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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the thirteen week period ended August 28, 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)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨

Shares of common stock outstanding at September 17, 2004:

Class A         21,268,706

Class B           2,865,284

PART 1. - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE FINISH LINE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

See accompanying notes.

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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

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The Finish Line, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of The Finish Line, Inc. and its wholly-owned subsidiaries The Finish Line USA, Inc., The Finish Line Distribution, Inc., Spike’s Holding, LLC, and Finish Line Transportation Co., Inc. (collectively the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Preparation of the financial statements require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation, have been included.

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

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

These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended February 28, 2004.

2. Reincorporation and Company Reorganization

On July 29, 2004, The Finish Line, Inc., a Delaware corporation (the “Delaware Company”) merged (the “Reincorporation Merger”) with and into its newly-formed, wholly-owned subsidiary, The Finish Line Indiana Corp., an Indiana corporation (the “Indiana Company”). The Indiana Company survived the Reincorporation Merger as an Indiana corporation and became the successor corporation to the Delaware Company under the Securities Exchange Act of 1934, as amended, with respect to the Delaware Company’s Class A stock, and under the Securities Act of 1933, as amended (“Securities Act”) with respect to the Delaware Company’s outstanding Securities Act registration statements. At the effective time of the Reincorporation Merger, the Indiana Company also changed its name to “The Finish Line, Inc.” The principal purpose of the Reincorporation Merger was to change the state of incorporation of the Delaware Company from Delaware to Indiana.

On August 1, 2004, the Indiana Company and its subsidiaries reorganized their operations to split the retail, distribution, headquarters, intellectual property and transportation functions among four corporations and one limited liability company (the Indiana Company, collectively with its subsidiaries after the effective date of the reorganization, is referred to throughout as the “Company”). The Finish Line, Inc. now represents the core retail business. The Finish Line USA, Inc., a wholly-owned subsidiary of The Finish Line, Inc., was formed to be responsible for the Company’s internal operations, which consists primarily of operations at headquarters. The Finish Line Distribution, Inc., a wholly-owned subsidiary of The Finish Line, Inc., was formed to be responsible for receiving, processing, selling and redistributing all merchandise purchased from The Finish Line USA, Inc. Finish Line Transportation Company, Inc., a wholly-owned subsidiary of The Finish Line, Inc., existed prior to the reorganization and will continue to own, manage, maintain and operate all automobiles, trucks, and aircraft. Spikes Holding, Inc., a Delaware

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Corporation and wholly-owned subsidiary of The Finish Line, Inc., was merged into a newly-formed entity, Spikes Holdings, LLC, an Indiana limited liability company, and became a wholly-owned subsidiary of The Finish Line USA, Inc. Spikes Holdings, LLC holds all of the Company’s intellectual property.

The implementation of the company reorganization was approved by the Board of Directors to allow the Company to better organize itself along functional lines and increase its operating efficiency, but is not expected to result in a material change to the overall business, management or location of the principal executive offices. As of August 28, 2004, and the period from the reorganization to August 28, 2004, there were no changes to the assets, liabilities, shareholders’ equity or results of operations of the Company on a consolidated basis.

3. Stock Based Compensation

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

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

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4. Common Stock

On July 22, 2004, the Company’s Board of Directors approved a new stock repurchase program in which the Company was authorized to purchase on the open market or in privately negotiated transactions through December 31, 2007, up to 2,500,000 shares of the Company’s Class A Common Stock outstanding. As of August 28, 2004, the Company had not purchased any shares under the new repurchase program.

On July 22, 2004, the Company’s Board of Directors announced a quarterly cash dividend program of $.05 per share of Class A and Class B common stock. The first quarterly cash dividend is payable on September 15, 2004 to shareholders of record on September 1, 2004. As of August 28, 2004, the Company had recorded a dividend payable of $1.2 million.

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

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.

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.

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Thirteen Weeks Ended August 28, 2004 Compared to Thirteen Weeks Ended August 30, 2003

Net sales increased 15.3% to $312.2 million for the thirteen weeks ended August 28, 2004 from $270.8 million for the thirteen weeks ended August 30, 2003. This increase in net sales was primarily attributable to an increase in the number of stores in operation along with a comparable store sales gain. As of August 28, 2004, the number of stores in operation increased 10.6% to 564 from 510 at August 30, 2003. During the thirteen weeks ended August 28, 2004, the Company’s comparable store sales increased 6.5% compared to the same period in the prior year. Comparable net footwear sales for the thirteen weeks ended August 28, 2004 increased 8.4%, while comparable net activewear and accessories sales for the comparable period decreased 1.2%.

Gross profit for the thirteen weeks ended August 28, 2004 was $102.7 million, an increase of $16.3 million over the thirteen weeks ended August 30, 2003. During this same period, gross profit improved to 32.9% of net sales versus 31.9% for the prior year. Of this 1.0% increase, .5% was due to an increase in margin for products sold, .4% was due to a decrease in occupancy costs as a percentage of net sales and .1% was due to a decrease in inventory shrink.

Selling, general and administrative expenses increased $11.3 million (19.4%) to $69.4 million (22.2% of net sales) for the thirteen weeks ended August 28, 2004 from $58.1 million (21.5% of net sales) for the thirteen weeks ended August 30, 2003. This dollar increase was primarily attributable to the operating costs related to 54 additional stores at August 28, 2004 versus August 30, 2003. The increase as a percentage of net sales was primarily a result of increased advertising costs related to the Company’s investment in strategic marketing programs for the catalog, e-commerce site, and stores.

Net interest income was $232,000 (.1% of net sales) for the thirteen weeks ended August 28, 2004, compared to net interest income of $130,000 (.1% of net sales) for the thirteen weeks ended August 30, 2003, an increase of $102,000. 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 $1.9 million for the thirteen weeks ended August 28, 2004. The dollar increase is due to the increased level of income before income taxes for the thirteen weeks ended August 28, 2004, partially offset by a decrease in the effective tax rate to 38.0% for the thirteen weeks ended August 28, 2004 from 38.4% for the thirteen weeks ended August 30, 2003.

Net income increased 18.8% to $20.8 million for the thirteen weeks ended August 28, 2004 compared to $17.5 million for the thirteen weeks ended August 30, 2003. Diluted net income per share increased 16.4% to $.85 for the thirteen weeks ended August 28, 2004 compared to diluted net income per share of $.73 for the thirteen weeks ended August 30, 2003. Diluted weighted average shares outstanding were 24,613,000 and 24,037,000 for the thirteen weeks ended August 28, 2004 and August 30, 2003, respectively.

Twenty-Six Weeks Ended August 28, 2004 Compared to Twenty-Six Weeks Ended August 30, 2003

Net sales increased 19.1% ($91.5 million) to $570.1 million for the twenty-six weeks ended August 28, 2004 from $478.6 million for the twenty-six weeks ended August 30, 2003. Of this increase, $30.1 million was attributable to a 10.6 % increase in the number of stores open (57 stores opened less 3 stores closed) during the period from 510 at August 30, 2003 to 564 at August 28, 2004. The balance of the increase was due to a $17.1 million increase in net sales from the 36 stores open only part of the twenty-six week period last year, along with a comparable store sales increase of 9.5% for the twenty-six weeks ended August 28, 2004. Comparable net footwear sales for the twenty-six weeks ended August 28, 2004 increased 11.5% while comparable net activewear and accessory sales increased 1.2%.

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Gross profit for the twenty-six weeks ended August 28, 2004 was $181.0 million, an increase of $33.9 million over the twenty-six weeks ended August 30, 2003. Gross profit was 31.7% of net sales for the twenty-six weeks ended August 28, 2004 compared to 30.7% of net sales for the twenty-six weeks ended August 30, 2003. Of this 1.0% increase, .4% was due to an increase in margin for products sold, .5% was due to a decrease in occupancy costs as a percentage of net sales and .1% was due to a decrease in inventory shrink.

Selling, general and administrative expenses increased $22.2 million (20.4%) to $130.8 million (22.9% of net sales) for the twenty-six weeks ended August 28, 2004 from $108.6 million (22.7% of net sales) for the twenty-six weeks ended August 30, 2003. This dollar increase was primarily attributable to the operating costs related to operating 54 additional stores at August 28, 2004 versus August 30, 2003 along with increased advertising costs related to the Company’s investment in strategic marketing programs for the catalog, e-commerce site, and stores. The twenty-six weeks ended August 28, 2004 also included approximately $924,000 of costs incurred related to the attempted acquisition of FootAction stores, which negatively affected diluted net income per share by $.02.

Net interest income was $458,000 (.1% of net sales) for the twenty-six weeks ended August 28, 2004, compared to net interest income of $330,000 (.1% of net sales) for the twenty-six weeks ended August 30, 2003, an increase of $128,000. This increase was due to an increase in investments held during the twenty-six weeks ended August 28, 2004 compared to the same period in prior year.

The Company’s provision for federal and state income taxes increased $4.4 million to $19.2 million for the twenty-six weeks ended August 28, 2004 from $14.8 million for the twenty-six weeks ended August 30, 2003. The dollar increase is due to the increased level of income before income taxes for the twenty-six weeks ended August 28, 2004. The effective tax rate was 38.0% for the twenty-six weeks ended August 28, 2004 and August 30, 2003.

Net income increased 30.4% to $31.4 million for the twenty-six weeks ended August 28, 2004 compared to $24.1 million for the twenty-six weeks ended August 30, 2003. Diluted net income per share increased 25.7% to $1.27 for the twenty-six weeks ended August 28, 2004 compared to diluted net income per share of $1.01 for the twenty six weeks ended August 30, 2003. Diluted weighted average shares outstanding were 24,637,000 and 23,857,000, for the periods ended August 28, 2004 and August 30, 2003, respectively.

Liquidity and Capital Resources

The Company generated cash of $30.5 million from its operating activities during the twenty-six weeks ended August 28, 2004 as compared to $54.8 million during the twenty-six weeks ended August 30, 2003.

The Company had a net use of cash from its investing activities of $43.0 million and $25.3 million for the twenty-six weeks ended August 28, 2004 and August 30, 2003, respectively. In the twenty-six weeks ended August 28, 2004, $21.1 million was used primarily for construction of new stores, remodeling of existing stores and the expansion of the corporate offices and distribution center. Net purchases of available-for-sale marketable securities were $22.3 million for the twenty-six weeks ended August 28, 2004.

On July 22, 2004 the Company’s Board of Directors instituted a quarterly cash dividend program of $0.05 per share of Class A and Class B Common Stock. The first quarterly dividend is payable September 15, 2004 to stockholders of record on September 1, 2004. As of August 28, 2004 the Company had recorded $1.2 million as dividends payable.

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Merchandise inventories were $241.4 million at August 28, 2004 compared to $192.6 million at February 28, 2004 and $188.9 million at August 30, 2003. On a per square foot basis, merchandise inventories at August 28, 2004 increased 17.4% compared to August 30, 2003. The increase is due primarily to the Labor Day calendar shift and later Back-To-School selling season this year.

The Company’s working capital was $228.4 million at August 28, 2004, an increase of $24.2 million from $204.2 million at February 28, 2004.

At August 28, 2004 the Company had cash and cash equivalents of $65.8 million, marketable securities of $41.1 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’s Board of Directors approved a new stock repurchase program on July 22, 2004 in which the Company is authorized to repurchase up to 2,500,000 shares of the Company’s Class A Common Stock through December 31, 2007. The Company had not purchased any stock under this new repurchase program as of August 28, 2004.

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 in the 4^th quarter of the year. Based on these projects, the Company now expects capital expenditures for the current fiscal year to approximate $48-52 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 and additional operating leases entered into due to store openings).

Reincorporation and Company Reorganization

On July 29, 2004, The Finish Line, Inc., a Delaware corporation (the “Delaware Company”) merged (the “Reincorporation Merger”) with and into its newly-formed, wholly-owned subsidiary, The Finish Line Indiana Corp., an Indiana corporation (the “Indiana Company”). The Indiana Company survived the Reincorporation Merger as an Indiana corporation and became the successor corporation to the Delaware Company under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), with respect to the Delaware Company’s Class A stock, and under the Securities Act of 1933, as amended (“Securities Act”) with respect to the Delaware Company’s outstanding Securities Act registration statements. At the effective time of the Reincorporation Merger, the Indiana Company also changed its name to “The Finish Line, Inc.” The principal purpose of the Reincorporation Merger was to change the state of incorporation of the Delaware Company from Delaware to Indiana.

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On August 1, 2004, the Indiana Company and its subsidiaries reorganized their operations to split the retail, distribution, headquarters, intellectual property and transportation functions among four corporations and one limited liability company (the Indiana Company, collectively with its subsidiaries after the effective date of the reorganization, is referred to throughout this quarterly report as the “Company”). The Finish Line, Inc. now represents the core retail business. The Finish Line USA, Inc., a wholly-owned subsidiary of The Finish Line, Inc., was formed to be responsible for the Company’s internal operations, which consists primarily of operations at headquarters. The Finish Line Distribution, Inc., a wholly-owned subsidiary of The Finish Line, Inc., was formed to be responsible for receiving, processing, selling and redistributing all merchandise purchased from The Finish Line USA, Inc. Finish Line Transportation Company, Inc., a wholly-owned subsidiary of The Finish Line, Inc., existed prior to the reorganization and will continue to own, manage, maintain and operate all automobiles, trucks, and aircraft. Spikes Holding, Inc., a Delaware Corporation and wholly-owned subsidiary of The Finish Line, Inc., was merged into a newly-formed entity, Spikes Holdings, LLC, an Indiana limited liability company, and became a wholly-owned subsidiary of The Finish Line USA, Inc. Spikes Holdings, LLC holds all of the Company’s intellectual property.

The implementation of the company reorganization was approved by the Board of Directors to allow the Company to better organize itself along functional lines and increase its operating efficiency, but is not expected to result in a material change to the overall business, management or location of the principal executive offices. As of August 28, 2004, and the period from the reorganization to August 28, 2004, there were no changes to the assets, liabilities, shareholders’ equity or results of operations of the Company on a consolidated basis.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 twenty-six weeks ended August 28, 2004, there has been no significant change in related market risk factors.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. With the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the 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

On July 22, 2004 the Company held its Annual Meeting of Shareholders at which the following matters were approved by the Company’s shareholders by the votes indicated:

In addition there were 7,925,348 non-votes with respect to the proposal to change the Company’s State of Incorporation from Delaware to Indiana.

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( d ) Approval of The Finish Line, Inc. Employee Stock Purchase Plan:

In addition there were 7,925,348 non-votes with respect to the approval of The Finish Line, Inc. Employee Stock Purchase Plan.

( e ) Ratification of the Appointment of Ernst & Young LLP as the Company’s Independent Auditors:

ITEM 5: Other Information

               None.

ITEM 6: Exhibits

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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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