<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 3, 1996
--------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21406 .
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Brookstone, Inc. .
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(Exact name of registrant as specified in its charter)
Delaware 06-1182895
-------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
17 Riverside Street, Nashua, NH 03062
--------------------------------------
(address of principal executive offices, zip code)
603-880-9500
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(Registrant's telephone number, including area code)
.
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(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
------- -------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 7,768,613 shares of Common
---------
Stock as of September 12, 1996.
------------------
<PAGE>
BROOKSTONE, INC.
Index to Form 10-Q
<TABLE>
<CAPTION>
Part I: Financial Information Page No.
--------------------- --------
<S> <C> <C>
Item 1:
Consolidated Balance Sheet
as of August 3, 1996, February 3, 1996, and July 29, 1995 3
Consolidated Statement of Operations for the thirteen and
twenty-six weeks ending August 3, 1996 and July 29, 1995 4
Consolidated Statement of Cash Flows for the twenty-six
weeks ending August 3, 1996 and July 29, 1995 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
Part II: Other Information
-----------------
Item 1:
Legal Proceedings 9
Item 2:
Change in Securities 9
Item 3:
Defaults by the Company upon its Senior Securities 9
Item 4:
Submission of matters to a vote of Security Holders 9
Item 5:
Other Information 10
Item 6:
Exhibits and Reports on Form 8-K 10-11
Signatures 12
</TABLE>
2
<PAGE>
BROOKSTONE, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Assets August 3, 1996 February 3, 1996 July 29, 1995
------ -------------- ---------------- -------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,301 $ 11,333 $ 1,080
Receivables, net 3,033 4,312 4,107
Merchandise inventories 28,083 25,744 21,793
Deferred income taxes 3,042 150 4,517
Other current assets 3,852 2,999 3,628
-------- -------- --------
Total current assets 39,311 44,538 35,125
-------- -------- --------
Deferred income taxes 1,864 1,864 1,627
Property and equipment, net 31,052 30,157 27,923
Other assets 454 1,198 321
-------- -------- --------
$ 72,681 $ 77,757 $ 64,996
======== ======== ========
Liabilities and
- ---------------
Shareholders' Equity
--------------------
Current liabilities:
Current Portion of $ 81 $ 75 $ 68
obligation under capital
lease
Short term borrowings 1,400 -- --
Accounts payable 10,727 9,464 8,263
Other current liabilities 5,363 9,069 6,992
-------- -------- --------
Total current liabilities 17,571 18,608 15,323
Other long term liabilities 8,551 8,572 8,159
Long term obligation under 2,825 2,863 2,901
capital lease
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $0.001 par value:
Authorized - 2,000,000 shares;
issued and outstanding - 0
shares at August 3, 1996,
February 3, 1996 and July 29,
1995
Common stock, $0.001 par value
Authorized 50,000,000 shares;
issued and outstanding -
7,737,869 at August 3, 1996,
7,680,708 shares at
February 3, 1996 and 7,673,391
shares at July 29, 1995 8 8 8
Additional paid-in capital 46,506 46,293 46,127
Retained earnings /
(Accumulated deficit) (2,733) 1,460 (7,475)
Treasury stock, at cost -
3,616 shares at August 3, 1996,
February 3, 1996 and
July 29, 1995 (47) (47) (47)
-------- -------- --------
Total Shareholders' Equity 43,734 47,714 38,613
-------- -------- --------
$ 72,681 $ 77,757 $ 64,996
======== ======== ========
</TABLE>
3
<PAGE>
BROOKSTONE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------------------- -----------------------------
August 3, 1996 July 29, 1995 August 3, 1996 July 29, 1995
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 39,907 $ 34,794 $ 70,681 $ 59,738
Cost of Sales 26,861 23,800 49,552 42,327
-------------- ------------- ------------- -------------
Gross Profit 13,046 10,994 21,129 17,411
Selling, general and administrative
expenses 14,318 12,171 28,600 23,893
-------------- ------------- ------------- -------------
Loss from Operations (1,272) (1,177) (7,471) (6,482)
Other (income)/expenses (307) 354 (792) 593
Interest expense, net 164 150 240 293
-------------- ------------- ------------- -------------
Loss before taxes (1,129) (1,681) (6,919) (7,368)
Income tax benefit (443) (696) (2,726) (3,050)
-------------- ------------- ------------- -------------
Net loss $ (686) $ (985) $ (4,193) $ (4,318)
============== ============= ============= =============
Net loss per share $ (0.09) $ (0.13) $ (0.54) $ (0.56)
Weighted Average shares
outstanding 7,733 7,665 7,721 7,645
============== ============= ============= =============
</TABLE>
4
<PAGE>
BROOKSTONE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
------------------------------
August 3, 1996 July 29, 1995
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,193) $(4,318)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 2,781 2,473
Deferred income taxes (2,892) (3,216)
Increase in other assets 744 436
Increase in other long term liabilities (21) 268
Changes in working capital:
Accounts receivable, net 1,279 (408)
Merchandise Inventories (2,339) 7,288
Other current assets (853) (765)
Accounts Payable 1,263 (61)
Other current liabilities (3,706) (3,586)
-------------- -------------
Net cash used by operating activities (7,937) (1,889)
-------------- -------------
Cash flows from investing activities:
Expenditures for property and equipment (3,676) (1,329)
-------------- -------------
Net cash used for investing activities (3,676) (1,329)
-------------- -------------
Cash flows from financing activities:
Borrowings from revolving credit 1,400 --
Payments for capitalized lease (32) (35)
Proceeds from exercise of stock options and related tax benefits 213 175
-------------- -------------
Net cash provided by financing activities 1,581 140
-------------- -------------
Net decrease in cash and cash equivalents (10,032) (3,078)
Cash and cash equivalents at beginning of period 11,333 4,158
-------------- -------------
Cash and cash equivalents at end of period $ 1,301 $ 1,080
============== =============
</TABLE>
5
<PAGE>
BROOKSTONE, INC.
Notes to Consolidated Financial Statements
1. The results of the thirteen and twenty-six week periods ending August 3,
1996, are not necessarily indicative of the results for the full fiscal
year. The Company's business, like the business of retailers in general, is
subject to seasonal influences. Historically, the Company's fourth fiscal
quarter, which includes the Christmas selling season, has produced a
disproportionate amount of the Company's net sales and generally all of its
income from operations. The Company expects that its business will continue
to be subject to such seasonal influences.
2. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
practices consistently applied; and in the opinion of the Company, contain
all adjustments (consisting of only normal recurring adjustments) necessary
to present fairly the financial position and the results of operations for
the periods reported. Certain information and footnote disclosures normally
included in financial statements presented in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that the accompanying consolidated financial statements be read
in conjunction with the annual financial statements and notes thereto which
may be found in the Company's 1995 annual report.
3. The exercise of stock options which have been granted under the Company's
stock option plans gives rise to compensation which is includable in the
taxable income of the optionees and deductible by the Company for tax
purposes upon exercise. Such compensation reflects an increase in the fair
market value of the Company's Common Stock subsequent to the date of grant.
For financial reporting purposes, the tax effect of this deduction is
accounted for as a credit to additional paid-in capital rather than as a
reduction of income tax expense. Such exercises resulted in a tax benefit
to the Company of approximately $35,000 for the thirteen week period ending
August 3, 1996 and $166,000 for the twenty-six week period August 3, 1996.
4. The Company's total current assets were $5.2 million lower on August 3,
1996 than they were on February 3, 1996. This decrease was primarily a
reflection of a cash and cash equivalents decrease of $10.0 million
partially offset by an increase in merchandise inventories of $2.3 million.
Additionally, receivables decreased $1.3 million while other current assets
increased $.9 million, and deferred income taxes increased $2.9 million due
to the Company recording tax benefits resulting from operating losses and
tax benefits from the exercise of stock options.
5. The Company's total current liabilities were $1.0 million lower on August
3, 1996 than they were on February 3, 1996. This decrease results from a
$3.7 million decrease in other current liabilities, primarily offset by a
$1.3 million increase in accounts payable and $1.4 million in short term
borrowings.
6. The Company's shareholder's equity was $4.0 million lower on August 3, 1996
than it was on February 3, 1996. This decrease was a reflection of (1) the
$4.2 million net loss for the period; and (2) the recording of
approximately $0.2 million in proceeds from the exercise of stock options
and related tax benefits.
6
<PAGE>
BROOKSTONE, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations for
the Thirteen and Twenty-Six Week Periods Ended August 3, 1996
Results of Operations
- ---------------------
For the thirteen and twenty-six week periods ended August 3, 1996, net sales
increased 14.7% and 18.3% over comparable periods last year. Comparable store
sales for the thirteen and twenty-six week periods increased 7.7% and 9.8%. The
sales increase reflects the results of opening ten (10) new stores subsequent to
the second quarter during Fiscal 1995 and one new store during the first quarter
of Fiscal 1996, partially offset by the loss of sales from closing one store in
the first quarter of Fiscal 1996. The total Brookstone stores open at the end
of the twenty-six week period ended August 3, 1996 was 144 versus 134 at the end
of the comparable period in Fiscal 1995. Mail order sales increased 6.8% and
14.5% for the same thirteen and twenty-six week periods.
Gross Profit as a percentage of net sales was 32.7% and 29.9% for the
thirteen and twenty-six week periods ended August 3, 1996, versus 31.6% and
29.1% for the comparable periods last year. This increase in gross profit as a
percentage of net sales is primarily the result of leveraging occupancy costs
associated with the increases in net sales for the thirteen and twenty-six week
periods, partially offset by a moderate increase in sales of lower margin
products.
Selling, general and administrative expenses as a percentage of net sales
were 35.9% and 40.5% for the thirteen and twenty-six week periods ended August
3, 1996 versus 35.0% and 40.0% for the comparable periods last year. The
increase in the percentage is primarily the result of increased advertising
costs associated with increased catalog circulation and higher productions
costs.
Other income, which represents inventory capitalization, was $307,000 and
$792,000 for the thirteen and twenty-six week periods ended August 3, 1996 as
compared to other expenses related to inventory capitalization of $354,000 and
$593,000 for the comparable periods last year.
Net interest expense for the thirteen and twenty-six week periods ended
August 3, 1996, was $164,000 and $240,000 compared to $150,000 and $293,000
during the comparable periods last year. The increase for the thirteen week
period is related to borrowings under the revolving credit agreement during 1996
verses 1995. The reduction for the twenty-six period is primarily the result of
interest income from short term investments versus comparable periods last year.
As a result of the foregoing, the Company reported a net loss of $686,000 or
$0.09 per share, for the thirteen week period ended August 3, 1996, as compared
to a net loss of $985,000 or $0.13 per share for the comparable period last
year. For the twenty-six week period ended August 3, 1996, the Company reported
a net loss of $4,193,000 or $0.54 per share compared to a net loss of $4,318,000
or $0.56 per share for the comparable period last year.
7
<PAGE>
Financial Condition
- -------------------
At August 3, 1996, working capital was $21.7 million, a $4.0 million decrease
from February 3, 1996. This decline reflects capital expenditures of $3.7
million, a $1.3 million increase in accounts payable and the seasonal operating
loss, partially offset by a $2.3 million increase in merchandise inventories.
The capital expenditures were principally related to the remodeling of seven
retail stores and the opening of one new store year to date. The increase in
inventory is primarily the result of actual and scheduled new store growth, an
increase in proprietary and imported product offerings and stocking initiatives
intended to support continued same store sales growth.
The Company maintains a revolving credit agreement to finance inventory
purchases, which historically peak in the third quarter in anticipation of the
holiday selling season. At August 3, 1996, the Company had $1.4 million in
outstanding borrowings under its revolving credit agreement, and at July 29,
1995, it had no such short term borrowings. To ensure that it has adequate
liquidity during the third and fourth quarter of Fiscal 1996, the Company has
completed negotiations with its lender to increase the amount available under
its credit agreement by $5.0 million during the Company's pre-holiday inventory
building period. The Company expects to enter into a formal agreement by the
end of the third quarter of Fiscal 1996.
8
<PAGE>
PART II
Other Information
Item 1: LEGAL PROCEEDINGS
-----------------
The Company is involved in various legal proceedings arising in the
normal course of business. The Company believes that the resolution
of these matters will not have a material effect on the Company's
financial condition or results of operations.
Item 2: CHANGES IN SECURITIES
---------------------
None
Item 3: DEFAULT UPON SENIOR SECURITIES
------------------------------
None
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
A) The 1996 Annual Meeting of Stockholders of the
Company was held on June 20, 1996.
B) The following persons were elected directors at
the 1996 Annual Meeting for a one year
term expiring at the 1997 Annual Meeting of
Stockholders.
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Merwin F. Kaminstein 7,148,011 8,984
Michael F. Anthony 7,148,012 8,983
Mone Anathan, III 7,148,012 8,983
Adam Kirsch 7,148,011 8,984
Michael L. Glazer 7,147,511 9,484
Robert F. White 7,148,012 8,983
</TABLE>
C) Approval and Implementation of the 1996 Directors'
Stock Option Plan.
<TABLE>
<CAPTION>
For Against Abstain No Vote
--- ------- ------- -------
<S> <C> <C> <C> <C>
Shares 6,834,683 233,737 8,575 80,000
</TABLE>
D) The appointment of Price Waterhouse LLP as the independent
accountants to examine the financial statements of the
Company and its subsidiaries for the fiscal year ending
February 1, 1997 was ratified.
For Against Abstain
--- -------- -------
Shares 7,151,059 4,986 950
9
<PAGE>
Item 5: OTHER INFORMATION
-----------------
None
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
A) Exhibits
Exhibit 11 - Computation of Net Loss Per Share
B) Reports on Form 8-K
No reports on Form 8-K were filed during the period for which this
report is filed.
10
<PAGE>
Exhibit 11
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BROOKSTONE, INC.
Computation of Primary and Fully Diluted Earnings (Loss)
Per Common Share
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------------------- -----------------------------------
August 3, 1996 July 29, 1995 August 3, 1996 July 25, 1995
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss $ (686) $ (985) $(4,193) $(4,318)
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
Weighted average number of common
shares outstanding 7,681 7,603 7,681 7,603
Adjustments to weighted average
common shares outstanding:
Common stock issued upon exercise
of options 52 62 40 42
------------- ------------ -------------- --------------
Weighted average number of common
shares as adjusted 7,733 7,665 7,721 7,645
============= ============= ============== ==============
Net loss primary and fully diluted
earnings per share $ (0.09) $ (0.13) $ (0.54) $ (0.56)
============= ============= ============== ==============
</TABLE>
11
<PAGE>
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.
Brookstone, Inc.
----------------
(Registrant)
/s/ Michael F. Anthony
-----------------------------------
September 16, 1996 (Signature)
--- Michael F. Anthony
President, Chief Executive Officer
(Acting Principal Financial Officer
and duly authorized to sign on
behalf of registrant)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<CASH> 1,301
<SECURITIES> 0
<RECEIVABLES> 3,171
<ALLOWANCES> (138)
<INVENTORY> 28,083
<CURRENT-ASSETS> 39,311
<PP&E> 56,242
<DEPRECIATION> 25,190
<TOTAL-ASSETS> 72,681
<CURRENT-LIABILITIES> 17,571
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 43,726
<TOTAL-LIABILITY-AND-EQUITY> 72,681
<SALES> 39,907
<TOTAL-REVENUES> 39,907
<CGS> 26,861
<TOTAL-COSTS> 14,318
<OTHER-EXPENSES> (307)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164
<INCOME-PRETAX> (1,129)
<INCOME-TAX> (443)
<INCOME-CONTINUING> (686)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (686)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
