<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 July 29, 2000
-------------
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: 8,319,640 shares of common
stock as of September 8, 2000.
<PAGE>
BROOKSTONE, INC.
Index to Form 10-Q
<TABLE>
<S> <C>
Part I: Financial Information Page No.
--------------------- --------
Item 1:
Consolidated Balance Sheet
as of July 29, 2000, January 29, 2000 and July 31, 1999 3
Consolidated Statement of Operations for the thirteen
& twenty-six weeks ended July 29, 2000 and July 31, 1999 4
Consolidated Statement of Cash Flows for the twenty-six
weeks ended July 29, 2000 and July 31, 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
-----------------
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
</TABLE>
2
<PAGE>
BROOKSTONE, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
July 29, 2000 January 29, 2000 July 31, 1999
------------- ---------------- -------------
<S> <C> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 3,992 $ 31,389 $ 1,773
Receivables, net 5,200 5,425 5,389
Merchandise inventories 46,861 43,639 39,620
Deferred income taxes 5,801 2,561 4,782
Other current assets 4,733 4,572 5,323
------------- ---------------- -------------
Total current assets 66,587 87,586 56,887
Deferred income taxes 3,806 3,806 3,643
Property and equipment, net 40,751 43,074 42,036
Intangible assets, net 5,632 5 ,906 6,506
Other assets 1,106 1,534 842
------------- ---------------- -------------
$ 117,882 $ 141,906 $ 109,914
============= ================ =============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Short-term borrowings $ ----- $ ----- $ 1,840
Accounts payable 9,157 15,759 15,770
Other current liabilities 13,137 25,530 11,183
------------- ---------------- -------------
Total current liabilities 22,294 41,289 28,793
Other long-term liabilities 10,895 10,796 10,193
Long-term obligation under capital lease 2,457 2,511 2,565
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.001 par value:
Authorized - 2,000,000 shares; issued and
outstanding - 0 shares at July 29, 2000,
January 29, 2000 and July 31, 1999
Common stock, $0.001 par value:
Authorized 50,000,000 shares; issued and
outstanding - 8,304,140 shares at July 29,
2000, 8,296,890 shares at January 29, 2000
and 8,133,838 shares at July 31, 1999 8 8 8
Additional paid-in capital 50,109 50,020 48,997
Retained earnings 32,166 37,329 19,405
Treasury stock, at cost-3,616 shares at July
29, 2000, January 29, 2000 and July 31, 1999 (47) (47) (47)
------------- ---------------- -------------
Total shareholders' equity 82,236 87,310 68,363
------------- ---------------- -------------
$ 117,882 $ 141,906 $ 109,914
============= ================ =============
</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 Twenty-six Weeks Ended
--------------------------------- ---------------------------------
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 66,651 $ 64,104 $ 115,878 $ 106,204
Cost of sales 43,582 41,059 78,923 72,878
------------- ------------- ------------- -------------
Gross profit 23,069 23,045 36,955 33,326
Selling, general and 23,748 22,682 45,332 40,334
administrative expenses
------------- ------------- ------------- -------------
Income (loss) from operations (679) 363 (8,377) (7,008)
Interest expense, net 42 348 5 483
------------- ------------- ------------- -------------
Income (loss) before taxes (721) 15 (8,382) (7,491)
Income tax provision (benefit) (277) 6 (3,219) (2,877)
------------- ------------- ------------- -------------
Net income (loss) $ (444) $ 9 $ (5,163) $ (4,614)
------------- ------------- ------------- -------------
Earnings (loss) per share - $ (0.05) $ 0.00 $ (0.62) $ (0.57)
basic/diluted
------------- ------------- ------------- -------------
Weighted average shares 8,304 8,134 8,301 8,115
outstanding - basic
------------- ------------- ------------- -------------
Weighted average shares 8,304 8,413 8,301 8,115
outstanding - diluted
============= ============= ============= =============
</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>
Twenty-Six Weeks Ended
---------------------------------
July 29, 2000 July 31, 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,163) $ (4,614)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 5,029 4,311
Amortization of debt issuance costs 79 75
Deferred income taxes (3,240) (3,001)
Decrease in other assets 349 382
Increase in other long-term liabilities 99 231
Changes in working capital:
Accounts receivable, net 225 867
Merchandise inventories (3,222) 227
Other current assets (161) 579
Accounts payable (6,602) 5,043
Other current liabilities (12,397) (8,498)
------------- -------------
Net cash used by operating activities (25,004) (4,398)
------------- -------------
Cash flows from investing activities:
Expenditures for property and equipment (2,432) (4,064)
Expenditures for Gardeners Eden acquisition --- (9,616)
------------- -------------
Net cash used for investing activities (2,432) (13,680)
------------- -------------
Cash flows from financing activities:
Borrowings from Revolving credit --- 1,840
Payments for capitalized lease (50) (47)
Proceeds from exercise of stock options and related tax
benefits 89 667
------------- -------------
Net cash provided by financing activities 39 2,460
------------- -------------
Net decrease in cash and cash equivalents (27,397) (15,618)
Cash and cash equivalents at beginning of period 31,389 17,391
------------- -------------
Cash and cash equivalents at end of period $ 3,992 $ 1,773
============= =============
</TABLE>
Note: The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BROOKSTONE, INC.
Notes to Consolidated Financial Statements
1. The results of the twenty-six week period ended July 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
of approximately $22,000 for the twenty-six week period ended July 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 or by the
company's vendors. 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.
6
<PAGE>
The tables below disclose segment net sales and pre-tax income/(loss) for
the thirteen and twenty-six week periods ended July 29, 2000 and July 31,
1999 (in thousands).
<TABLE>
<CAPTION>
Thirteen Weeks: Net Sales Pre-tax Income/(Loss)
------------------------------------ ---------------------------------
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
------------------------------------ ---------------------------------
<S> <C> <C> <C> <C>
Reportable segment:
Retail $ 56,401 $ 53,824 $ (487) $ 570
Direct marketing 10,250 10,280 (192) (207)
Reconciling items:
Interest expense --- --- (252) (350)
Interest income --- --- 210 2
------------------------------------ ----------------------------------
Consolidated: $ 66,651 $ 64,104 $ (721) $ 15
==================================== ==================================
Twenty-six Weeks: Net Sales Pre-tax (Loss)
------------------------------------ ----------------------------------
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
------------------------------------ ----------------------------------
Reportable segment:
Retail $ 96,990 $ 91,126 $(6,704) $(6,107)
Direct marketing 18,888 15,078 (1,673) (901)
Reconciling items:
Interest expense --- --- (569) (638)
Interest income --- --- 564 155
------------------------------------ ----------------------------------
Consolidated: $115,878 $106,204 $(8,382) $(7,491)
==================================== ==================================
</TABLE>
5. Basic and diluted earnings per share (EPS) were calculated for the thirteen
and twenty-six week periods ended July 29, 2000 and July 31, 1999 as
follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
--------------------------------------- --------------------------------------
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
---------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
Net income/(loss) $ (444) $ 9 $ (5,163) $ (4,614)
================ =============== ================= ==============
Weighted average number of
common shares outstanding 8,304 8,134 8,301 8,115
Effect of dilutive securities:
Stock options --- 279 --- ---
---------------- --------------- ----------------- --------------
Weighted average number of
common shares as adjusted 8,304 8,413 8,301 8,115
================ =============== ================= ==============
Net loss per share -
basic/diluted $ (0.05) $ 0.00 $ (0.62) $ (0.57)
================ =============== ================= ==============
</TABLE>
For the thirteen and twenty-six week periods ended July 29, 2000, antidilutive
shares of 148,162 and 195,351 respectively were excluded from the computations
of diluted earnings per share. For the thirteen week period ended July 31, 1999,
there were no antidilutive shares excluded from the computation of diluted
earnings per share. For the twenty-six week period ended July 31, 1999,
antidilutive shares of 268,099 were excluded from the computation of diluted
earnings per share.
7
<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 July 29, 2000
Results of Operations
---------------------
For the thirteen-week and twenty-six week periods ended July 29, 2000, net
sales increased 4.0% and 9.1% respectively over the comparable periods last
year. Comparable store sales for the thirteen-week and twenty-six week periods
decreased 1.4% and 0.1% respectively. The retail sales increase for the thirteen
and twenty-six week periods of 4.8% and 6.4% respectively reflected the results
of opening nine new stores subsequent to the second quarter in Fiscal 1999 and
three new stores during the second quarter of Fiscal 2000. The total number of
Brookstone stores open at the end of the twenty-six week period ended July 29,
2000 was 214 versus 202 at the end of the comparable period in Fiscal 1999.
Direct marketing sales for the thirteen week period ended July 29, 2000 remained
essentially flat when compared to the thirteen week period ended July 31, 1999.
Direct marketing sales increased 25.3% over the comparable twenty-six week
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.
For the thirteen-week and twenty-six week periods ended July 29, 2000,
gross profit as a percentage of net sales was 34.6% and 31.9% respectively
versus 35.9% and 31.4% for the comparable periods last year. The decrease in the
gross profit percentage for the thirteen week period was primarily attributable
to a higher occupancy rate due to decreased leveraging of the fixed occupancy
costs. For the twenty-six week period this occupancy increase was offset by a
decrease in the net material costs resulting from lower sourcing costs.
Selling, general and administrative expenses as a percentage of net sales
for the thirteen and twenty-six week periods ended July 29, 2000 were 35.6% and
39.1% respectively versus 35.4% and 38.0% respectively for the comparable period
last year. The thirteen week increase in percentage was primarily due to the de-
leveraging of expenses due to same store sales performance. The twenty-six week
increase in percentage was primarily due to costs associated with the production
and distribution of the Gardeners Eden catalog, in the first quarter of Fiscal
2000, with no comparable costs in the first quarter of Fiscal 1999.
Net interest expense for the thirteen and twenty-six week periods ended
July 29, 2000 was $42 thousand and $5 thousand respectively compared to $348
thousand and $483 thousand during the comparable period last year. This decrease
is primarily the result of no borrowings under the Company's Revolving Credit
Agreement in Fiscal 2000 versus $1.9 million in borrowings outstanding in Fiscal
1999.
As a result of the foregoing, the Company reported a net loss of $444
thousand, or $0.05 per basic/diluted share, for the thirteen-week period ended
July 29, 2000, as compared to a $9 thousand net income, or $0.00 per basic and
diluted share, for the comparable period last year. For the twenty-six week
period ended July 29, 2000 the Company reported a net loss of $5.2 million, or
$0.62 per basic/diluted share as compared to a $4.6 million net loss, or $0.57
per basic/diluted share for the comparable period last year.
Financial Condition
-------------------
For the twenty-six week period ended July 29, 2000, net cash used by
operating activities totaled $25.0 million, primarily as a result of the net
loss, the payment of income taxes and the purchase of inventory. Cash used for
investment activities during the first twenty-six weeks of Fiscal 2000,
representing the purchase of property and equipment, amounted to $2.4 million.
For the twenty-six week period ended July 31, 1999, net cash used by
operating activities totaled $4.4 million, reflecting primarily the net loss and
the payment of income taxes, offset by an increase in the accounts payable
balance due to the timing of expense and merchandise payments. Cash used for
investment activities during the twenty-six week period of Fiscal 1999,
representing the purchase of property and equipment and the acquisition of the
Gardeners Eden catalog, amounted to $13.7 million. Cash from financing
activities during the twenty-six week period of Fiscal 1999 amounted to $2.5
million, acquired primarily through borrowings under the Company's revolving
credit agreement and the exercise of stock options and related tax benefits.
8
<PAGE>
Merchandise inventories were $46.9 million at July 29, 2000 compared to
$43.6 million at January 29, 2000. The increase in inventory was primarily to
support the new stores opened or scheduled to open during Fiscal 2000. The
accounts payable balance was $9.2 million at July 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 second quarter of Fiscal 2000
were principally related to the opening of three stores and the remodeling of
one store, which were completed during the second quarter. Capital expenditures
were also made during the second quarter of Fiscal 2000 that are related to new
store openings and the remodeling of current stores which are scheduled for
completion during the third and fourth quarters of Fiscal 2000. The Company
anticipates opening approximately 18 new stores, including as many as five
airport locations, and expects to remodel approximately six stores during Fiscal
2000.
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 July 29, 2000, the Company had no outstanding
borrowings under its revolving credit agreement. At July 31, 1999 the Company
had $1.8 million in 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
---------------------------------------------------
A) The 2000 Annual Meeting of Stockholders of the Company was held
on June 13, 2000.
B) The following persons were elected Directors at the 2000 Annual
Meeting for a one-year term expiring at the 2001 Annual Meeting of Stockholders.
For Withheld
--- --------
Michael F. Anthony 6,913,909 30,838
Mone Anathan III 6,913,935 30,812
Adam Kirsch 6,694,042 250,705
Michael L. Glazer 6,132,198 812,549
Robert F. White 6,914,335 30,412
C) The Company's 2000 Employee Stock Purchase Plan was approved and
adopted.
For Against Abstain
--- ------- -------
6,861,689 42,281 40,777
D) The appointment of PricewaterhouseCoopers LLP as the independent
accountants to examine the financial statements of the Company
and its subsidiaries for the fiscal year ending February 3, 2001
was ratified.
For Against Abstain
--- ------- -------
6,928,935 1,879 13,933
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
----------
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 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
