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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the thirteen week period ended May 29, 2004

OR

For the transition period from                      to                     

Commission File number 0-20184

The Finish Line, Inc.

(Exact name of registrant as specified in its charter)

317-899-1022

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x    No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes x    No ¨

Shares of common stock outstanding at June 18, 2004:

Class A 21,222,401

Class B 2,865,284

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PART 1. FINANCIAL INFORMATION

THE FINISH LINE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

See accompanying notes.

2

THE FINISH LINE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

See accompanying notes.

3

THE FINISH LINE, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

See accompanying notes.

4

THE FINISH LINE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) - (Unaudited)

See accompanying notes

5

The Finish Line, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The accompanying unaudited consolidated financial statements of The Finish Line, Inc. and its wholly-owned subsidiaries Spike’s Holding, Inc. and Finish Line Transportation Co., Inc. (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included.

The Company has experienced, and expects to continue to experience, significant variability in sales and net income from reporting period to reporting period. Therefore, the results of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.

Certain amounts in the financial statements of prior year have been reclassified to conform with the current year presentation. These reclassifications had no effect on net income.

These financial statements should be read in conjunction with the financial statements and notes thereto for the year ended February 28, 2004.

As allowed by FASB Statement No. 148 (FAS 148), “Accounting for Stock-Based Compensation–Transition and Disclosure,” which amends FASB Statement No. 123 (FAS 123), “Accounting for Stock-Based Compensation,” the Company has elected to follow Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its stock options. Under APB No. 25, if the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized.

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The effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FAS 123 to its stock-based employee compensation would have been as follows for the first quarter ended:

General

The following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition, including Critical Accounting Policies, included in the Company’s Annual Report on Form 10-K for the year ended February 28, 2004.

Except for the historical information contained herein, the matters discussed in this filing are forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from those expressed in any of the forward looking statements. Such risks and uncertainties include, but are not limited to, product demand and market acceptance risks, the effect of economic conditions, the effect of competitive products and pricing, the availability of products, management of growth, and the other risks detailed in the Company’s Securities and Exchange Commission filings.

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Results of Operations

The following table and subsequent discussion sets forth operating data of the Company as a percentage of net sales for the periods indicated below.

THIRTEEN WEEKS ENDED MAY 29, 2004 COMPARED TO THIRTEEN WEEKS ENDED MAY 31, 2003

Net sales increased 24.1% to $258.0 million for the thirteen weeks ended May 29, 2004 from $207.8 million for the thirteen weeks ended May 31, 2003. Of this increase, $4.8 million was attributable to a 12.2% increase in the number of stores open during the period from 490 at May 31, 2003 to 550 at May 29, 2004. The balance of the increase was attributable to a $3.3 million increase in net sales from the existing stores open only part of the first thirteen weeks of last year and a comparable store sales increase of 13.5% for the thirteen weeks ended May 29, 2004 for those stores opened during the entire thirteen weeks of last year. Comparable net footwear sales for the thirteen weeks ended May 29, 2004 increased 15.6% while comparable net activewear and accessories sales increased 4.5% for the comparable period. Net sales per square foot increased to $81 for the thirteen weeks ended May 29, 2004 compared to $72 for the thirteen weeks ended May 31, 2003.

Gross profit for the thirteen weeks ended May 29, 2004 was $78.3 million, an increase of $17.6 million over the thirteen weeks ended May 31, 2003. During this same period, gross profit increased to 30.3% of net sales versus 29.2% for the prior year. This 1.1% increase was due to a .6% and .4% improvement in occupancy costs and margin for products sold, respectively, as a percentage of net sales along with a .1% improvement in inventory shrink. The occupancy costs improvement was a result of increased sales productivity at the stores. Product margins increased due to the continued strong sellthrough of higher-priced performance and premium footwear.

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Selling, general and administrative expenses increased $10.9 million (21.6%) to $61.4 million (23.8% of net sales) for the thirteen weeks ended May 29, 2004 from $50.5 million (24.3% of net sales) for the thirteen weeks ended May 31, 2003. This dollar increase was primarily attributable to the operating costs related to operating 60 additional stores at May 29, 2004 versus May 31, 2003. The thirteen weeks ended May 29, 2004 included approximately $924,000 of costs incurred related to the attempted acquisition of FootAction stores, which negatively effected diluted net income per share by $.02.

Net interest income was $226,000 (0.1% of net sales) for the thirteen week period ended May 29, 2004 compared to $200,000 (0.1% of net sales) for the thirteen weeks ended May 31, 2003, an increase of $26,000. This increase was primarily due to an increase in investments held during the quarter compared to the prior year.

The Company’s provision for income taxes increased $2.6 million to $6.5 million for the thirteen weeks ended May 29, 2004 compared to $3.8 million for the thirteen weeks ended May 31, 2003. The increase is due to the increased level of income before income taxes for the thirteen weeks ended May 29, 2004, along with an increase in the effective tax rate to 38% compared to 37% in the thirteen weeks ended May 31, 2003. However, the 38% is comparable to the effective tax rate of 38% for the prior fiscal year.

Net income increased 61.5% to $10.6 million for the thirteen weeks ended May 29, 2004 compared to $6.5 million for the thirteen weeks ended May 31, 2003. Diluted net income per share increased 53.6% to $.43 for the thirteen weeks ended May 29, 2004 compared to diluted net income per share of $.28 for the thirteen weeks ended May 31, 2003. Diluted weighted average shares outstanding were 24,660,000 and 23,678,000 respectively, for the thirteen weeks ended May 29, 2004 and May 31, 2003.

Liquidity and Capital Resources

The Company had net cash provided of $136,000 from its operating activities during the thirteen weeks ended May 29, 2004 as compared to net cash provided from operating activities of $8.0 million during the quarter ended May 31, 2003. The $7.9 million decrease was primarily related to the $13.2 million increase in other current assets for the thirteen weeks ended May 29, 2004 compared to $3.5 million increase for the thirteen weeks ended May 31, 2003. The increase in other current assets for the thirteen weeks ended May 29, 2004 is primarily related to rent that was prepaid.

The Company had net cash provided by its investing activities of $363,000 for the thirteen weeks ended May 29, 2004 compared to a net use of cash of $11.5 million for the quarter ended May 31, 2003. The $363,000 provided in 2004 is the result of $9.4 million in proceeds from the sale of marketable securities offset partially by capital expenditures of $9.0 million primarily for new and remodeled store construction along with the continued expansion of the Corporate Office and Distribution Center.

The Company’s working capital was $213.5 million at May 29, 2004 which was a $9.3 million increase from $204.2 million at February 28, 2004.

Merchandise inventories were $221.6 million at May 29, 2004 compared to $192.6 million at February 28, 2004 and $182.2 at May 31, 2003. On a per square foot basis, merchandise inventories at May 29, 2004 increased 11.1% compared to May 31, 2003, and were 12.0% higher than at February 28, 2004.

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At May 29, 2004, the Company had cash and cash equivalents of $78.3 million, marketable securities of $9.4 million and no interest bearing debt. Cash equivalents are primarily invested in tax exempt instruments with daily liquidity. The marketable securities are auction market preferreds which generally have maturities extending well beyond one year, however, there is an active market through which the Company can readily liquidate its holding. Marketable securities are classified as available-for-sale and are available to support current operations.

The Company currently plans to open 70 stores in fiscal 2005, remodel 25 existing stores and close 5 to 7 stores. In addition, the Company has completed the expansion of the existing Distribution Center in Indianapolis with an addition of 375,000 square feet and expects to complete the expansion of the existing corporate office sometime in the 2^nd half of the year. Based on these projects, the Company now expects capital expenditures for the current fiscal year to approximate $42-45 million. Management believes that cash and marketable securities on hand, operating cash flow and the Company’s existing $50,000,000 bank facility, which expires on September 20, 2005, will provide sufficient capital to complete the Company’s fiscal 2005 store expansion program and to satisfy the Company’s other capital requirements through fiscal 2005.

The Company’s contractual obligations primarily consist of long-term debt, operating leases, and purchase orders for merchandise inventory. There have been no significant changes in the Company’s contractual obligations since February 28, 2004, other than those which occur in the normal course of business (primarily changes in the Company’s merchandise inventory related to purchase obligations, which fluctuate throughout the year as a result of the seasonal nature of the Company’s operations).

For a discussion of the Company’s market risk associated with interest rates as of February 28, 2004 see “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of Part II of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2004. For the thirteen weeks ended May 29, 2004, there has been no significant change in related market risk factors.

Disclosure Controls and Procedures. With the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, the information we are required to disclose in the reports that we file or submit under the Exchange Act.

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

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PART II - OTHER INFORMATION

None.

None.

None.

None.

None.

The Company filed a report on Form 8-K on March 25, 2004 with respect to a press release issued by the Company on March 25, 2004 relating to the Company’s fourth quarter earnings. Subsequent to the thirteen week period ending May 29, 2004 the Company filed a report on Form 8-K with respect to a press release issued by the Company on June 3, 2004 relating to the Company’s first quarter sales release and a report on Form 8-K on June 24, 2004 with respect to a press release issued by the Company on June 24, 2004 relating to the Company’s first quarter earnings.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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Exhibit Index

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