<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 April 29, 2000
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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
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Brookstone, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 06-1182895
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(State or other jurisdiction of incorporation (I.R.S. Employer
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: 8,304,140 shares of common
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stock as of June 9, 2000.
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BROOKSTONE, INC.
Index to Form 10-Q
Part I: Financial Information Page No.
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Item 1:
Consolidated Balance Sheet
as of April 29, 2000, January 29, 2000 and May 1, 1999 3
Consolidated Statement of Operations for the thirteen weeks
ended April 29, 2000 and May 1, 1999 4
Consolidated Statement of Cash Flows for the thirteen
weeks ended April 29, 2000 and May 1, 1999 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II: Other Information
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Item 1:
Legal Proceedings 10
Item 2:
Change in Securities 10
Item 3:
Defaults by the Company upon its Senior Securities 10
Item 4:
Submission of Matters to a Vote of Security Holders 10
Item 5:
Other Information 10
Item 6:
Exhibits and Reports on Form 8-K 10
Signatures 11
2
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BROOKSTONE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
April 29, 2000 January 29, 2000 May 1, 1999
-------------- ---------------- -----------
<S> <C> <C> <C>
Assets
-------
Current assets:
Cash and cash equivalents $ 1,600 $ 31,389 $ 1,808
Receivables, net 4,915 5,425 6,051
Merchandise inventories 52,089 43,639 43,443
Deferred income taxes 5,524 2,561 4,787
Other current assets 4,741 4,572 4,066
--------- --------- ---------
Total current assets 68,869 87,586 60,155
Deferred income taxes 3,806 3,806 3,643
Property and equipment, net 41,265 43,074 40,714
Intangible assets, net 5,769 5 ,906 --
Other assets 1,393 1,534 1,468
--------- --------- ---------
$ 121,102 $ 141,906 $ 105,980
========= ========= =========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable 12,543 15,759 14,667
Other current liabilities 12,555 25,530 10,303
--------- --------- ---------
Total current liabilities 25,098 41,289 24,970
Other long-term liabilities 10,902 10,796 10,068
Long-term obligation under capital lease 2,484 2,511 2,589
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.001 par value:
Authorized - 2,000,000 shares; issued and
outstanding - 0 shares at April 29, 2000,
January 29, 2000 and May 1, 1999
Common stock, $0.001 par value:
Authorized 50,000,000 shares; issued and
outstanding - 8,304,140 shares at April 29,
2000, 8,296,890 shares at January 29, 2000
and 8,133,838 shares at May 1, 1999 8 8 8
Additional paid-in capital 50,048 50,020 48,997
Retained earnings 32,609 37,329 19,395
Treasury stock, at cost - 3,616 shares at
April 29, 2000, January 29, 2000 and
May 1, 1999 (47) (47) (47)
--------- --------- ---------
Total shareholders' equity 82,618 87,310 68,353
--------- --------- ---------
$ 121,102 $ 141,906 $ 105,980
========= ========= =========
</TABLE>
Note: The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BROOKSTONE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
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April 29,2000 May 1, 1999
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<S> <C> <C>
Net sales $ 49,228 $ 42,100
Cost of sales 35,341 31,819
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Gross profit 13,887 10,281
Selling, general and administrative
expenses 21,585 17,652
Loss from operations (7,698) (7,371)
Interest (income)/loss, net (37) 135
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Loss before taxes (7,661) (7,506)
Income tax benefit (2,942) (2,882)
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Net loss $ (4,719) $ (4,624)
======== ========
Net loss per share - basic/diluted $ (0.57) $ (0.57)
Weighted average shares
outstanding - basic/diluted 8,299 8,095
-------- --------
</TABLE>
Note: The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BROOKSTONE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
---------------------------------
April 29, 2000 May 1, 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,719) $ (4,624)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 2,510 2,012
Amortization of debt issuance costs 36 36
Deferred income taxes (2,963) (3,006)
(Increase) decrease in other assets 105 (205)
Increase in other long-term liabilities 106 106
Changes in working capital:
Accounts receivable, net 510 205
Merchandise inventories (8,450) (5,999)
Other current assets (169) 557
Accounts payable (3,216) 3,940
Other current liabilities (12,975) (8,647)
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Net cash used by operating activities (29,225) (15,625)
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Cash flows from investing activities:
Expenditures for property and equipment (564) (602)
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Net cash used for investing activities (564) (602)
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Cash flows from financing activities:
Payments for capitalized lease (27) (23)
Proceeds from exercise of stock options and related tax
benefits 27 667
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Net cash provided by financing activities -- 644
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Net decrease in cash and cash equivalents (29,789) (15,583)
Cash and cash equivalents at beginning of period 31,389 17,391
-------- --------
Cash and cash equivalents at end of period $ 1,600 $ 1,808
======== ========
</TABLE>
Note: The accompanying notes are an integral part of these financial statements.
5
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BROOKSTONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results of the thirteen-week period ended April 29, 2000 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 winter holiday selling season, has produced a
disproportionate amount of the Company's net sales and substantially 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. In the opinion of the Company, these
financial statements 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
Fiscal 1999 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 $22,000 for the thirteen-week period ended
April 29, 2000.
4. Business conducted by the Company can be segmented into two distinct areas
determined by the method of distribution channel. The retail segment is
comprised of all full-year stores in addition to all temporary stores and
kiosks. Retail product distribution is conducted directly through the store
location. The direct marketing segment is comprised of the Hard-to-Find
Tools, Brookstone Gift Collection and Gardeners Eden catalogs and the
interactive Internet site www.Brookstone.com. Direct marketing product
distribution is conducted through the Company's direct marketing call
center and distribution facility located in Mexico, Missouri. Both segments
of the Company sell similar products, although not all Company products are
fully available within both segments.
All costs directly attributable to the direct marketing segment are charged
accordingly while all remaining operating costs are charged to the retail
segment. The Company's management does not review assets by segment.
The table below discloses segment net sales and pre-tax loss for the
thirteen weeks ended April 29, 2000 and May 1, 1999 (in thousands).
<TABLE>
<CAPTION>
Net Sales Pre-tax Loss
-------------------------------- ----------------------------------
April 29, 2000 May 1, 1999 April 29, 2000 May 1, 1999
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Reportable segment:
Retail $40,589 $37,302 $(6,217) $(6,677)
Direct marketing 8,639 4,798 (1,481) (694)
Reconciling items:
Interest expense -- -- (317) (288)
Interest income -- -- 354 153
-------------------------------- ----------------------------------
Consolidated: $49,228 $42,100 $(7,661) $(7,506)
================================ ==================================
</TABLE>
6
<PAGE>
5. Basic and diluted earnings per share (EPS) were calculated for the thirteen
weeks ended April 29, 2000 as follows:
Thirteen Weeks Ended
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April 29, 2000 May 1, 1999
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Net loss $(4,719) $(4,624)
======= =======
Weighted average number of common shares
outstanding
8,299 8,095
Effect of dilutive securities:
Stock options -- --
------- -------
Weighted average number of common shares
as adjusted 8,299 8,095
======= =======
Net loss per share - basic/diluted
$ (0.57) $ (0.57)
======= =======
For the thirteen week period ended April 29, 2000, antidilutive shares of
242,539 were excluded from the computations of diluted earnings per share. For
the thirteen week period ended May 1, 1999, antidilutive shares of 257,214 were
excluded from the computation of diluted earnings per share.
7
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BROOKSTONE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
THE THIRTEEN-WEEK PERIOD ENDED APRIL 29, 2000
Results of Operations
---------------------
For the thirteen-week period ended April 29, 2000, net sales increased
16.9% over the comparable period last year. Comparable store sales for the
thirteen-week period increased 1.8%. The retail sales increase reflected the
results of opening 13 new stores subsequent to the first quarter of Fiscal 1999
and an increase in same store sales. The total number of Brookstone stores open
at the end of the thirteen-week period ended April 29, 2000 was 211 versus 198
at the end of the comparable period in Fiscal 1999. Direct marketing sales
increased 80% over the comparable period last year. This increase was primarily
the result of revenue from the Gardeners Eden catalog, which was acquired, in
the second fiscal quarter of 1999.
Gross profit as a percentage of net sales was 28.2% for the thirteen-week
period ended April 29, 2000, versus 24.4% for the comparable period last year.
The increase in the percentage was primarily attributable to a decrease in net
material costs resulting from lower sourcing costs, combined with a decrease in
the occupancy percentage resulting from the increase in direct marketing sales,
primarily from Gardeners Eden, which bear no associated occupancy costs.
Selling, general and administrative expenses as a percentage of net sales
were 43.8% for the thirteen-week period ended April 29, 2000 versus 41.9% for
the comparable period last year. This increase in percentage was primarily due
to the cost associated with the production and distribution of the Gardeners
Eden catalog, which had no similar costs in the first quarter of last year.
Net interest income for the thirteen-week period ended April 29, 2000 was
$37 thousand compared to $135 thousand net interest expense during the
comparable period last year. This decrease is primarily the result of increased
investment income as a result of higher average investments as compared with
last fiscal year.
As a result of the foregoing, the Company reported a net loss of $4.7
million, or $0.57 per basic/diluted share, for the thirteen-week period ended
April 29, 2000, as compared to a net loss of $4.6 million, or $0.57 per
basic/diluted share, for the comparable period last year.
Financial Condition
-------------------
For the first quarter of Fiscal 2000, net cash used by operating activities
totaled $29.2 million, primarily as a result of the net loss, purchase of
inventory and payment of income taxes. Cash used for investment activities
during the first quarter of Fiscal 2000, representing the purchase of property
and equipment, amounted to $0.6 million.
For the first quarter of Fiscal 1999, net cash used by operating activities
totaled $15.6 million, primarily as a result of the net loss, purchase of
inventory and payment of income taxes. Cash used for investment activities
during the first quarter of Fiscal 1999, representing the purchase of property
and equipment, amounted to $0.6 million. Cash from financing activities during
the first quarter of Fiscal 1999 amounted to $0.6 million, acquired primarily
through proceeds from the exercise of stock options and related tax benefits.
Merchandise inventories were $52.1 million at April 29, 2000 compared to
$43.6 million at January 29, 2000. The increase in inventory reflects the
timing of inventory purchases for the upcoming Father's Day holiday. The
accounts payable balance was $12.5 million at April 29, 2000 compared to $15.8
million at January 29, 2000. The decrease in accounts payable reflects the
continued transition from domestic to foreign merchandise vendors and the timing
of payments.
The Company's capital expenditures in the first quarter of Fiscal 2000 were
principally related to the opening of and the remodeling of stores, which will
be completed during the second quarter of Fiscal 2000. The Company anticipates
opening approximately 18 to 20 new stores, including as many as five airport
locations, and expects to remodel approximately seven stores during Fiscal 2000.
8
<PAGE>
The Company maintains a revolving credit agreement to finance inventory
purchases, which historically peak in the third quarter in anticipation of the
winter holiday selling season. At April 29, 2000, the Company had no
outstanding borrowings under its revolving credit agreement. At May 1, 1999 the
Company had no outstanding borrowings under its revolving credit agreement.
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 throughout
Fiscal 2000.
Outlook: Important Factors and Uncertainties
--------------------------------------------
Statements in this quarterly report which are not historical facts,
including statements about the Company's confidence or expectations, plans for
opening new stores, capital needs and liquidity and other statements about the
Company's operational outlook, are forward-looking statements subject to risks
and uncertainties that could cause actual results to differ materially from
those set forth in such forward-looking statements. Such risks and
uncertainties include, without limitation, risks of changing market conditions
in the overall economy and the retail industry, consumer demand, the
availability of appropriate real estate locations and the ability to negotiate
favorable lease terms in respect thereof, customer response to the Company's
direct marketing initiatives, availability of products, availability of adequate
transportation of such products and other factors detailed from time to time in
the Company's annual and other reports filed with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date thereof. The Company
undertakes no obligations to publicly release any revisions to these forward-
looking statements or reflect events or circumstances after the date hereof.
9
<PAGE>
PART II
Other Information
Item 1: LEGAL PROCEEDINGS
-----------------
Brookstone is involved in various routine legal proceedings incidental
to the conduct of its business. The Company does not believe that any
of these legal proceedings will have a material adverse effect on
Brookstone'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) 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
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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, 2000 (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
