Executive Summary

The Finish Line, Inc. together with its subsidiaries (collectively the "Company"), is one of the largest mall-based specialty retailers in the United States, and operates under the Finish Line and Man Alive brand names.

Fiscal 2009 was one of the most difficult macro-economic environments in Finish Line's history as we are operating in extraordinary times. However, we are pleased to report that despite these external pressures, the Company was able to successfully execute our strategic plan, improve our balance sheet and enhance shareholder value.

Net sales decreased 1.2% to $1,262.3 million in fiscal 2009 compared to $1,277.2 million in fiscal 2008. The decrease was primarily a result of comparable store net sales decreasing by 0.4% during fiscal 2009 in addition to a 2.1% decrease in the total number of stores open (9 stores opened less 26 stores closed) during the year from 791 stores at the end of fiscal 2008 to 774 stores at the end of fiscal 2009. Comparable footwear net sales increased 2.2% for fiscal 2009. The 2.2% increase in comparable footwear net sales was primarily a result of a 5.7% increase in average selling price for footwear at Finish Line stores, partially offset by a 3.5% decrease in the footwear units sold. Comparable softgoods net sales decreased by 10.2% for fiscal 2009. The 10.2% decrease in comparable softgoods net sales was attributable to a 12.7% decrease in Finish Line comparable softgoods net sales and a 3.0% decrease in Man Alive comparable softgoods sales. Finish Line's decrease of 12.7% in softgoods is primarily the result of management's plan to reduce softgoods inventory levels and focus on increasing inventory turns and the return on investments.

Income from continuing operations was $4.0 million in fiscal 2009 compared to a loss from continuing operations of $48.5 million for fiscal 2008. Included in the fiscal 2009 results was $32.6 million ($22.1 million net of tax) of non-cash impairment charges as well as $2.1 million ($1.2 million net of tax) of terminated merger-related income. Fiscal 2008 results included $91.4 million ($62.7 million net of tax) of terminated merger-related costs as well as $5.7 million ($3.5 million net of tax) of non-cash impairment charges.

We have accomplished these results because we have continued to focus more intently than ever on three core initiatives: aggressive cost containment, improved inventory management, and maintaining a premium assortment.

With respect to cost containment, our first strategic initiative, we made significant improvements in areas that included freight, distribution center, store labor, IT, communications, supplies and electricity. Our management team is revisiting contracts, working with departments, and leaving no stone unturned when it comes to searching for cost savings opportunities that will help enhance the financial performance of our Company. These efforts have already produced demonstrable results. We reduced SG&A expense by over $7 million for fiscal 2009 compared to fiscal 2008 and reduced to 26.6% of net sales in fiscal 2009 compared to 26.8% in fiscal 2008. A majority of these cost savings began in the 4th quarter and Fiscal 2010 will have a full year benefit of these initiatives.

Our second strategic initiative, improved inventory management, has also been successful. We reduced consolidated inventory per square foot by 8% at the end of the 1st quarter, 10% at the end of the 2nd quarter, 12% at the end of the 3rd quarter and 8% at fiscal year-end compared to the prior year. Better inventory management has helped us increase product margin, inventory turns and average selling price for footwear. We are proud to report that we improved in each of these metrics during fiscal 2009. Our consolidated product margin increased by 50 basis points, Finish Line's inventory turns increased by 10% and average selling price for footwear increased by 5.7%. Our improved inventory management also enabled us to lower freight expense and decrease time spent by store employees handling product deliveries and store-to-store transfers. This in turn allowed our employees to spend more time servicing customers and lowered our working capital needs, contributing to an increase in cash provided by operations of $18.9 million to $59.4 million in fiscal 2009.

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Our third strategic initiative is maintaining our premium product assortment. Despite the current economic downturn, we remain committed to our long-term vision of Finish Line as the premium athletic specialty store in the mall. We will continue to provide the consumer with the most relevant product assortments in both performance and sport style products from the best in class brands at every price point, and consistently refresh this assortment with new brands, new product launches, and new marketing initiatives in our stores and on the web as well. Our consolidated product margins were up 50 basis points during fiscal 2009 and comparable store net sales were approximately flat, which demonstrates our success with this initiative.

Critical Accounting Policies

Management's Discussion and Analysis of Financial Condition and Results of Operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates these estimates, including those related to the valuation of inventory, the potential impairment of long-lived assets and income taxes. The Company bases the estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Management believes the following critical accounting policies affect the more significant judgments and estimates used in preparation of its consolidated financial statements.

Costs of Sales. Costs of sales include the cost associated with acquiring merchandise from vendors, occupancy costs, provision for inventory shortages, and credits and allowances from our merchandise vendors following Emerging Issues Task Force ("EITF") 02-16 "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor" ("EITF 02-16") guidance.

Because the Company does not include the costs associated with operating its distribution facility and freight within cost of sales, the Company's gross profit may not be comparable to those of other retailers that may include all costs related to their distribution facilities in costs of sales and in the calculation of gross profit.

Selling, General and Administrative Expenses. Selling, general and administrative expenses include store payroll and related payroll benefits, store operating expenses, advertising, cooperative advertising allowances following EITF 02-16 guidance, costs associated with operating our distribution facility and freight, including moving merchandise from our distribution center to stores, share-based compensation and other corporate related expenses.

Valuation of Inventory. 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. The Company's valuation of inventory includes markdown adjustments for merchandise that will be sold below cost and the impact of shrinkage. Markdowns are based upon historical information and assumptions about future demand and market conditions. Shrinkage is based on historical information and assumptions as to current shrink trends. It is possible that changes to the markdowns and shrinkage estimates could be required in future periods due to changes in market conditions.

Vendor Allowances. The Company records vendor allowances and discounts in the consolidated statements of operations when the purpose for which those monies were designated is fulfilled. Allowances provided by vendors generally relate to profitability of inventory recently sold and, accordingly, are reflected as reductions to cost of merchandise sold as negotiated. Vendors' participation in the reduction of the selling price

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

of merchandise fluctuates based on the amount of promotional and clearance markdowns necessary to liquidate the inventory. Vendor allowances received for advertising or fixture programs reduce the Company's expense or expenditure for the related advertising or fixture program.

Impairment of Long-Lived Assets. The Company evaluates the recoverability of its long-lived assets, other than intangible assets, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which generally requires the Company to assess these assets for recoverability whenever events or changes in circumstance indicate that the carrying amounts of such assets may not be recoverable. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the estimated non-discounted future cash flows expected to result from the use of 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. The estimation of fair value is measured by discounting expected future cash flows at the discount rate the Company utilizes to evaluate potential investments. Actual results may differ from these estimates and as a result the estimation of fair values may be adjusted in the future.

The Company is required to perform an impairment review of its goodwill if impairment indicators arise and, at a minimum, annually under SFAS No. 142 "Goodwill and Other Intangible Assets". The Company has chosen to perform this review at the end of January each fiscal year, and it is done in a two-step approach. The initial step requires that the carrying value be compared with its estimated fair value. The second step, to evaluate goodwill for impairment, is only required if the carrying value of that reporting unit exceeds its estimated fair value. Fair value is determined based on estimated future discounted cash flows. The Company evaluates its other intangible asset, specifically tradenames, for impairment on an annual basis by comparing the fair value of the asset with its carrying value. Fair value is determined based on estimate future discounted cash flows. As part of the annual impairment test for goodwill and intangible assets with indefinite lives, the Company assessed the carrying value of goodwill and intangible assets with indefinite lives acquired in its purchase of Man Alive for impairment. Upon completion of the impairment test, the Company determined that the goodwill and tradename of Man Alive were fully impaired and recorded a non-cash impairment charge of $12.1 million in the 4th quarter of fiscal 2009.

Operating Leases. The Company leases retail stores under operating leases. Many lease agreements contain rent holidays, rent escalation clauses and/or contingent rent provisions. The Company recognizes rent expense for minimum lease payments on a straight-line basis over the expected lease term, including cancelable option periods where failure to exercise such options would result in an economic penalty. The Company uses a time period for its straight-line rent expense calculation that equals or exceeds the time period used for depreciation. In addition, the commencement date of the lease term is the earlier of the date when the Company becomes legally obligated for the rent payments or the date when the Company takes possession of the leased space for buildout. Contingent rents are determined as a percentage of gross sales in excess of specified levels. The Company records a contingent rent liability in "Other liabilities and accrued expenses" on the Consolidated Balance Sheets and the corresponding rent expense when specified levels have been achieved or when management determines that achieving the specified levels during the fiscal year is probable.

Income Taxes. The Company accounts for income taxes under the asset and liability method. Under this method, the amount of taxes currently payable or refundable are accrued and deferred tax assets are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases, tax credits and loss carryforwards. These assets are reduced by a valuation allowance, which is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In addition, management is required to estimate taxable income for future years by taxing jurisdictions and to consider this when making its judgment to determine whether or not to record a valuation allowance for part or all of a deferred tax asset. Deferred tax

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in our Consolidated Statements of Operations in the period that includes the enactment date.

The Company's income tax returns, like those of most companies, are periodically audited by tax authorities. These audits include questions regarding the Company's tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years are subject to audit by the various tax authorities. The Company records an accrual for exposures after evaluating the positions associated with its various income tax filings. A number of years may elapse before a particular matter for which the Company has established an accrual is audited and fully resolved or clarified. The Company adjusts its accrual for uncertain tax positions and income tax provision in the period in which matters are effectively settled with tax authorities at amounts different from its established accrual, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Accruals of uncertain tax positions require management to make estimates and judgments with respect to the ultimate outcome of tax audits. Actual results could vary from these estimates.

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), an Interpretation of SFAS No. 109 "Accounting for Income Taxes" ("FAS 109"). In May 2007, the FASB issued Staff Position ("FSP") FIN 48-1, "Definition of Settlement in FASB Interpretation No. 48". The Company adopted FIN 48 and FSP FIN 48-1 effective March 4, 2007. For additional information, see Note 7 "Income Taxes" to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

Recent Accounting Pronouncements. On March 2, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 provides a single definition of fair value and a common framework for measuring fair value as well as new disclosure requirements for fair value measurements used in financial statements. Under FAS 157, fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. FAS 157 also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. The Company has cash equivalents of short-term money market funds backed by U.S. Treasury and Government securities. The Company also has marketable securities in U.S. Treasury Bills. The primary objective of our marketable securities activity is to preserve our capital for the purpose of funding operations and we do not invest in marketable securities for trading or speculative purposes. The fair values are based on unadjusted quoted market prices for the funds and marketable securities in active markets with sufficient volume and frequency. The adoption of FAS 157 did not have an impact on the Company's results of operations, financial condition or liquidity.

In February 2008, the FASB issued FSP FAS 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13" ("FSP FAS 157-1"). FSP FAS 157-1 amended FAS 157 to exclude from its scope SFAS No. 13, "Accounting for Leases," and its related interpretive accounting pronouncements that address leasing transactions. Also in February 2008, the FASB issued FSP FAS 157-2, "Effective Date of FASB Statement No. 157" ("FSP FAS 157-2"). FSP FAS 157-2 amended FAS 157 to defer the effective date of FAS 157 for non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008 (fiscal 2010 for the Company), except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, at least annually. The Company does not expect this to have a significant impact on the Company's results of operations, financial condition or liquidity.

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("FAS 159"). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The standard also establishes presentation and disclosure requirements designed to facilitate comparison between entities that choose different measurement attributes for similar types of assets and liabilities. If the fair value option is elected, the effect of the first remeasurement to fair value is reported as a cumulative effect adjustment to the opening balance of retained earnings. The statement is applied prospectively upon adoption. The Company did not elect fair value treatment for any assets or liabilities under FAS 159 as of February 28, 2009.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("FAS 162"). FAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. FAS 162 directs the GAAP hierarchy to the entity, not the independent auditors, as the entity is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. FAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to remove the GAAP hierarchy from the auditing standards. FAS 162 is not expected to have an impact on the Company's financial statements.

In May 2008, the FASB staff revisited EITF issue No. 03-6 and issued FSP EITF 03-6-1, "Determining Whether Instruments Granted in Shared-Based Payment Transactions are Participating Securities". FSP EITF 03-6-01 requires unvested share-based payments that entitle employees and nonemployee directors to receive nonrefundable dividends to also be considered participating securities, as defined in EITF 03-6. This FSP is effective for fiscal years beginning after December 15, 2008 and interim periods within those years with early adoption prohibited. The Company does not expect FSP EITF 03-6-1 to have a significant impact on its results of operations and financial position.

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

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 Consolidated Financial Statements and Notes thereto included elsewhere herein. Unless otherwise noted, all amounts reflect the results of the Company's continuing operations and therefore Paiva store information and results have been excluded from the following information.

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

                                              Year ended
                                       February 28,     March 1,
                                           2009           2008
                   Number of Stores:
                   Finish Line
                   Beginning of year            697          690
                   Opened                         9           18
                   Closed                       (17 )        (11 )

                   End of year                  689          697

                   Man Alive
                   Beginning of year             94           86
                   Opened                        -            11
                   Closed                        (9 )         (3 )

                   End of year                   85           94

                   Total
                   Beginning of year            791          776
                   Opened                         9           29
                   Closed                       (26 )        (14 )

                   End of year                  774          791

                                              February 28,   March 1,
                                                  2009         2008
             Square feet information as of:
             Finish Line
             Square feet                         3,746,413   3,854,733
             Average store size                      5,437       5,530
             Man Alive
             Square feet                           294,183     326,407
             Average store size                      3,461       3,472
             Total
             Square feet                         4,040,596   4,181,140

Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)



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



                                                 Year Ended
          Category     February 28, 2009         March 1, 2008         March 3, 2007
          Footwear    $    1,023,371    81 %   $ 1,009,088    79 %   $ 1,032,085    77 %
          Softgoods          238,892    19 %       268,074    21 %       299,874    23 %

          Total       $    1,262,263   100 %   $ 1,277,162   100 %   $ 1,331,959   100 %

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

                                                                   Year Ended
                                                   February 28,       March 1,        March 3,
                                                       2009             2008            2007
Income Statement Data:
Net sales                                                 100.0 %        100.0 %         100.0 %
Cost of sales (including occupancy costs)                  70.2           70.9            69.8

Gross profit                                               29.8           29.1            30.2
Selling, general and administrative expenses               26.6           26.8            25.2
Terminated merger-related (income) cost, net               (0.2 )          7.2              -
Impairment charges                                          2.6            0.4             0.3

Operating income (loss)                                     0.8           (5.3 )           4.7
Interest income, net                                        0.1            0.1             0.1

Income (loss) from continuing operations
before income taxes                                         0.9           (5.2 )           4.8
Income tax expense (benefit)                                0.6           (1.4 )           1.8

Income (loss) from continuing operations                    0.3 %         (3.8 )%          3.0 %

Fiscal 2009 Compared to Fiscal 2008. Net sales for fiscal 2009 were $1,262.3 million, a decrease of $14.9 million or 1.2%, compared to net sales for fiscal 2008 of $1,277.2 million. The decrease was primarily a result of comparable store net sales decreasing by 0.4% during fiscal 2009 and an additional $7.5 million decrease attributable to a 2.1% decrease in the total number of stores open (9 stores opened less 26 stores closed) during the year from 791 stores at the end of fiscal 2008 to 774 stores at the end of fiscal 2009. This decrease was partially offset by an increase of $5.5 million from the 28 existing stores open only part of fiscal 2008. Comparable footwear net sales increased 2.2% for fiscal 2009. The 2.2% increase in comparable footwear net sales was primarily a result of a 5.7% increase in average selling price for footwear at Finish Line stores, partially offset by a 3.5% decrease in the footwear units sold. Comparable softgoods net sales decreased by 10.2% for fiscal 2009. The 10.2% decrease in comparable softgoods net sales was attributable to a 12.7% decrease in Finish Line comparable softgoods net sales and a 3.0% decrease in Man Alive comparable softgoods sales. Finish Line's decrease of 12.7% in softgoods is primarily the result of management's plan to reduce softgoods inventory levels and focus on increasing inventory turns and return on investments.

Gross profit, which includes product margin, net of shrink, less store occupancy costs, for fiscal 2009 was $376.0 million compared to gross profit of $371.4 million in fiscal 2008. This represents an increase of approximately $4.6 million or 1.2%, compared to fiscal 2008, and an increase of 0.7% as a percentage of net sales. The 0.7% increase was a result of a 0.5% increase in product margin as a percentage of net sales and a 0.2% decrease in inventory . . .