<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 May 4, 1996
-----------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to _________________
Commission file number 0-21406 .
-------------------------------
Brookstone, Inc. .
----------------------------------------------------------
(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
------------
(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
------- -------
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
-------- ------
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: 7,729,102 shares of Common
-----------
Stock as of June 4, 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 May 4, 1996, February 3, 1996, and 3
April 29, 1995
Consolidated Statement of Operations for
the thirteen weeks ending May 4, 1996 and
April 29, 1995 4
Consolidated Statement of Cash Flows for
the thirteen weeks ending May 4, 1996 and
April 29, 1995 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II: Other Information
-----------------
Item 1: Legal Proceedings 8
Item 2: Change in Securities 8
Item 3: Defaults by the Company upon its Senior Securities 8
Item 4: Submission of matters to a vote of Security Holders 8
Item 5: Other Information 8
Item 6: Exhibits and Reports on Form 8-K 8-9
Signatures 10
</TABLE>
2
<PAGE>
BROOKSTONE, INC.
CONSOLIDATED BALANCE SHEET
(In thousands except share data)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
May 4, 1996 February 3, 1996 April 29, 1995
----------- ---------------- --------------
Assets
------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,510 $ 11,333 $ 1,328
Receivables, net 3,102 4,312 3,423
Merchandise inventories 29,219 25,744 26,916
Deferred income taxes 2,563 150 3,745
Other current assets 3,453 2,999 3,222
---------- ----------- ----------
39,847 44,538 38,634
---------- ----------- ----------
Total current assets
Deferred income taxes 1,864 1,864 1,627
Property and equipment, net 31,091 30,157 28,519
Other assets 1,155 1,198 895
---------- ----------- ----------
$ 73,957 $ 77,757 $ 69,675
========== =========== ==========
Liabilities and Shareholders' Equity
- - ------------------------------------
Current liabilities:
Current portion of obligation under $ 77 $ 75 $ 67
capital lease
Short term borrowings -- -- 1,000
Accounts payable 11,293 9,464 9,341
Other current liabilities 6,670 9,069 8,860
---------- ----------- ----------
Total current liabilities 18,040 18,608 19,268
Other long term liabilities 8,704 8,572 7,970
Long term obligation under capital lease 2,844 2,863 2,919
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $0.001 par value:
Authorized - 2,000,000 shares; issued and
outstanding - 0 shares at April 29, 1995,
February 3, 1996 and May 4, 1996
Common stock, $0.001 par value
Authorized 50,000,000 shares; issued and
outstanding - 7,644,959 at April 29, 1995,
7,680,708 shares at February 3, 1996 and
7,727,858 shares at May 4, 1996 8 8 8
Additional paid-in capital 46,454 46,293 46,047
Retained earnings / (Accumulated deficit) (2,046) 1,460 (6,490)
Treasury stock, at cost - 3,616 shares at (47) (47) (47)
April 29, 1995, February 3, 1996 and
May 4, 1996
---------- ----------- ----------
Total Shareholders' Equity 44,369 47,714 39,518
---------- ----------- ----------
$ 73,957 $ 77,757 $ 69,675
========== =========== ==========
</TABLE>
3
<PAGE>
BROOKSTONE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------------------
May 4, 1996 April 29, 1995
-----------------------------
<S> <C> <C>
Net sales $ 30,775 $ 24,944
Cost of sales 22,691 18,527
----------- -----------
Gross profit 8,084 6,417
Selling, general and administrative expenses 14,283 11,722
----------- -----------
Loss from operations (6,199) (5,305)
Other (income) / expense (485) 239
Interest expense, net 75 143
----------- -----------
Loss before taxes (5,789) (5,687)
Income tax benefit (2,283) (2,354)
----------- -----------
Net loss $ (3,506) $ (3,333)
=========== ===========
Net loss per share $ (0.45) $ (0.44)
=========== ===========
Weighted average shares outstanding 7,709 7,624
=========== ===========
</TABLE>
4
<PAGE>
BROOKSTONE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------------------
May 4, 1996 April 29, 1995
----------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,506) $(3,333)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 1,374 1,223
Deferred income taxes (2,413) (2,444)
Increase in other assets 43 (138)
Increase in other long term 132 79
liabilities
Changes in working capital:
Accounts receivable, net 1,210 276
Merchandise Inventories (3,475) 2,165
Other current assets (454) (359)
Accounts Payable 1,829 1,017
Other current liabilities (2,399) (1,718)
------------ --------------
Net cash used by operating activities (7,659) (3,232)
------------ --------------
Cash flows from investing activities:
Expenditures for property and (2,308) (675)
equipment
------------ --------------
Net cash used for investing activities (2,308) (675)
------------ --------------
Cash flows from financing activities:
Borrowings from revolving credit -- 1,000
Payments for capitalized lease (17) (18)
Proceeds from exercise of stock
options and related tax benefits 161 95
------------ --------------
Net cash provided by financing activities 144 1,077
------------ --------------
Net decrease in cash and cash
equivalents (9,823) (2,830)
Cash and cash equivalents at beginning
of period 11,333 4,158
------------ --------------
Cash and cash equivalents at end of
period $ 1,510 $ 1,328
============ ==============
</TABLE>
5
<PAGE>
BROOKSTONE, INC.
Notes to Consolidated Financial Statements
1. The results of the thirteen week period ending May 4, 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 $130,000 for the thirteen week period
ending May 4, 1996.
4. The Company's total current assets were $4.7 million lower on May 4, 1996
than they were on February 3, 1996. This decrease was primarily a
reflection of a cash and cash equivalents decrease of $9.8 million
partially offset by an increase in merchandise inventories of $3.5 million.
Additionally, receivables decreased $1.2 million while other current assets
increased $.4 million, and deferred income taxes increased $2.4 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 $.6 million lower on May 4,
1996 than they were on February 3, 1996. This decrease results from a $2.4
million decrease in other current liabilities, primarily offset by a $1.8
million increase in accounts payable.
6. The Company's shareholder's equity was $3.3 million lower on May 4, 1996
than it was on February 3, 1996. This decrease was a reflection of (1) the
$3.5 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 Week Period Ended May 4, 1996
Results of Operations
- - ---------------------
For the thirteen week period ended May 4, 1996, net sales increased 23.4%
over comparable periods last year. Comparable store sales for the thirteen week
period increased 12.8%. The sales increase reflects results of opening 12 new
stores subsequent to the first 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 thirteen week period ended May 4, 1996
was 144 versus 132 at the end of the comparable period in Fiscal 1995. Mail
order sales increased 21.9% for the same thirteen week period.
Gross Profit as a percentage of net sales was 26.3% for the thirteen week
period ended May 4, 1996, versus 25.7% for the comparable period last year.
This increase in gross profit as a percentage of net sales is primarily the
result of leveraging occupancy costs associated with the 23.4% increase in net
sales for the thirteen week period, partially offset by a shift in sales mix to
lower margin products.
Selling, general and administrative expenses as a percentage of net sales
were 46.4% for the thirteen week period ended May 4, 1996 versus 47.0% for the
comparable period last year. The decrease in the percentage is primarily the
result of leveraging payroll and other administrative expenses as the Company
added additional new stores.
Other income, which represents inventory capitalization, was $485,000 for the
thirteen week period ended May 4, 1996 as compared to other losses related to
inventory capitalization of $239,000 for the comparable period last year.
Net interest expense for the thirteen week period ended May 4, 1996, was
$75,000 compared to $143,000 during the comparable period last year. This
reduction, 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 $3,506,000
or $0.45 per share, for the thirteen week period ended May 4, 1996, as compared
to a net loss of $3,333,000 or $0.44 per share for the comparable period last
year.
Liquidity and Capital Resources
- - -------------------------------
The Company uses its revolving credit agreement to finance inventory
purchases which historically peak in the third quarter. At May 4, 1996, the
Company had no short term borrowings outstanding under its revolving credit
agreement, and at April 29, 1995 it had $1,000,000 outstanding.
The Company believes that available borrowings, cash on hand and anticipated
cash generated from operations will be sufficient to finance planned retail
store openings and other capital requirements through Fiscal 1996.
7
<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
---------------------------------------------------
None
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.
8
<PAGE>
Exhibit 11
----------
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
-------------------------------
May 4, 1996 April 29, 1995
----------- --------------
<S> <C> <C>
Net loss $ (3,506) $ (3,333)
Weighted average number of common
shares outstanding 7,681 7,602
Adjustments to weighted average
common shares outstanding:
Common stock issued upon exercise of
options 28 22
Weighted average number of common
shares as adjusted 7,709 7,624
========== ===========
Net loss primary and fully diluted
earnings per share $ (0.45) $ (0.44)
========== ===========
</TABLE>
9
<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/ John J. Rahilly
--------------------------------
June 11 , 1996 (Signature)
---
John J. Rahilly
Executive Vice President, Finance/Administration
Secretary
(Principal Financial Officer
and duly authorized to sign on
behalf of registrant)
10
<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> MAY-04-1996
<CASH> 1,510
<SECURITIES> 0
<RECEIVABLES> 3,242
<ALLOWANCES> 140
<INVENTORY> 29,219
<CURRENT-ASSETS> 39,847
<PP&E> 55,918
<DEPRECIATION> 24,827
<TOTAL-ASSETS> 73,957
<CURRENT-LIABILITIES> 18,040
<BONDS> 2,844
0
0
<COMMON> 8
<OTHER-SE> 44,361
<TOTAL-LIABILITY-AND-EQUITY> 73,957
<SALES> 30,775
<TOTAL-REVENUES> 30,775
<CGS> 22,691
<TOTAL-COSTS> 22,691
<OTHER-EXPENSES> 13,798
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75
<INCOME-PRETAX> (5,789)
<INCOME-TAX> (2,283)
<INCOME-CONTINUING> (3,506)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,506)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
