<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 October 28, 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 .
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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: 8,320,140 shares of common
---------
stock as of December 5, 2000.
<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 October 28, 2000, January 29, 2000 and October 30, 1999 3
Consolidated Statement of Operations for the thirteen
& thirty-nine weeks ended October 28, 2000 and October 30, 1999 4
Consolidated Statement of Cash Flows for the thirty-nine
weeks ended October 28, 2000 and October 30, 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)
October 28, 2000 January 29, 2000 October 30, 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 1,328 $ 31,389 $ 1,242
Receivables, net 9,637 5,425 5,915
Merchandise inventories 81,834 43,639 64,150
Deferred income taxes 8,814 2,561 8,301
Other current assets 5,310 4,572 6,082
--------------- --------------- ---------------
Total current assets 106,923 87,586 85,690
Deferred income taxes 3,806 3,806 2,956
Property and equipment, net 41,047 43,074 43,276
Intangible assets, net 5,496 5,906 6,377
Other assets 3,899 1,534 3,291
--------------- --------------- ---------------
$ 161,171 $ 141,906 $ 141,590
=============== =============== ===============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Short-term borrowings $ 21,400 $ -- $ 25,000
Accounts payable 34,380 15,759 28,245
Other current liabilities 14,321 25,530 11,185
--------------- --------------- ---------------
Total current liabilities 70,101 41,289 64,430
Other long-term liabilities 11,040 10,796 10,492
Long-term obligation under capital lease 2,429 2,511 2,540
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.001 par value: Authorized -
2,000,000 shares; issued and outstanding - 0
shares at October 28, 2000, January 29, 2000
and October 30, 1999
Common stock, $0.001 par value: Authorized
50,000,000 shares; issued and outstanding -
8,319,640 shares at October 28, 2000,
8,296,890 shares at January 29, 2000 and
8,171,213 shares at October 30, 1999 8 8 8
Additional paid-in capital 50,266 50,020 49,251
Retained earnings 27,374 37,329 14,916
Treasury stock, at cost - 3,616 shares at October
28, 2000, January 29, 2000 and October 30,
1999 (47) (47) (47)
--------------- --------------- ---------------
Total shareholders' equity 77,601 87,310 64,128
--------------- --------------- ---------------
$ 161,171 $ 141,906 $ 141,590
=============== =============== ===============
</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 Thirty-nine Weeks Ended
--------------------------------- ---------------------------------
October 28, 2000 October 30, 1999 October 28, 2000 October 30, 1999
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 62,936 $ 53,234 $ 178,814 $ 159,439
Cost of sales 44,174 37,270 123,097 110,148
---------------- --------------- ---------------- ----------------
Gross profit 18,762 15,964 55,717 49,291
Selling, general and
administrative expenses 26,141 22,723 71,473 63,058
---------------- --------------- ---------------- ----------------
Loss from operations (7,379) (6,759) (15,756) (13,767)
Interest expense, net 400 528 405 1,011
---------------- --------------- ---------------- ----------------
Loss before taxes (7,779) (7,287) (16,161) (14,778)
Income tax benefit (2,987) (2,798) (6,206) (5,675)
---------------- --------------- ---------------- ----------------
Net loss $ (4,792) $ (4,489) $ (9,955) $ (9,103)
================ =============== ================ ================
Loss per share - $ (0.58) $ (0.55) $ (1.20) $ (1.12)
basic/diluted
================ =============== ================ ================
Weighted average shares
outstanding - basic/diluted 8,316 8,164 8,306 8,131
================ =============== ================ ================
</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>
Thirty-nine Weeks Ended
-----------------------------------
October 28, 2000 October 30, 1999
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (9,955) $ (9,103)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 7,616 6,672
Amortization of debt issuance costs 119 115
Deferred income taxes (6,253) (5,833)
Increase in other assets (2,484) (828)
Increase in other long-term liabilities 244 530
Changes in working capital:
Accounts receivable, net (4,212) 341
Merchandise inventories (38,195) (24,305)
Other current assets (738) (1,459)
Accounts payable 18,621 17,518
Other current liabilities (11,216) (8,501)
------------ -------------
Net cash used by operating activities (46,453) (24,853)
Cash flows from investing activities:
Expenditures for property and equipment (5,179) (7,535)
Expenditures for Gardeners Eden acquisition -- (9,616)
------------ -------------
Net cash used for investing activities (5,179) (17,151)
Cash flows from financing activities:
Borrowings from Revolving credit 21,400 25,000
Payments for capitalized lease (75) (66)
Proceeds from exercise of stock options and related tax benefits 246 921
------------ -------------
Net cash provided by financing activities 21,571 25,855
------------ -------------
Net decrease in cash and cash equivalents (30,061) (16,149)
Cash and cash equivalents at beginning of period 31,389 17,391
------------ -------------
Cash and cash equivalents at end of period $ 1,328 $ 1,242
============ =============
</TABLE>
Note: The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Notes to Consolidated Financial Statements
1. The results of the thirty-nine week period ended October 28, 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 $47,000 for the
thirty-nine week period ended October 28, 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 loss for the
thirteen and thirty-nine week periods ended October 28, 2000 and October
30, 1999 (in thousands).
<TABLE>
<CAPTION>
Thirteen Weeks: Net Sales Pre-tax Loss
--------------------------------------- ---------------------------------------
October 28, 2000 October 30, 1999 October 28, 2000 October 30, 1999
------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Reportable segment:
Retail $ 51,802 $ 43,235 $ (6,048) $ (6,120)
Direct Marketing 11,134 9,999 (1,331) (639)
Reconciling items:
Interest expense --- --- (454) (538)
Interest income --- --- 54 10
------------------ ------------------ ------------------ ------------------
Consolidated: $ 62,936 $ 53,234 $ (7,779) $ (7,287)
================== ================== ================== ==================
Thirty-nine Weeks: Net Sales Pre-tax Loss
--------------------------------------- ---------------------------------------
October 28, 2000 October 30, 1999 October 28, 2000 October 30, 1999
------------------- ------------------- ------------------- -------------------
Reportable segment:
Retail $ 148,791 $ 134,362 $ (12,752) $ (12,227)
Direct Marketing 30,023 25,077 (3,004) (1,540)
Reconciling items:
Interest expense --- --- (1,023) (1,175)
Interest income --- --- 618 164
------------------ ------------------ ------------------ ------------------
Consolidated: $ 178,814 $ 159,439 $ (16,161) $ (14,778)
================== ================== ================== ==================
</TABLE>
5. Basic and diluted earnings per share (EPS) were calculated for the
thirteen and thirty-nine week periods ended October 28, 2000 and October
30, 1999 as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------------------- ----------------------------------
October 28, 2000 October 30, 1999 October 28, 2000 October 30, 1999
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net loss $ (4,792) $ (4,489) $ (9,955) $ (9,103)
Weighted average number of
common shares outstanding
8,316 8,164 8,306 8,131
Effect of dilutive
securities: --- --- --- ---
Stock options
-------------- ---------------- -------------- ------------
Weighted average number of
common shares as adjusted
8,316 8,164 8,306 8,131
============== ================ ============== ============
Net loss per share -
basic/diluted $ (0.58) $ (0.55) $ (1.20) $ (1.12)
============== =============== ============== ============
</TABLE>
For the thirteen and thirty-nine week periods ended October 28, 2000,
antidilutive shares of 140,009 and 176,903 respectively were excluded from the
computations of diluted earnings per share. For the thirteen and thirty-nine
week periods ended October 30, 1999, antidilutive shares 266,108 and 261,661
respectively were excluded from the computations of diluted earnings per share.
7
<PAGE>
BROOKSTONE, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations for
the Thirteen and Thirty-nine Week Periods Ended October 28, 2000
Results of Operations
---------------------
For the thirteen-week and thirty-nine week periods ended October 28, 2000,
net sales increased 18.2% and 12.2% respectively over the comparable periods
last year. Comparable store sales for the thirteen-week and thirty-nine week
periods increased 12.3% and 3.8% respectively. The retail sales increase for the
thirteen and thirty-nine week periods of 19.9% and 11.0% respectively reflected
the results of opening three new stores subsequent to the third quarter in
Fiscal 1999 and thirteen new stores during Fiscal 2000. The total number of
Brookstone stores open at the end of the thirty-nine week period ended October
28, 2000 was 224 versus 208 at the end of the comparable period in Fiscal 1999.
Direct marketing sales for the thirteen-week period ended October 28, 2000
increased 11.3% when compared to the thirteen-week period ended October 30,
1999, primarily as a result of increased circulation. Direct marketing sales
increased 19.7% over the comparable thirty-nine 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 and to a lesser extent
increased circulation.
For the thirteen-week and thirty-nine week periods ended October 28, 2000,
gross profit as a percentage of net sales was 29.8% and 31.2% respectively
versus 30.0% and 30.9% for the comparable periods last year. The decrease in the
gross profit percentage for the thirteen-week period was primarily attributable
to a reduced material margin rate as a result of increased sales of non-
proprietary product which carry lower margin rates. For the thirty-nine week
period the increase in gross profit percentage is the result of leveraging
occupancy costs.
Selling, general and administrative expenses as a percentage of net sales
for the thirteen and thirty-nine week periods ended October 28, 2000 were 41.5%
and 40.0% respectively versus 42.7% and 39.5% respectively for the comparable
period last year. The thirteen-week decrease in percentage was primarily due to
the leveraging of expenses due to same store sales performance. The thirty-nine
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 thirty-nine week periods ended
October 28, 2000 was $400 thousand and $405 thousand respectively compared to
$528 thousand and $1,011 thousand during the comparable period last year. This
decrease is primarily the result of reduced borrowings under the Company's
Revolving Credit Agreement in Fiscal 2000 versus Fiscal 1999.
As a result of the foregoing, the Company reported a net loss of $4.8
million, or $0.58 per basic and diluted share, for the thirteen-week period
ended October 28, 2000, as compared to a $4.5 million net loss, or $0.55 per
basic and diluted share, for the comparable period last year. For the thirty-
nine week period ended October 28, 2000 the Company reported a net loss of $10.0
million, or $1.20 per basic and diluted share as compared to a $9.1 million net
loss, or $1.12 per basic and diluted share for the comparable period last year.
Financial Condition
-------------------
For the thirty-nine week period ended October 28, 2000, net cash used by
operating activities totaled $46.5 million, primarily as a result of the net
loss, the purchase of inventory 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 first
thirty-nine weeks of Fiscal 2000, representing the purchase of property and
equipment, amounted to $5.2 million. Cash from financing activities during the
thirty-nine week period of Fiscal 2000 amounted to $21.6 million, acquired
primarily through borrowings under the Company's revolving credit agreement and
the exercise of stock options and related tax benefits
For the thirty-nine week period ended October 30, 1999, net cash used by
operating activities totaled $24.9 million, reflecting primarily the net loss,
the purchase of inventory 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 thirty-nine week period
of Fiscal 1999, representing the purchase of property and
8
<PAGE>
equipment and the acquisition of the Gardeners Eden catalog, amounted to $17.2
million. Cash from financing activities during the thirty-nine week period of
Fiscal 1999 amounted to $25.9 million, acquired primarily through borrowings
under the Company's revolving credit agreement and the exercise of stock options
and related tax benefits.
Merchandise inventories were $81.8 million at October 28, 2000 compared to
$43.6 million at January 29, 2000. The increase in inventory was primarily
attributable to inventory purchases to support the fourth quarter holiday
selling season and to support the new stores opened or scheduled to open during
Fiscal 2000. The accounts payable balance was $34.4 million at October 28, 2000
compared to $15.8 million at January 29, 2000. The increase in accounts payable
reflects the increased inventory purchases.
The Company's capital expenditures for the thirty-nine week period ended
October 28, 2000 were principally related to the opening of 13 stores and the
remodeling of four stores. Capital expenditures were also made during the third
quarter of Fiscal 2000 that are related to new store openings and the remodeling
of current stores, which are scheduled for completion during the fourth quarter
of Fiscal 2000. The Company anticipates opening approximately 14 new stores,
including two 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 October 28, 2000, the Company had $21.4
million in outstanding borrowings under its revolving credit agreement. At
October 30, 1999 the Company had $25.0 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
---------------------------------------------------
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
----------
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
-------------------------------------
December 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
