable securities due to fewer store openings in fiscal 2001. Income tax expense was $2.2 million for fiscal 2001 compared to $8.4 million for fiscal 2000. The decrease in the Company's provision for federal and state taxes in 2001 is due to the decreased level of income before taxes slightly offset by an increase in the effective tax rate to 37% for fiscal 2001 from 35% in fiscal 2000. Net income decreased 76.0% to $3.7 million for fiscal 2001 compared to $15.6 million for fiscal 2000. Diluted net income per share decreased 75.8% to $.15 for fiscal 2001 compared to $.62 for fiscal 2000. Diluted weighted average shares outstanding were 24,663,000 and 25,039,000, for fiscal 2001 and 2000, respectively. 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 $.8 million 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. 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 2001 and fiscal 2000. 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 $44.9 million, $12.1 million and $37.7 million respectively, for fiscal 2001, 2000 and 1999. At March 3, 2001, the Company had cash and cash equivalents of $45.4 million and an additional 16 MANAGEMENT'S DISCUSSION AND FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont.) $6.5 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 three years and are primarily invested in tax exempt municipal obligations. Marketable securities are classified as available-for-sale and are available to support current operations. Merchandise inventories were $145.5 million at March 3, 2001 compared to $149.0 million at February 26, 2000. On a per square foot basis, merchandise inventories at March 3, 2001 decreased 8.8% compared to February 26, 2000. 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 $60 million, which expires on September 20, 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 September 20, 2003. The interest rate on the Facility is, at the Company's election, either a negotiated rate approximating the federal funds effective rate plus 1.5% (this rate is available on the first $5 million of borrowings), the bank's LIBOR Rate plus 1.0%, or the bank's prime commercial lending rate. The margin percentage added to the LIBOR Rate is subject to adjustment quarterly based on the leverage ratio (as defined). At March 3, 2001, 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 leverage ratio (as defined) and minimum consolidated tangible net worth (as defined). The Company is also subject to a liquidity test and an annual capital expenditure limitation. The Company was in compliance with all such covenants at March 3, 2001. Capital expenditures were $16.4 million and $26.3 million for fiscal 2001 and 2000, respectively. Expenditures in 2001 were primarily for the build-out of 34 stores that were opened during fiscal 2001, the remodeling of 13 existing stores and various corporate projects. Expenditures in 2000 were primarily for the build-out of 55 stores that were opened in fiscal 2000 (including 7 large format stores), the remodeling of 18 existing stores, and various corporate projects. The Company anticipates that total capital expenditures for fiscal 2002 will be approximately $15 million, primarily for the build-out of 25 new 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 (averaging approximately 5,000 square feet) to be $500,000 (net of construction allowance). These requirements for a traditional store include approximately $325,000 for fixtures, equipment, and leasehold improvements and $275,000 ($175,000 net of payables) in new store inventory. During fiscal 2001, the Company contributed 165,000 shares of Class A Common Stock to the Company's retirement plan for its employees. The Company purchased the shares in fiscal 1999 at an aggregate cost of $1.5 million. 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 $.7 million. 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 at which time it expired. Effective January 18, 2001 the Board of Directors approved a new stock repurchase program, through which the Company is authorized to purchase on the open market or in privately negotiated transactions through February 28, 2004, up to 2.5 million shares of the Company's Class A Common Stock outstanding. As of March 3, 2001, the Company holds 1,841,400 shares of its Class A Common Stock purchased on the open market at an average price of $7.89 per share for an aggregate purchase amount of $14.5 million. 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 2002 store expansion program and to satisfy the Company's other capital requirements through fiscal 2002. 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 $88,000 at March 3, 2001. 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. 17 CONSOLIDATED BALANCE SHEET
March 3, February 26, (in thousands) 2001 2000 ------------------------------------------------------------------------------------ Assets Current Assets Cash and cash equivalents $ 45,422 $ 13,061 Marketable securities 6,513 11,420 Accounts receivable 3,476 9,555 Merchandise inventories 145,503 148,979 Other 7,233 2,229 ------------------------------------------------------------------------------------ Total current assets 208,147 185,244 ==================================================================================== Property and Equipment Land 315 315 Building 10,486 10,391 Leasehold improvements 91,657 89,909 Furniture, fixtures, and equipment 41,515 40,737 Construction in progress 2,849 2,087 ------------------------------------------------------------------------------------ 146,822 143,439 Less accumulated depreciation 52,348 41,820 ------------------------------------------------------------------------------------ 94,474 101,619 Other Assets Deferred income taxes 6,247 2,023 Other - 209 ------------------------------------------------------------------------------------ 6,247 2,232 ------------------------------------------------------------------------------------ Total assets $308,868 $289,095 ==================================================================================== Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 53,450 $ 42,188 Employee compensation 6,640 4,637 Accrued property and sales tax 3,914 4,097 Deferred income taxes 906 3,839 Other liabilities and accrued expenses 9,597 5,585 ------------------------------------------------------------------------------------ Total current liabilities 74,507 60,346 ==================================================================================== Long-term deferred rent payments 7,614 6,357 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 (2001--20,022; 2000--19,988) Shares outstanding (2001--18,181; 2000--18,203) 200 200 Class B: Shares authorized--12,000 Shares issued and outstanding (2001--6,268; 2000--6,268) 63 63 Additional paid-in capital 122,748 122,269 Retained earnings 118,257 114,512 Accumulated other comprehensive income (loss) 12 (41) Treasury stock (2001--1,841; 2000--1,785) (14,533) (14,611) ------------------------------------------------------------------------------------ Total stockholders' equity 226,747 222,392 ------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $308,868 $289,095 ====================================================================================
See accompanying notes. 18 CONSOLIDATED STATEMENT OF INCOME
Year Ended ------------------------------------------------------------------------------------------------------------ March 3, February 26, February 27, (in thousands, except per share amounts) 2001 2000 1999 ------------------------------------------------------------------------------------------------------------ Net sales $663,906 $585,963 $522,623 Cost of sales (including occupancy expenses) 491,527 423,505 373,170 ------------------------------------------------------------------------------------------------------------ Gross profit 172,379 162,458 149,453 Selling, general and administrative expenses 156,820 139,273 117,507 Repositioning and asset impairment charges 10,584 - - ------------------------------------------------------------------------------------------------------------ Operating income 4,975 23,185 31,946 Interest income--net 970 826 1,421 ------------------------------------------------------------------------------------------------------------ Income before income taxes 5,945 24,011 33,367 Income taxes 2,200 8,404 12,680 ------------------------------------------------------------------------------------------------------------ Net income $ 3,745 $ 15,607 $ 20,687 ------------------------------------------------------------------------------------------------------------ Basic earnings per share $ .15 $ .63 $ .81 ------------------------------------------------------------------------------------------------------------ Diluted earnings per share $ .15 $ .62 $ .80 ------------------------------------------------------------------------------------------------------------
See accompanying notes. 19 CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended ----------------------------------------------------------------------------------------------------------------------------- March 3, February 26, February 27, (in thousands) 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------------- Operating activities Net income $ 3,745 $ 15,607 $ 20,687 Adjustments to reconcile net income to net cash provided by operating activities: Repositioning and asset impairment charges 10,584 -- -- Depreciation and amortization 16,391 14,369 10,987 Contribution of treasury stock to pension plan 1,758 682 981 Loss on sale of available-for-sale marketable securities -- 19 -- Deferred income taxes (7,157) 5,292 772 (Gain) loss on disposal of property and equipment 247 354 (1) Changes in operating assets and liabilities: Accounts receivable 6,079 (2,604) (2,283) Merchandise inventories 3,476 (13,676) (5,153) Other current assets (5,760) (232) 747 Other assets 209 39 (23) Accounts payable 11,262 (8,484) 11,882 Employee compensation 2,003 (388) (129) Other liabilities and accrued expenses 779 89 (1,477) Deferred rent payments 1,257 1,015 744 ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 44,873 12,082 37,734 Investing activities Purchases of property and equipment (16,413) (26,274) (41,398) Proceeds from disposals of property and equipment 142 366 890 Purchases of short-term marketable securities -- -- (1,971) Proceeds from maturity of held-to-maturity short-term marketable securities 2,502 2,155 9,856 Proceeds from sale of available-for-sale marketable securities 2,458 4,154 -- ----------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (11,311) (19,599) (32,623) Financing activities Proceeds from short-term debt 48,305 84,800 32,200 Principal payments on short-term debt (48,305) (84,800) (32,200) Proceeds and tax benefits from exercise of stock options 192 317 2,331 Purchase of treasury stock (1,393) (2,852) (12,442) ----------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (1,201) (2,535) (10,111) ----------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 32,361 (10,052) (5,000) Cash and cash equivalents at beginning of year 13,061 23,113 28,113 ----------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 45,422 $ 13,061 $ 23,113 =============================================================================================================================
See accompanying notes. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
Number of Shares Amount ----------------------------------- ---------------------- (in thousands) Class A Class B Treasury Class A Class B --------------------------------------------------------------------------------------------------------------------------- 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 =========================================================================================================================== Comprehensive income: Net income for 2001 --------------------------------------------------------------------------------------------------------------------------- Other comprehensive income - Net unrealized gain on available-for-sale securities, net of tax expense of $30 =========================================================================================================================== Total comprehensive income --------------------------------------------------------------------------------------------------------------------------- Non-qualified Class A Common Stock options exercised 34 --------------------------------------------------------------------------------------------------------------------------- Treasury Stock purchased (221) 221 --------------------------------------------------------------------------------------------------------------------------- Contribution of Treasury Stock to profit sharing plan 165 (165) --------------------------------------------------------------------------------------------------------------------------- Balance at March 3, 2001 18,181 6,268 1,841 $200 $63 =========================================================================================================================== Accumulated Additional Other Paid-In Retained Comprehensive Treasury (in thousands) Capital Earnings Loss Stock Totals --------------------------------------------------------------------------------------------------------------------------- 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 =========================================================================================================================== Comprehensive income: Net income for 2001 3,745 3,745 --------------------------------------------------------------------------------------------------------------------------- Other comprehensive income - Net unrealized gain on available-for-sale securities, net of tax expense of $30 53 53 =========================================================================================================================== Total comprehensive income 3,745 53 3,798 --------------------------------------------------------------------------------------------------------------------------- Non-qualified Class A Common Stock options exercised 192 192 --------------------------------------------------------------------------------------------------------------------------- Treasury Stock purchased (1,393) (1,393) --------------------------------------------------------------------------------------------------------------------------- Contribution of Treasury Stock to profit sharing plan 287 1,471 1,758 --------------------------------------------------------------------------------------------------------------------------- Balance at March 3, 2001 $122,748 $118,257 $ 12 $(14,533) $226,747 ===========================================================================================================================
See accompanying notes. 21 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 March 3, 2001, February 26, 2000 and February 27, 1999 are referred to as 2001, 2000 and 1999, 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 53 weeks in 2001, and 52 weeks in 2000 and 1999. 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 6,087 square feet in size and are primarily located in enclosed malls throughout most of the United States. In 2001, the Company purchased approximately 78% of its merchandise from its five largest suppliers. The largest supplier, Nike, accounted for approximately 53%, 49% and 56% of merchandise purchases in 2001, 2000 and 1999, 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 the customer receives the merchandise. 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. Impairment of Long-Lived Assets The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-lived Assets to Be Disposed Of." The company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is determined by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by comparing projected individual store discounted cash flows to the asset carrying values. Store Opening and Closing Costs Store opening costs and other non- capitalized expenditures incurred prior to opening new retail stores are expensed as incurred. In the event a store is closed before its lease has expired, the estimated post-closing lease obligation, less sublease rental income, is provided for when a decision to close the store is made. 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 2001, 2000 and 1999 amounted to $10,203,000, $9,203,000, and $7,657,000, 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. 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 separate component of accumulated other comprehensive income. The Company has no trading securities. At March 3, 2001 and February 26, 2000, the Company had not invested in, nor did it have, any derivative financial instruments. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) Reclassifications Certain reclassifications have been made to the consolidated financial statements of prior years to conform to the 2001 presentation. 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 available-for-sale marketable securities (in thousands): Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------------------------------------------------------------------------ March 3, 2001-- municipal obligations $ 6,493 $46 $(26) $ 6,513 ------------------------------------------------------------------------------ February 26, 2000-- municipal obligations $11,483 $10 $(73) $11,420 ------------------------------------------------------------------------------ The amortized cost and estimated fair value of marketable securities at March 3, 2001 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 $2,045 $2,019 Due after one year through three years 4,448 4,494 ------------------------------------------------------------------------------ $6,493 $6,513 ------------------------------------------------------------------------------ 3. Debt Agreement The Company has an unsecured committed Credit Agreement (the "Facility") with a syndicate of commercial banks in the amount of $60,000,000, which expires on September 20, 2003. At March 3, 2001, 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 leverage ratio (as defined) and minimum consolidated tangible net worth (as defined). The Company is also subject to a liquidity test and an annual capital expenditure limitation. The Company was in compliance with all restrictive covenants of the debt agreement in effect at March 3, 2001. The interest rate on the Facility is, at the Company's election, either a negotiated rate approximating the federal funds effective rate plus 1.5% (this rate is available on the first $5,000,000 of borrowings), the bank's LIBOR Rate plus 1.0% or the bank's prime commercial lending rate. The margin percentage added to the LIBOR Rate is subject to adjustment quarterly based on the leverage ratio (as defined). Interest expense, which approximated interest paid, for 2001, 2000 and 1999 was $26,000, $185,000 and $57,000, respectively. The Company pays a commitment fee on the unused portion of the Facility at an effective annual rate of .25%. 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): 2001 2000 1999 ------------------------------------------------------------------ Base Rent $50,341 $44,211 $34,697 Deferred Rent 1,257 1,014 744 Contingent Rent 2,299 1,628 2,871 ------------------------------------------------------------------ Rent Expense $53,897 $46,853 $38,312 ------------------------------------------------------------------ A schedule of future base rent payments by fiscal year for signed operating leases at March 3, 2001 with initial or remaining noncancelable terms of one year or more is as follows (in thousands): 2002 $ 53,461 2003 53,764 2004 51,916 2005 48,654 2006 45,474 Thereafter 145,304 ------------------------------------------------------------------ $398,573 ------------------------------------------------------------------ This schedule of future base rent payments includes lease commitments for seven new stores and one remodel which were not open as of March 3, 2001. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) 5. Income Taxes The components of income taxes are as follows (in thousands): 2001 2000 1999 ---------------------------------------------------------------- Currently payable: Federal $ 8,342 $2,756 $10,028 State 1,015 356 1,880 ---------------------------------------------------------------- 9,357 3,112 11,908 Deferred: Federal (6,411) 4,687 650 State (777) 605 122 ---------------------------------------------------------------- (7,157) 5,292 772 ---------------------------------------------------------------- $ 2,200 $8,404 $12,680 ---------------------------------------------------------------- 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): March 3, February 26, 2001 2000 ---------------------------------------------------------------- Deferred tax assets: Rent accrual $ 4,225 $ 2,225 Property and Equipment 3,372 -- Uniform capitalization 1,132 1,111 Vacation accrual 579 476 Pension accrual 83 240 Other 148 122 ---------------------------------------------------------------- Total deferred tax assets 9,539 4,174 ---------------------------------------------------------------- Deferred tax liabilities: Inventory (4,198) (5,707) Property and Equipment -- (283) ---------------------------------------------------------------- Total deferred tax liabilities (4,198) (5,990) ---------------------------------------------------------------- Net deferred tax asset (liability) $ 5,341 $ (1,816) ---------------------------------------------------------------- The effective income tax rate varies from the statutory federal income tax rate for 2001, 2000 and 1999 due to the following: 2001 2000 1999 ------------------------------------------------------------------------------ Tax at statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 2.6% 2.6% 3.9% Tax exempt interest (5.9)% (4.3)% (4.4) Other 5.3% 1.7% 3.5% ------------------------------------------------------------------------------ 37.0% 35.0% 38.0% ------------------------------------------------------------------------------ Payments of income taxes for 2001, 2000 and 1999 were $5,678,000, $4,751,000 and $13,672,000, respectively. 6. Retirement 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. During 2001 the Company amended and restated the plan to add a 401(k) feature whereby the Company matches 100 percent of employee contributions to the plan up to three percent of an employee's wages. The Company's total expense for the plan in 2001, 2000 and 1999 amounted to $1,036,000, $1,626,000 and $1,621,000, 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 2001 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. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) Under the fair value method, the Company's net income and earnings per share would have been as follows: 2001 2000 1999 ------------------------------------------------------------------- Net income (in thousands) As reported $3,745 $15,607 $20,687 Pro forma 2,190 14,154 19,165 ------------------------------------------------------------------- Diluted earnings per share As reported $ .15 $ .62 $ .80 Pro forma .09 .58 .75 ------------------------------------------------------------------- The estimated weighted-average fair value of the individual options granted during 2001, 2000 and 1999 was $6.35, $4.20 and $7.59, 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: 2001 2000 1999 ------------------------------------------------------------------- Dividend yield 0% 0% 0% ------------------------------------------------------------------- Volatility 78.0% 77.9% 81.6% ------------------------------------------------------------------- Risk-free interest rate 6.20% 6.58% 5.70% ------------------------------------------------------------------- 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 ------------------------------------------------------------------- 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 Granted 12,000 8.38 Exercised (34,200) 4.24 Canceled (76,105) 10.64 ------------------------------------------------------------------- March 3, 2001 1,710,735 $ 9.59 ------------------------------------------------------------------- The following table summarizes information concerning outstanding and exercisable options at March 3, 2001: Weighted- Average Weighted- Weighted- Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life Price Exercisable Price ------------------------------------------------------------------------------ $ 3-$ 5 385,500 4.2 $ 3.97 385,500 $ 3.97 $ 5-$10 766,840 8.0 $ 7.09 193,810 $ 7.78 $10-$15 328,965 6.9 $13.70 217,855 $13.64 $15-$25 229,430 6.1 $21.54 153,210 $21.59 ------------------------------------------------------------------------------ Options exercisable were 950,375, 721,192 and 425,128 at fiscal year end 2001, 2000 and 1999, 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). 2001 2000 1999 ------------------------------------------------------------------------------ Income available to common stockholders $ 3,745 $15,607 $20,687 ------------------------------------------------------------------------------ Basic earnings per share: Weighted-average number of common shares outstanding 24,458 24,848 25,541 Basic earnings per share $ .15 $ .63 $ .81 ------------------------------------------------------------------------------ Diluted earnings per share: Weighted-average number of common shares outstanding 24,458 24,848 25,541 Stock options 205 191 292 ------------------------------------------------------------------------------ Diluted weighted-average number of common shares outstanding 24,663 25,039 25,833 ------------------------------------------------------------------------------ Diluted earnings per share $ .15 $ .62 $ .80 ------------------------------------------------------------------------------ 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) 9. Common Stock At March 3, 2001, 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 Com pany'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, at which time it expired. Effective January 18, 2001, the Board of Directors approved a new stock repurchase program. The Company was authorized to purchase on the open market or in privately negotiated transactions through February 28, 2004, up to 2,500,000 shares of the Company's Class A Common Stock outstanding. As of March 3, 2001, the Company holds as treasury shares 1,841,400 shares of its Class A Common Stock at an average price of $7.89 per share for an aggregate purchase amount of $14,533,000. The treasury shares may be issued upon the exercise of employee stock options or for other corporate purposes. 10. Repositioning and Asset Impairment Charges In the 4th quarter of 2001, the Company approved a repositioning plan (the "Plan"). As part of that Plan, the Company recorded pre-tax non-recurring repositioning and asset impairment charges totaling $19,809,000 in connection with additional inventory markdowns, lease costs and asset impairment charges for 17 planned store closings, and asset impairment charges for 14 identified under-performing stores. The most significant component of the Plan included a more aggressive approach to reducing aged inventory by reconfiguring merchandise assortments to place greater emphasis on better performing fresher merchandise. The additional markdown reserve, which totaled $9,225,000, has been recorded as a component of cost of sales. In connection with the store closings, the Company established a reserve for future lease payments after store closures of $3,806,000, all of which is included in accrued expenses at March 3, 2001. Costs will be charged against this reserve as incurred and the reserve will be reviewed periodically to determine its adequacy. The Company recorded an asset impairment charge, pursuant to the requirements of SFAS No. 121 of $3,140,000 related to the planned store closings. The fixed assets written off could not readily be used at other store locations nor was there a ready market outside the Company to determine fair value. The assets, consisting principally of fixtures and leasehold improvements, are expected to be discarded at the time of store closing. Accordingly, the asset impairment charge recorded represents the carrying value of the assets at the time of approval of the repositioning plan and depreciation of these assets was discontinued at that time. Operating results for the individual stores will be included in operations through the closing dates of the respective stores. The Company also reviewed its under-performing stores for asset impairment charges. The asset impairment test was applied to all stores with negative contribution and cash flows. An asset impairment charge of $3,638,000 was calculated as the difference between the carrying amount of the assets and each store's estimated future discounted cash flows. 26 REPORT OF INDEPENDENT AUDITORS 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 March 3, 2001 and February 26, 2000, and the related consolidated statements of income, cash flows, and changes in stockholders' equity for each of the three years in the period ended March 3, 2001. 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 March 3, 2001 and February 26, 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 3, 2001, in conformity with accounting principles generally accepted in the United States. /s/ Ernest & Young LLP Fort Wayne, Indiana March 27, 2001 MARKET PRICE OF COMMON STOCK Quarter Ended Fiscal 2001 Fiscal 2000 -------------------------------------------------------------------------------- High Low High Low -------------------------------------------------------------------------------- May $11.63 $5.50 $15.88 $11.13 August 9.13 5.63 12.50 8.00 November 9.00 6.50 9.38 5.56 February 8.88 4.75 7.00 4.44 -------------------------------------------------------------------------------- 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. 27 SENIOR OFFICERS AND DIRECTORS
Name Age Position Officer or Director Since ------------------------------------------------------------------------------------------------------------------------------------ Alan H. Cohen 54 Chairman of the Board of Directors President and Chief Executive Officer 1976 ------------------------------------------------------------------------------------------------------------------------------------ David I. Klapper/(3)/ 52 Senior Executive Vice President, Director 1976 ------------------------------------------------------------------------------------------------------------------------------------ Larry J. Sablosky 52 Senior Executive Vice President, Director 1982 ------------------------------------------------------------------------------------------------------------------------------------ Steven J. Schneider 45 Executive Vice President--COO, CFO and Asst. Secretary 1989 ------------------------------------------------------------------------------------------------------------------------------------ Gary D. Cohen 48 Executive Vice President--General Counsel and Secretary 1997 ------------------------------------------------------------------------------------------------------------------------------------ Joseph W. Wood 53 Executive Vice President--Merchandising and Marketing 1995 ------------------------------------------------------------------------------------------------------------------------------------ Donald E. Courtney 46 Executive Vice President--CIO and Distribution 1989 ------------------------------------------------------------------------------------------------------------------------------------ George S. Sanders 43 Executive Vice President--Real Estate and Store Development 1994 ------------------------------------------------------------------------------------------------------------------------------------ Michael L. Marchetti 50 Executive Vice President--Store Operations 1995 ------------------------------------------------------------------------------------------------------------------------------------ Kevin S. Wampler 38 Senior Vice President--Chief Accounting Officer and Asst. Secretary 1997 ------------------------------------------------------------------------------------------------------------------------------------ Robert A. Edwards 38 Senior Vice President--Distribution 1997 ------------------------------------------------------------------------------------------------------------------------------------ Thomas R. Sicari 47 Senior Vice President--Footwear, Planning and Allocation 1997 ------------------------------------------------------------------------------------------------------------------------------------ Kevin G. Flynn 37 Senior Vice President--Marketing 1997 ------------------------------------------------------------------------------------------------------------------------------------ James B. Davis 38 Senior Vice President--Real Estate 1997 ------------------------------------------------------------------------------------------------------------------------------------ Joseph L. Gravitt 41 Senior Vice President--Store Personnel 1998 ------------------------------------------------------------------------------------------------------------------------------------ Roger C. Underwood 31 Senior Vice President--Information Systems 2000 ------------------------------------------------------------------------------------------------------------------------------------ Jonathan K. Layne/(1)(2)(3)(4)/ 47 Director 1992 ------------------------------------------------------------------------------------------------------------------------------------ Jeffrey H. Smulyan/(1)(2)(5)/ 53 Director 1992 ------------------------------------------------------------------------------------------------------------------------------------ Stephen Goldsmith/(1)(6)/ 54 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 28 SHAREHOLDER INFORMATION 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 April 11, 2001, the approximate number of holders of record of Class A Common Stock was 304. 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 April 11, 2001, the closing price for the Company's Class A Common Stock, as reported by NASDAQ was $7.04. 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 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 Company's ability to successfully execute and benefit from its repositioning plan; the inability to locate and obtain favorable lease term's for the Company's stores; the loss of key employees, general economic conditions and adverse factors impacting the retail athletic industry; management growth, and the other risks detailed in the Company's Securities and Exchange Commission filings. The Company under takes 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. [LOGO] 3308 North Mitthoeffer Road Indianapolis, Indiana 46235 317-899-1022 www.finishline.com -------------------------------------------------------------------------------- --------------------------------------------------------------------------------