<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 3, 1997
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
17 Riverside Street, Nashua, NH 03062
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(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
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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: 7,816,590 shares of Common
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Stock as of June 9, 1997.
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BROOKSTONE, INC.
INDEX TO FORM 10-Q
Part I: Financial Information Page No.
Item 1:
Consolidated Balance Sheet
as of May 3, 1997, February 1, 1997, and May 4, 1996 3
Consolidated Statement of Operations for the thirteen weeks
ending May 3, 1997 and May 4, 1996 4
Consolidated Statement of Cash Flows for the thirteen
weeks ending May 3, 1997 and May 4, 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
Item 5:
Other Information 9
Item 6:
Exhibits and Reports on Form 8-K 9
Signatures 10
2
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BROOKSTONE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
May 3, 1997 February 1, 1997 May 4, 1996
----------- ---------------- -----------
<S> <C> <C> <C>
Assets
------
Current Assets:
Cash and cash equivalents $ 1,239 $ 10,576 $ 1,510
Receivables, net 3,718 5,448 3,102
Merchandise inventories 34,943 31,266 29,219
Deferred income taxes 3,540 1,026 2,563
Other current assets 4,139 2,953 3,453
----------- ---------------- -----------
Total current assets 47,579 51,269 39,847
----------- ---------------- -----------
Deferred income taxes 1,845 1,845 1,864
Property and equipment, net 33,019 33,413 31,091
Other assets 739 734 1,155
----------- ---------------- -----------
$ 83,182 $ 87,261 $ 73,957
=========== ================ ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current Portion of obligation under capital lease
$ 80 $ 79 $ 77
Short term borrowings 1,750 -- --
Accounts payable 11,846 8,616 11,293
Other current liabilities 7,595 12,902 6,670
----------- ---------------- -----------
Total current liabilities 21,271 21,597 18,040
Other long term liabilities 8,889 8,923 8,704
Long term obligation under capital lease 2,763 2,784 2,844
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $0.001 par value: Authorized - 2,000,000
shares; issued and outstanding - 0 shares at May 3, 1997,
February 1, 1997 and May 4, 1996
Common stock, $0.001 par value Authorized 50,000,000
shares; issued and outstanding - 7,811,812 at May 3, 1997,
7,793,613 shares at February 1, 1997 and 7,727,858 shares
at May 4, 1996 8 8 8
Additional paid-in capital 46,739 46,663 46,454
Retained earnings / (Accumulated deficit) 3,559 7,333 (2,046)
Treasury stock, at cost - 3,616 shares at May 3, 1997,
February 1, 1997 and May 4, 1996 (47) (47) (47)
----------- ---------------- -----------
Total Shareholders' Equity 50,259 53,957 44,369
----------- ---------------- -----------
$ 83,182 $ 87,261 $ 73,957
=========== ================ ===========
</TABLE>
3
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BROOKSTONE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
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May 3, 1997 May 4, 1996
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<S> <C> <C>
Net Sales $ 33,136 $ 30,775
Cost of Sales 24,949 22,691
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Gross Profit 8,187 8,084
Selling, general and administrative
expenses 14,309 13,798
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Loss from Operations (6,122) (5,714)
Interest expense, net 104 75
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Loss before taxes (6,226) (5,789)
Income tax benefit (2,453) (2,283)
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Net loss $ (3,773) $ (3,506)
=========== ===========
Net loss per share $ (0.48) $ (0.45)
=========== ===========
Weighted Average shares
outstanding 7,783 7,709
</TABLE>
4
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BROOKSTONE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
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May 3, 1997 May 4, 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,773) $ (3,506)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 1,500 1,374
Deferred income taxes (2,514) (2,388)
(Increase) Decrease in other assets (5) 17
Increase (Decrease) in other long term liabilities (34) 132
Changes in working capital:
Accounts receivable, net 1,730 1,211
Merchandise Inventories (3,677) (3,475)
Other current assets (1,186) (453)
Accounts Payable 3,230 1,829
Other current liabilities (5,307) (2,400)
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Net cash used by operating activities (10,036) (7,659)
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Cash flows from investing activities:
Expenditures for property and equipment (1,107) (2,308)
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Net cash used for investing activities (1,107) (2,308)
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Cash flows from financing activities:
Borrowings from revolving credit 1,750 --
Payments for capitalized lease (20) (17)
Proceeds from exercise of stock options and
related tax benefits 76 161
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Net cash provided by financing activities 1.806 144
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Net decrease in cash and cash equivalents (9,337) (9,823)
Cash and cash equivalents at beginning of period 10,576 11,333
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Cash and cash equivalents at end of period $ 1,239 $ 1,510
=========== ===========
</TABLE>
5
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BROOKSTONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results of the thirteen week period ending May 3, 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 $ 57,500 for the thirteen week period May 3,
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 month periods ended May 3, 1997 and
May 4, 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
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BROOKSTONE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
THE THIRTEEN WEEK PERIOD ENDED MAY 3, 1997
Results of Operations
- ---------------------
For the thirteen week period ended May 3, 1997, net sales increased
7.7% over the comparable period last year. Comparable store sales for the
thirteen week period increased 2.4%. The sales increase reflects the results of
opening 15 new stores subsequent to the first quarter of Fiscal 1996 and two new
stores during the first quarter of Fiscal 1997. The total Brookstone stores open
at the end of the thirteen week period ended May 3, 1997 was 161 versus 144 at
the end of the comparable period in Fiscal 1996. Mail order sales decreased
16.6% over the comparable period last year. This decrease was driven by
decreased catalog circulation of 10.0% combined with lower response rates.
Gross Profit as a percentage of net sales was 24.7% for the thirteen
week period ended May 3, 1997, versus 26.3% for the comparable period last year.
This decrease is primarily the result of an increase in occupancy costs as a
result of the new stores opened subsequent to the first Fiscal quarter of 1996,
combined with a change in the timing of markdowns related to relieving damaged
products from inventory.
Selling, general and administrative expenses as a percentage of net
sales were 43.2% for the thirteen week period ended May 3, 1997 versus 44.8% for
the comparable period last year. The decrease in the percentage is primarily the
result of reduced costs related to catalog production, a reduction in costs of
shipping to both customers and stores and leveraging store payroll costs.
Net interest expense for the thirteen week period ended May 3, 1997,
was $104,000 compared to $75,000 during the comparable period last year. The
increase for the thirteen week period is related to increased borrowings under
the revolving credit agreement during the first Fiscal quarter of 1997 compared
with the first Fiscal quarter of 1996.
As a result of the foregoing, the Company reported a net loss of
$3,773,000 or $0.48 per share, for the thirteen week period ended May 3, 1997,
as compared to a net loss of $3,506,000 or $0.45 per share for the comparable
period last year.
Financial Condition
- -------------------
For the first three months of Fiscal 1997, net cash used by operating
activities totaled $10.0 million, primarily as a result of the net loss and
payment of income taxes. Cash used for investment activities during the first
three months of Fiscal 1997 amounted to $1.1 million, for the purchase of
property and equipment. Cash from financing activities during the first three
months of Fiscal 1997 amounted to $1.8 million, primarily as a result from
borrowings under the Company's revolving credit agreement.
Merchandise inventories were $34.9 million at May 3, 1997 compared to
inventories of $31.3 million at February 1, 1997. The increase in inventory is
primarily to support the new stores opened or scheduled to open during Fiscal
1997, coupled with the timing of inventory purchases for the upcoming Fathers
Day holiday. Accounts payable were $11.9 million at May 3, 1997 compared to $8.6
million at February 1, 1997.
The capital expenditures were principally related to the remodeling of one
retail store and the opening of two new stores during the first quarter of
Fiscal 1997. The Company anticipates opening approximately 16 new stores and
remodeling approximately 10 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 May 3, 1997, the Company had $1.8 million in
outstanding
7
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borrowings under its revolving credit agreement, and at May 4, 1996, it had no
borrowings. The Company is currently in negotiations to modify and extend the
Revolving Credit Agreement, which expires January 31, 1998.
The Company believes that available borrowings, 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
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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
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None
Item 3: DEFAULT UPON SENIOR SECURITIES
------------------------------
None
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None
Item 5: OTHER INFORMATION
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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.
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/ Philip W. Roizin
---------------------------------
June 12, 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)
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
----------------------------
May 3, 1997 May 4, 1996
----------- -----------
<S> <C> <C>
Net loss $ (3,773) $ (3,506)
=========== ===========
Weighted average number of common shares
outstanding 7,775 7,681
Adjustments to weighted average common
shares outstanding:
Common stock issued upon exercise of options 8 28
----------- -----------
Weighted average number of common shares as
adjusted 7,783 7,709
=========== ===========
Net loss primary and fully diluted earnings
per share $ (0.48) $ (0.45)
=========== ===========
</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> MAY-03-1997
<CASH> 1,239
<SECURITIES> 0
<RECEIVABLES> 3,945
<ALLOWANCES> 227
<INVENTORY> 34,943
<CURRENT-ASSETS> 47,579
<PP&E> 34,651
<DEPRECIATION> 1,632
<TOTAL-ASSETS> 83,182
<CURRENT-LIABILITIES> 21,271
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 50,251
<TOTAL-LIABILITY-AND-EQUITY> 83,182
<SALES> 33,136
<TOTAL-REVENUES> 33,136
<CGS> 24,949
<TOTAL-COSTS> 39,258
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> (6,226)
<INCOME-TAX> (2,453)
<INCOME-CONTINUING> (3,773)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,773)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
