<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 2, 1997
--------------
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 (I.R.S. Employer
incorporation 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: 7,820,384 shares of
Common Stock as of September 10, 1997. ---------
-------------------
<PAGE>
BROOKSTONE, INC.
Index to Form 10-Q
<TABLE>
<CAPTION>
Part I: Financial Information Page No.
--------------------- --------
<S> <C>
Item 1:
Consolidated Balance Sheet
as of August 2, 1997, February 1, 1997, and August 3, 1996 3
Consolidated Statement of Operations for the thirteen and twenty-six weeks
ending August 2, 1997 and August 3, 1996 4
Consolidated Statement of Cash Flows for the thirteen and twenty-six
weeks ending August 2, 1997 and August 3, 1996 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 - 10
Item 5:
Other Information 9
Item 6:
Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
2
<PAGE>
BROOKSTONE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
August 2, 1997 February 1, 1997 August 3, 1996
-------------- ---------------- --------------
<S> <C> <C> <C>
Assets
------
Current Assets:
Cash and cash equivalents $ 1,617 $10,576 $ 1,301
Receivables, net 3,683 5,448 3,033
Merchandise inventories 29,489 31,266 28,083
Deferred income taxes 3,847 1,026 3,042
Other current assets 4,811 2,953 3,852
------------ ------------ ------------
Total current assets 43,447 51,269 39,311
------------ ------------ ------------
Deferred income taxes 1,845 1,845 1,864
Property and equipment, net 32,986 33,413 31,052
Other assets 127 734 454
------------ ------------ ------------
$78,405 $87,261 $72,681
============ ============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current Portion of obligation under capital
lease $ 83 $ 79 $ 81
Short term borrowings 760 -- 1,400
Accounts payable 7,882 8,616 10,727
Other current liabilities 7,914 12,902 5,363
------------ ------------ ------------
Total current liabilities 16,639 21,597 17,571
------------ ------------ ------------
Other long term liabilities 9,174 8,923 8,551
Long term obligation under capital lease 2,742 2,784 2,825
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $0.001 par value:
Authorized - 2,000,000 shares; issued and
outstanding - 0 shares at August 2, 1997,
February 1, 1997 and August 3, 1996
Common stock, $0.001 par value
Authorized 50,000,000 shares; issued and
outstanding - 7,819,134 at August 2, 1997,
7,793,613 shares at February 1, 1997 and
7,737,869 shares at August 3, 1996 8 8 8
Additional paid-in capital 46,788 46,663 46,506
Retained earnings / (Accumulated deficit) 3,101 7,333 (2,733)
Treasury stock, at cost - 3,616 shares at
August 2, 1997, February 1, 1997 and August 3, 1996 (47) (47) (47)
------------ ------------ ------------
Total Shareholders' Equity 49,850 53,957 43,734
------------ ------------ ------------
$78,405 $87,261 $72,681
============ ============ ============
</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 2, 1997 August 3, 1996 August 2, 1997 August 3, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Sales $44,848 $39,907 $77,985 $70,681
Cost of Sales 30,297 26,861 55,245 49,552
----------- ----------- ----------- -----------
Gross profit 14,551 13,046 22,740 21,129
Selling, general and administrative
expenses 15,105 14,011 29,416 27,808
----------- ----------- ----------- -----------
Loss from operations (554) (965) (6,676) (6,679)
Interest expense, net 202 164 306 240
----------- ----------- ----------- -----------
Loss before taxes (756) (1,129) (6,982) (6,919)
Income tax benefit (298) (443) (2,751) (2,726)
----------- ----------- ----------- -----------
Net loss $ (458) $ (686) $(4,231) $(4,193)
=========== =========== =========== ===========
Net loss per share $(0.06) $(0.09) $(0.54) $(0.54)
=========== =========== =========== ===========
Weighted average shares
outstanding 7,780 7,733 7,781 7,721
</TABLE>
4
<PAGE>
BROOKSTONE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-----------------------------------
August 2, 1997 August 3, 1996
-------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $(4,231) $ (4,193)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 3,032 2,781
Deferred income taxes (2,821) (2,892)
Decrease in other assets 607 744
Increase (Decrease) in other long term liabilities 251 (21)
Changes in working capital:
Accounts receivable, net 1,765 1,279
Merchandise Inventories 1,777 (2,339)
Other current assets (1,858) (853)
Accounts Payable (734) 1,263
Other current liabilities (4,988) (3,706)
----------- -----------
Net cash used by operating activities (7,200) (7,937)
----------- -----------
Cash flows from investing activities:
Expenditures for property and equipment (2,607) (3,676)
----------- -----------
Net cash used for investing activities (2,607) (3,676)
----------- -----------
Cash flows from financing activities:
Borrowings from revolving credit 760 1,400
Payments for capitalized lease (38) (32)
Proceeds from exercise of stock options and related tax benefits 126 213
----------- -----------
Net cash provided by financing activities 848 1,581
----------- -----------
Net decrease in cash and cash equivalents (8,959) (10,032)
Cash and cash equivalents at beginning of period 10,576 11,333
----------- -----------
Cash and cash equivalents at end of period $ 1,617 $ 1,301
=========== ===========
</TABLE>
5
<PAGE>
BROOKSTONE, INC.
Notes to Consolidated Financial Statements
1. The results of the thirteen week period ending August 2, 1997, 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 1996 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 $8,900 for the thirteen week period August
2, 1997 and $ 66,500 for the twenty-six week period ended August 2, 1997.
4. In February, 1997 the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 128, Earnings per Share"
("FAS 128"). This pronouncement will be effective for the Company's
financial statements for the year-ended January 31, 1998. FAS 128 will
supersede the pronouncement of the Accounting Principles Board ("APB") No.
15. FAS 128 eliminates the calculation of primary earnings per share and
requires the disclosure of Basic Earnings per Share and Diluted Earnings
per Share (formerly referred to as fully diluted earnings per share), if
applicable. As the Company has recorded net losses for the three and six
month periods ended August 2, 1997 and August 3, 1996, any common stock
equivalents would be antidilutive; therefore primary earnings per common
share, as presented on the consolidated statement of operations is
equivalent to Basic Earnings per Share and Diluted Earnings per Share, as
prescribed by FAS 128.
6
<PAGE>
BROOKSTONE, INC.
Management's Discussion and Analysis of
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
THE THIRTEEN WEEK AND TWENTY-SIX WEEK PERIODS ENDED AUGUST 2, 1997
Results of Operations
- ---------------------
For the thirteen week and twenty-six week periods ended August 2, 1997, net
sales increased 12.4% and 10.3% respectively over the comparable periods last
year. Comparable store sales for the thirteen week and twenty-six week periods
increased 3.1% and 2.8% respectively. The sales increase reflects the results of
opening 15 new stores subsequent to the second quarter of Fiscal 1996 and six
new stores during Fiscal 1997 offset by the closing of one store in Fiscal 1997.
The total Brookstone stores open at the end of the twenty-six week period ended
August 2, 1997 was 164 versus 144 at the end of the comparable period in Fiscal
1996. Mail order sales decreased 15.5% and 16.1% for the same thirteen and
thirty-six week periods. This decrease was driven by decreased catalog
circulation.
Gross Profit as a percentage of net sales was 32.4% and 29.2% for the
thirteen and twenty-six week periods ended August 2, 1997, versus 32.7% and
29.9% for the comparable periods last year. The decrease in the percentage is
primarily the result of an increase in occupancy costs as a result of the new
stores opened and a renewal of certain leases after the expiration of their
original term subsequent to the second Fiscal quarter of 1996.
Selling, general and administrative expenses as a percentage of net sales
were 33.7% and 37.7% for the thirteen and twenty-six week periods ended August
2, 1997 versus 35.1% and 39.3% for the comparable periods last year. The
decrease in the percentage is primarily the result of reduced costs related to
catalog production and a reduction in costs of shipping to customers.
Net interest expense for the thirteen week and twenty-six week periods
ended August 2, 1997, was $202,000 and $306,000, compared to $164,000 and
$240,000 during the comparable periods last year. The increase for the thirteen
and twenty-six week periods is related to increased borrowings under the
revolving credit agreement during comparable periods for Fiscal 1997 compared
with Fiscal 1996.
As a result of the foregoing, the Company reported a net loss of $458,000
or $0.06 per share, for the thirteen week period ended August 2, 1997, as
compared to a net loss of $686,000 or $0.09 per share for the comparable period
last year. For the twenty-six week period ended August 2, 1997 the Company
reported a net loss of $4,231,000 or $0.54 per share compared to a net loss of
$4,193,000 or $0.54 per share, for the comparable period last year.
Financial Condition
- -------------------
For the twenty-six week period of Fiscal 1997, net cash used by operating
activities totaled $7.2 million, reflecting primarily the net loss and payment
of income taxes. Cash used for investment activities during the second quarter
of Fiscal 1997 amounted to $2.6 million, associated with the purchase of
property and equipment. Cash provided by financing activities during the second
quarter of Fiscal 1997 amounted to $.8 million, primarily derived from
borrowings under the Company's revolving credit agreement.
For the twenty-six week period of Fiscal 1996, net cash used by operating
activities totaled $7.9 million, primarily reflecting the net loss and payment
of income taxes. Cash used for investment activities during the twenty-six week
period of Fiscal 1996 amounted to $3.7 million, associated with the purchase of
property and equipment. Cash provided by financing activities during the twenty-
six week period of Fiscal 1996 amounted to $1.6 million, derived primarily from
borrowings under the Company's revolving credit agreement.
Merchandise inventories were $29.5 million at August 2, 1997 compared to
inventories of $31.3 million at February 1, 1997. Accounts payable were $7.9
million at August 2, 1997 compared to $8.6 million at February 1, 1997.
7
<PAGE>
The capital expenditures were principally related to the remodeling of three
retail stores and the opening of six new stores during Fiscal 1997. The Company
anticipates opening approximately 20 new stores and remodeling approximately 7
stores during Fiscal 1997.
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 2, 1997, the Company had $.8 million in
outstanding borrowings under its revolving credit agreement, and at August 3,
1996, it had $1.4million outstanding. The Company has signed a committment
letter with BankBoston to enter into a Revolving Credit Agreement that will
increase borrowings available to the Company to a maximum of $75 million over
the next five years (the "New Credit Agreement"). The Company anticipates that
the New Credit Agreement will be in place within the next 30 days.
The Company believes that available borrowings under the New Credit Agreement,
cash on hand and anticipated cash generated from operations will be sufficient
to finance planned retail store openings / remodelings and other capital
requirements through Fiscal 1997.
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
---------------------------------------------------
<TABLE>
<CAPTION>
A) The 1997 Annual Meeting of Stockholders of the Company was held on June 19, 1997.
B) The following persons were elected directors at the 1997 Annual Meeting for a one year term
expiring at the 1998 annual Meeting of Stockholders.
<S> <C> <C>
For Withheld
--------- ---------
Merwin F. Kaminstein 7,431,306 19,736
Michael F. Anthony 7,444,245 6,797
Mone Anathan III 7,431,306 19,736
Adam Kirsh 7,431,606 19,436
Michael L. Glazer 7,444,506 6,536
Robert F. White 7,431,606 19,436
C) Approval of certain material terms of the Company's 1992 Equity Incentive Plan
For Against Abstain No Vote
--------- --------- --------- ---------
5,277,978 2,014,983 37,781 117,300
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
D) The appointment of Price Waterhouse LLP as the independent accountants to examine the
financial statements of the Company and ist subsidiaries for the fiscal year ending
January 31, 1998 was ratified.
<S> <C> <C>
For Against Abstain
--------- --------- ---------
7,445,286 3,161 2,595
</TABLE>
Item 5: OTHER INFORMATION
-----------------
None
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
A) Exhibits
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>
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/ Philip W. Roizin
--------------------------------
September 15, 1997 (Signature)
---
Philip W. Roizin
Executive Vice President Finance
and Administration,
Treasurer and Secretary
(Principal Financial Officer
and duly authorized to sign on
behalf of registrant)
11
<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 Twenty-Six Weeks Ended
------------------------------- -------------------------------
August 2, 1997 August 3, 1996 August 2, 1997 August 3, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss $ (458) $ (686) $(4,231) $(4,193)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding 7,775 7,681 7,775 7,681
Adjustments to weighted average common
shares outstanding:
Common stock issued upon exercise of
options 5 52 6 40
----------- ----------- ----------- -----------
Weighted average number of common shares
as adjusted 7,780 7,733 7,781 7,721
=========== =========== =========== ===========
Net loss primary and fully diluted
earnings per share $(0.06) $(0.09) $ (0.54) $ (0.54)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> AUG-02-1997
<CASH> 1,617
<SECURITIES> 0
<RECEIVABLES> 3,983
<ALLOWANCES> (300)
<INVENTORY> 29,489
<CURRENT-ASSETS> 43,447
<PP&E> 63,713
<DEPRECIATION> (30,727)
<TOTAL-ASSETS> 78,405
<CURRENT-LIABILITIES> 16,639
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 49,842
<TOTAL-LIABILITY-AND-EQUITY> 78,405
<SALES> 44,848
<TOTAL-REVENUES> 44,848
<CGS> 30,297
<TOTAL-COSTS> 45,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 202
<INCOME-PRETAX> (756)
<INCOME-TAX> (298)
<INCOME-CONTINUING> (458)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (458)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
