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 April 30, 2005
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)
(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 ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). 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: 20,419,015 shares of common stock as of May 25, 2005.
Index to Form 10-Q
| Page No. | ||||
| Part I: |
||||
| Item 1. |
Consolidated Balance Sheet as of April 30, 2005, January 29, 2005 and May 1, 2004 |
3 | ||
| Consolidated Statement of Operations for the thirteen weeks ended April 30, 2005 and May 1, 2004 |
4 | |||
| Consolidated Statement of Cash Flows for the thirteen weeks ended April 30, 2005 and May 1, 2004 |
5 | |||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | ||
| Item 3. |
15 | |||
| Item 4. |
16 | |||
| Part II: |
||||
| Item 1. |
17 | |||
| Item 2. |
17 | |||
| Item 3. |
17 | |||
| Item 4. |
17 | |||
| Item 5. |
17 | |||
| Item 6. |
17 | |||
| 18 | ||||
| Exhibits |
||
| 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 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) | |
2
FINANCIAL INFORMATION
BROOKSTONE, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
| April 30, 2005 |
January 29, 2005 |
May 1, 2004 |
||||||||||
| Assets |
||||||||||||
| Current assets: |
||||||||||||
| Cash and cash equivalents |
$ | 49,257 | $ | 86,205 | $ | 37,409 | ||||||
| Receivables, net |
9,348 | 9,859 | 7,505 | |||||||||
| Merchandise inventories |
81,162 | 75,585 | 69,978 | |||||||||
| Deferred income taxes, net |
8,314 | 3,917 | 7,778 | |||||||||
| Prepaid expenses |
6,953 | 6,045 | 7,485 | |||||||||
| Total current assets |
155,034 | 181,611 | 130,155 | |||||||||
| Deferred income taxes, net |
5,240 | 5,256 | 4,738 | |||||||||
| Property and equipment, net |
73,214 | 74,019 | 58,058 | |||||||||
| Intangible assets, net |
3,785 | 3,853 | 4,056 | |||||||||
| Other assets |
2,853 | 1,741 | 4,237 | |||||||||
| Total assets |
$ | 240,126 | $ | 266,480 | $ | 201,244 | ||||||
| Liabilities and Shareholders’ Equity |
||||||||||||
| Current liabilities: |
||||||||||||
| Accounts payable |
$ | 13,972 | $ | 17,402 | $ | 15,249 | ||||||
| Other current liabilities |
29,576 | 46,500 | 26,684 | |||||||||
| Total current liabilities |
43,548 | 63,902 | 41,933 | |||||||||
| Long-term debt |
8,534 | 8,760 | 1,975 | |||||||||
| Other long-term liabilities |
22,396 | 22,432 | 15,581 | |||||||||
| Commitments and contingencies |
||||||||||||
| Other party interests in consolidated entities |
1,349 | 1,100 | 1,068 | |||||||||
| Shareholders’ equity: |
||||||||||||
| Preferred stock, $0.001 par value: Authorized - 2,000,000 shares; issued and outstanding - 0 shares at April 30, 2005, January 29, 2005 and May 1, 2004 |
--- | --- | --- | |||||||||
| Common stock, $0.001 par value: |
||||||||||||
| Authorized 50,000,000 shares; issued – 20,399,389 shares at April 30, 2005, 20,373,423 shares at January 29, 2005 and 20,048,982 shares at May 1, 2004; outstanding – 20,391,253 shares at April 30, 2005, 20,365,287 shares at January 29, 2005 and 20,040,846 shares at May 1, 2004 |
20 | 20 | 20 | |||||||||
| Additional paid-in capital |
66,095 | 64,916 | 59,406 | |||||||||
| Unearned stock compensation |
(2,233 | ) | (1,821 | ) | (214 | ) | ||||||
| Accumulated other comprehensive loss |
(1,276 | ) | (1,301 | ) | (991 | ) | ||||||
| Retained earnings |
101,740 | 108,519 | 82,513 | |||||||||
| Treasury stock, at cost - 8,136 shares at April 30, 2005, January 29, 2005 and May 1, 2004 |
(47 | ) | (47 | ) | (47 | ) | ||||||
| Total shareholders’ equity |
164,299 | 170,286 | 140,687 | |||||||||
| Total liabilities and shareholders’ equity |
$ | 240,126 | $ | 266,480 | $ | 201,244 | ||||||
The accompanying notes are an integral part of these financial statements.
3
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Thirteen-weeks Ended |
||||||||
| April 30, 2005 |
May 1, 2004 |
|||||||
| Net sales |
$ | 80,284 | $ | 77,451 | ||||
| Cost of sales |
57,253 | 54,364 | ||||||
| Gross profit |
23,031 | 23,087 | ||||||
| Selling, general and administrative expenses |
33,865 | 30,240 | ||||||
| Loss from operations |
(10,834 | ) | (7,153 | ) | ||||
| Interest (income) expense, net |
(16 | ) | 236 | |||||
| Loss before taxes and other party interests in consolidated entities |
(10,818 | ) | (7,389 | ) | ||||
| Other party interests in consolidated entities |
259 | 162 | ||||||
| Loss before taxes |
(11,077 | ) | (7,551 | ) | ||||
| Income tax benefit |
(4,298 | ) | (2,907 | ) | ||||
| Net loss |
$ | (6,779 | ) | $ | (4,644 | ) | ||
| Basic and diluted loss per share: |
||||||||
| Net loss |
$ | (0.33 | ) | $ | (0.23 | ) | ||
| Weighted average shares outstanding basic and diluted |
20,363 | 20,020 | ||||||
The accompanying notes are an integral part of these financial statements.
4
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
| Thirteen-weeks Ended |
||||||||
| April 30, 2005 |
May 1, 2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (6,779 | ) | $ | (4,644 | ) | ||
| Adjustments to reconcile net loss to net cash used for operating activities: |
||||||||
| Depreciation and amortization |
3,525 | 3,235 | ||||||
| Amortization of debt issuance costs |
46 | 46 | ||||||
| Stock based compensation expense |
512 | 22 | ||||||
| Other party interests in consolidated entities |
259 | 162 | ||||||
| Deferred income taxes, net |
(4,397 | ) | (2,979 | ) | ||||
| Related tax benefits on exercise of stock options |
99 | 72 | ||||||
| Increase in other assets |
(1,158 | ) | (2,427 | ) | ||||
| Increase (decrease) in other long-term liabilities |
5 | (95 | ) | |||||
| Changes in working capital: |
||||||||
| Accounts receivable, net |
501 | 103 | ||||||
| Merchandise inventories |
(5,577 | ) | (3,102 | ) | ||||
| Prepaid expenses |
(908 | ) | (1,268 | ) | ||||
| Accounts payable |
(3,430 | ) | (510 | ) | ||||
| Other current liabilities |
(16,924 | ) | (13,971 | ) | ||||
| Net cash used for operating activities |
(34,226 | ) | (25,356 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Expenditures for property and equipment |
(2,652 | ) | (6,865 | ) | ||||
| Net cash used for investing activities |
(2,652 | ) | (6,865 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Payments on long-term debt |
(226 | ) | (28 | ) | ||||
| Cash distributions to joint venture parties |
— | (193 | ) | |||||
| Proceeds from exercise of stock options |
156 | 113 | ||||||
| Net cash used for financing activities |
(70 | ) | (108 | ) | ||||
| Net decrease in cash and cash equivalents |
(36,948 | ) | (32,329 | ) | ||||
| Cash and cash equivalents at beginning of period |
86,205 | 69,738 | ||||||
| Cash and cash equivalents at end of period |
$ | 49,257 | $ | 37,409 | ||||
The accompanying notes are an integral part of these financial statements.
5
Notes to Consolidated Financial Statements
| 1. | The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of Brookstone, Inc. (“we”, “Brookstone” or the “Company”), these financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position, the results of operations, and the cash flows for the periods reported. Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that the accompanying unaudited consolidated financial statements be read in conjunction with the annual financial statements and notes thereto which may be found in the Company’s Fiscal 2004 annual report on Form 10-K. |
| 2. | The results of the thirteen-week period ended April 30, 2005 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. |
| 3. | Certain amounts in the financial statements of the prior periods have been reclassified for comparative purposes. |
| 4. | Consolidated balance sheet details: |
| April 30, 2005 |
January 29, 2005 |
May 1, 2004 | |||||||
| Other Current Liabilities: |
|||||||||
| Merchandise credits and gift certificates |
$ | 11,698,000 | $ | 11,711,000 | $ | 10,188,000 | |||
| Accrued employee compensation and benefits |
3,808,000 | 9,092,000 | 3,303,000 | ||||||
| Rent payable |
1,232,000 | 1,243,000 | 1,196,000 | ||||||
| Income taxes payable |
5,000 | 11,018,000 | 80,000 | ||||||
| Sales Returns Reserve |
3,171,000 | 3,532,000 | 3,145,000 | ||||||
| Current portion of capital lease and debt |
905,000 | 905,000 | 166,000 | ||||||
| Accrued expenses |
8,757,000 | 8,999,000 | 8,606,000 | ||||||
| $ | 29,576,000 | $ | 46,500,000 | $ | 26,684,000 | ||||