UNITED STATES
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 31, 2004
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 or organization) |
(I.R.S. Employer Identification No.) |
One Innovation Way, Merrimack, NH 03054
(address of principal executive offices, zip code)
603-880-9500
(Registrant’s telephone number, including area code)
17 Riverside Street, Nashua, NH 03062
(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: 20,327,638 shares of common stock as of August 27, 2004.
Index to Form 10-Q
| Page No. | ||||
| Part I: |
Financial Information | |||
| Item 1: |
||||
| Consolidated Balance Sheet as of July 31, 2004, January 31, 2004 and August 2, 2003 | 4 | |||
| Consolidated Statement of Operations for the thirteen & twenty-six weeks ended July 31, 2004 and August 2, 2003 | 5 | |||
| Consolidated Statement of Cash Flows for the twenty-six weeks ended July 31, 2004 and August 2, 2003 | 6 | |||
| Notes to Consolidated Financial Statements | 7 | |||
| Item 2: |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||
| Item 3: |
|
16 | ||
| Item 4: |
|
16 | ||
| Part II: |
Other Information | |||
| Item 1: |
|
17 | ||
| Item 2: |
|
17 | ||
| Item 3: |
|
17 | ||
| Item 4: |
|
17 | ||
| Item 5: |
|
18 | ||
| Item 6: |
|
18 | ||
Exhibits
| 10.40 | Real Estate Loan Agreement between Banknorth, N.A. and Brookstone Company, Inc. (filed herewith) | |
| 10.41 | Real Estate Promissory Note between Banknorth, N.A. and Brookstone Company, Inc. (filed herewith) | |
| 10.42 | Mortgage and Security Agreements between Banknorth, N.A. and Brookstone Company, Inc. (filed herewith) | |
| 10.43 | International Swap Dealers Association, Inc. Master Agreement between Banknorth, N.A. and Brookstone Company, Inc. (filed herewith) | |
| 10.44 | Schedule to the International Swap Dealers Association, Inc. Master Agreement between Banknorth, N.A. and Brookstone Company, Inc. (filed herewith) | |
| 10.45 | Brookstone, Inc. Defined Contribution Supplemental Executive Retirement Plan (filed herewith) | |
2
| 31.1 | Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of The Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
| 31.2 | Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of The The Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
3
Item 1:
BROOKSTONE, INC.
(In thousands, except share data)
| (Unaudited) July 31, 2004 |
January 31, 2004 |
(Unaudited) August 2, 2003 |
||||||||||
| Assets |
||||||||||||
| Current assets: |
||||||||||||
| Cash and cash equivalents |
$ | 30,942 | $ | 69,738 | $ | 29,008 | ||||||
| Receivables, net |
9,520 | 7,476 | 6,478 | |||||||||
| Merchandise inventories |
68,886 | 66,876 | 55,489 | |||||||||
| Deferred income taxes |
9,502 | 4,799 | 9,849 | |||||||||
| Other current assets |
6,998 | 6,217 | 6,024 | |||||||||
| Total current assets |
125,848 | 155,106 | 106,848 | |||||||||
| Deferred income taxes, net |
4,738 | 4,738 | 5,854 | |||||||||
| Property and equipment, net |
64,829 | 53,970 | 45,184 | |||||||||
| Intangible assets, net |
3,988 | 4,123 | 4,258 | |||||||||
| Other assets |
5,377 | 2,390 | 1,937 | |||||||||
| $ | 204,780 | $ | 220,327 | $ | 164,081 | |||||||
| Liabilities and Shareholders’ Equity |
||||||||||||
| Current liabilities: |
||||||||||||
| Accounts payable |
$ | 15,356 | $ | 15,759 | $ | 10,780 | ||||||
| Other current liabilities |
26,603 | 41,827 | 23,647 | |||||||||
| Total current liabilities |
41,959 | 57,586 | 34,427 | |||||||||
| Other long-term liabilities |
17,453 | 15,676 | 14,567 | |||||||||
| Long-term obligation under capital lease |
1,946 | 1,941 | 2,027 | |||||||||
| Commitments and contingencies |
||||||||||||
| Shareholders’ equity: |
||||||||||||
| Preferred stock, $0.001 par value: |
||||||||||||
| Authorized - 2,000,000 shares; issued and outstanding - 0 shares at July 31, 2004, January 31, 2004 and August 2, 2003 |
||||||||||||
| Common stock, $0.001 par value: |
||||||||||||
| Authorized 50,000,000 shares; issued and outstanding – 20,327,188 shares at July 31, 2004, 20,024,288 shares at January 31, 2004 and 19,343,466 shares at August 2, 2003 |
20 | 20 | 19 | |||||||||
| Additional paid-in capital |
64,741 | 59,169 | 53,240 | |||||||||
| Unearned stock compensation |
(2,349 | ) | (184 | ) | — | |||||||
| Accumulated other comprehensive loss |
(991 | ) | (991 | ) | (1,031 | ) | ||||||
| Retained earnings |
82,048 | 87,157 | 60,879 | |||||||||
| Treasury stock, at cost-8,136 shares at July 31, 2004, January 31, 2004 and August 2, 2003 |
(47 | ) | (47 | ) | (47 | ) | ||||||
| Total shareholders’ equity |
143,422 | 145,124 | 113,060 | |||||||||
| $ | 204,780 | $ | 220,327 | $ | 164,081 | |||||||
Note: The accompanying notes are an integral part of these financial statements.
4
BROOKSTONE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Thirteen Weeks Ended |
Twenty-Six Weeks Ended |
|||||||||||||||
| July 31, 2004 |
August 2, 2003 |
July 31, 2004 |
August 2, 2003 |
|||||||||||||
| Net sales |
$ | 98,316 | $ | 80,474 | $ | 175,767 | $ | 141,431 | ||||||||
| Cost of sales |
63,664 | 53,850 | 118,028 | 100,017 | ||||||||||||
| Gross profit |
34,652 | 26,624 | 57,739 | 41,414 | ||||||||||||
| Selling, general and administrative expenses |
35,036 | 30,207 | 65,276 | 55,291 | ||||||||||||
| Loss from operations |
(384 | ) | (3,583 | ) | (7,537 | ) | (13,877 | ) | ||||||||
| Interest expense, net |
209 | 181 | 445 | 311 | ||||||||||||
| Loss before taxes and other party interests in consolidated entities |
(593 | ) | (3,764 | ) | (7,982 | ) | (14,188 | ) | ||||||||
| Income tax benefit |
(228 | ) | (1,449 | ) | (3,073 | ) | (5,462 | ) | ||||||||
| Loss before other party interests in |
(365 | ) | (2,315 | ) | (4,909 | ) | (8,726 | ) | ||||||||
| Other party interests in consolidated entities, |
100 | — | 200 | — | ||||||||||||
| Net Loss |
$ | (465 | ) | $ | (2,315 | ) | $ | (5,109 | ) | $ | (8,726 | ) | ||||
| Basic and diluted loss per share: |
||||||||||||||||
| Net Loss |
$ | (0.02 | ) | $ | (0.12 | ) | $ | (0.25 | ) | $ | (0.45 | ) | ||||
| Weighted average shares outstanding – basic and diluted |
20,203 | 19,323 | 20,118 | 19,267 | ||||||||||||
Note: The accompanying notes are an integral part of these financial statements.
5
BROOKSTONE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
| Twenty-Six Weeks Ended |
||||||||
| July 31, 2004 |
August 2, 2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (5,109 | ) | $ | (8,726 | ) | ||
| Adjustments to reconcile net loss to net cash used for operating activities: |
||||||||
| Depreciation and amortization |
6,581 | 5,929 | ||||||
| Amortization of debt issuance costs |
92 | 120 | ||||||
| Stock Based Compensation expense |
225 | — | ||||||
| Deferred income taxes |
(4,703 | ) | (5,688 | ) | ||||
| Related tax benefits on exercise of stock options |
1,504 | 167 | ||||||
| Increase in other assets |
(3,079 | ) | (23 | ) | ||||
| Increase in other long-term liabilities |
1,777 | 758 | ||||||
| Changes in working capital: |
||||||||
| Accounts receivable, net |
(2,044 | ) | (399 | ) | ||||
| Merchandise inventories |
(2,010 | ) | 3,498 | |||||
| Other current assets |
(781 | ) | (744 | ) | ||||
| Accounts payable |
(403 | ) | 60 | |||||
| Other current liabilities |
(15,162 | ) | (9,550 | ) | ||||
| Net cash used for operating activities |
(23,112 | ) | (14,598 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Expenditures for property and equipment |
(17,305 | ) | (11,238 | ) | ||||
| Net cash used for investing activities |
(17,305 | ) | (11,238 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Payments on capital lease |
(57 | ) | (83 | ) | ||||
| Payment for debt issuance costs |
— | (80 | ) | |||||
| Proceeds from exercise of stock options |
1,678 | 863 | ||||||
| Net cash provided by financing activities |
1,621 | 700 | ||||||
| Net decrease in cash and cash equivalents |
(38,796 | ) | (25,136 | ) | ||||
| Cash and cash equivalents at beginning of period |
69,738 | 54,144 | ||||||