-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RK8T5mrJrHG3X1ufmcwxf5CG3lCyE6zvmQHkFLftFnH+AppiRW1E7CvS/OI2tDgZ R9+zvSC+fw+djI5Z0s6KPw== 0000927016-02-003281.txt : 20020618 0000927016-02-003281.hdr.sgml : 20020618 20020618153736 ACCESSION NUMBER: 0000927016-02-003281 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020504 FILED AS OF DATE: 20020618 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROOKSTONE INC CENTRAL INDEX KEY: 0000830134 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 061182895 STATE OF INCORPORATION: DE FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21406 FILM NUMBER: 02681477 BUSINESS ADDRESS: STREET 1: 17 RIVERSIDE STREET CITY: NASHUA STATE: NH ZIP: 03062 BUSINESS PHONE: 6038809500 MAIL ADDRESS: STREET 1: 17 RIVERSIDE ST CITY: NASHUA STATE: NH ZIP: 03062 10-Q 1 d10q.txt FORM 10-Q 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 May 4, 2002 ----------- 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: 8,481,597 shares of common stock as of June 7, 2002. BROOKSTONE, INC. Index to Form 10-Q Part I: Financial Information Page No. Item 1: Consolidated Balance Sheet as of May 4, 2002, February 2, 2002 and May 5, 2001 3 Consolidated Statement of Operations for the thirteen weeks ended May 4, 2002 and May 5, 2001 4 Consolidated Statement of Cash Flows for the thirteen weeks ended May 4, 2002 and May 5, 2001 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 2 BROOKSTONE, INC. CONSOLIDATED BALANCE SHEET (In thousands, except share data)
(Unaudited) (Unaudited) May 4, 2002 February 2, 2002 May 5, 2001 ------------------- ------------------- -------------------- Assets - ------ Current assets: Cash and cash equivalents $ 14,156 $ 28,928 $ 3,774 Receivables, net 6,222 8,170 4,686 Merchandise inventories 57,646 55,629 64,314 Deferred income taxes, net 7,824 3,447 7,054 Other current assets 5,009 4,933 5,453 ------------------- ------------------- -------------------- Total current assets 90,857 101,107 85,281 Deferred income taxes, net 4,536 4,536 3,662 Property and equipment, net 43,258 45,058 42,160 Intangible assets, net 4,676 4,812 5,222 Other assets 2,720 1,592 2,365 ------------------- ------------------- -------------------- $ 146,047 $ 157,105 $ 138,690 =================== =================== ==================== Liabilities and Shareholders' Equity - ------------------------------------ Current liabilities: Accounts payable $ 10,400 $ 11,232 $ 12,304 Other current liabilities 17,748 22,569 14,562 ------------------- ------------------- -------------------- Total current liabilities 28,148 33,801 26,866 Other long-term liabilities 13,407 13,246 11,896 Long-term obligation under capital lease 2,238 2,273 2,387 Commitments and contingencies Shareholders' equity: Preferred stock, $0.001 par value: Authorized - 2,000,000 shares; issued and outstanding - 0 shares at May 4, 2002, February 2, 2002 and May 5, 2001 Common stock, $0.001 par value: Authorized 50,000,000 shares; issued and outstanding - 8,476,972 shares at May 4, 2002, 8,369,720 shares at February 2, 2002 and 8,355,033 shares at May 5, 2001 8 8 8 Additional paid-in capital 51,654 50,666 50,500 Accumulated other comprehensive income (447) (447) --- Retained earnings 51,086 57,605 47,080 Treasury stock, at cost - 3,616 shares at May 4, 2002, February 2, 2002 and May 5, 2001 (47) (47) (47) ------------------- ------------------- -------------------- Total shareholders' equity 102,254 107,785 97,541 ------------------- ------------------- -------------------- $ 146,047 $ 157,105 $ 138,690 =================== =================== ====================
Note: The accompanying notes are an integral part of these financial statements. 3 BROOKSTONE, INC. CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data) (Unaudited)
Thirteen-weeks Ended ---------------------------------- May 4, 2002 May 5, 2001 --------------- --------------- Net sales $ 56,633 $ 54,997 Cost of sales 43,742 40,841 --------------- --------------- Gross profit 12,891 14,156 Selling, general and administrative expenses 23,098 22,648 --------------- --------------- Loss from operations (10,207) (8,492) Interest expense (income), net 307 (61) --------------- --------------- Loss before taxes (10,514) (8,431) Income tax benefit (3,995) (3,238) --------------- --------------- Net loss $ (6,519) $ (5,193) =============== =============== Basic / diluted loss per share: - ------------------------------ Net loss $ (0.78) $ (0.62) =============== =============== Weighted average shares outstanding basic / diluted 8,407 8,336 =============== ===============
Note: The accompanying notes are an integral part of these financial statements. 4 BROOKSTONE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited)
Thirteen-weeks Ended -------------------------- May 4, 2002 May 5, 2001 ----------- ----------- Cash flows from operating activities: Net loss $ (6,519) $ (5,193) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 3,020 2,551 Amortization of debt issuance costs 59 40 Deferred income taxes, net (4,377) (3,421) Related tax benefits on exercise of stock options 382 183 (Increase) Decrease in other assets (842) 190 Increase in other long-term liabilities 161 141 Changes in working capital: Accounts receivable, net 1,948 2,791 Merchandise inventories (2,017) (9,255) Other current assets 94 (1,423) Accounts payable (832) (1,218) Other current liabilities (4,821) (14,404) ----------- ----------- Net cash used for operating activities (13,744) (29,018) Cash flows from investing activities: Expenditures for property and equipment (1,084) (2,618) ----------- ----------- Net cash used for investing activities (1,084) (2,618) Cash flows from financing activities: Payments for capitalized lease (35) (27) Payments for debt issuance costs (515) --- Proceeds from exercise of stock options 606 40 ----------- ----------- Net cash provided by financing activities 56 13 ----------- ----------- Net decrease in cash and cash equivalents (14,772) (31,623) Cash and cash equivalents at beginning of period 28,928 35,397 ----------- ----------- Cash and cash equivalents at end of period $ 14,156 $ 3,774 =========== ===========
Note: The accompanying notes are an integral part of these financial statements. 5 BROOKSTONE, INC. Notes to Consolidated Financial Statements 1. The results of the thirteen-week period ended May 4, 2002 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 2001 annual report. 3. Recent Accounting Pronouncements: In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment and that intangible assets, other than goodwill, which have determinable useful lives be amortized over that period. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 142 did not have any impact on the Company's consolidated financial statements. In August 2001, the FASB issued Statement of Accounting Standards No. 144 ("SFAS No. 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 modifies the rules for accounting for the impairment or disposal of long-lived assets, excluding goodwill. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 did not have any impact on the Company's consolidated financial statements. In November 2001, Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board issued EITF 01-09, "Accounting for Consideration Given by a Vendor to a Customer." EITF 01-09 addresses the income statement characterization of consideration given by a vendor to a customer and provides guidance on recognizing and measuring sales incentives. The adoption of EITF Issue No. 01-09 did not have any impact on the Company's consolidated financial statements. 4. Total comprehensive income is composed of net income plus minimum pension liability. For the quarter ended May 4, 2002 there was no change in the accumulated other comprehensive income balance of $447 thousand. As of May 5, 2001, there was no minimum pension liability. 5. 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 $382 thousand for the thirteen-week period ended May 4, 2002. 6. Business conducted by the Company is 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 three catalog titles (Hard-to-Find Tools, Brookstone Catalog and 6 Gardeners Eden), the Internet site www.Brookstone.com and direct response corporate sales. 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. The tables below disclose segment net sales and pre-tax loss for the thirteen-week period ended May 4, 2002 and May 5, 2001 (in thousands). Thirteen-weeks: Net Sales Pre-tax Loss ------------------------ ------------------------- May 4, 2002 May 5, 2001 May 4, 2002 May 5, 2001 ----------- ----------- ----------- ----------- Reportable segment: Retail $ 46,313 $ 44,318 $ (9,852) $ (7,226) Direct Marketing 10,320 10,679 (355) (1,266) Reconciling items: Interest expense --- --- (417) (291) Interest income --- --- 110 352 ----------- ----------- ----------- ----------- Consolidated: $ 56,633 $ 54,997 $ (10,514) $ (8,431) =========== =========== =========== =========== 6. Basic and diluted earnings per share (EPS) were calculated for the thirteen-week period ended May 4, 2002 and May 5, 2001 as follows: Thirteen-weeks Ended -------------------------- May 4, 2002 May 5, 2001 ----------- ----------- Net loss $ (6,519) $ (5,193) =========== =========== Weighted average number of common shares outstanding 8,407 8,336 Effect of dilutive securities: Stock options --- --- ----------- ----------- Weighted average number of common shares as adjusted 8,407 8,336 =========== =========== Net loss per share - basic/diluted $ (0.78) $ (0.62) =========== =========== For the thirteen-week period ended May 4, 2002, antidilutive shares of 455,402 were excluded from the computations of diluted earnings per share. For the thirteen-week period ended May 5, 2001, antidilutive shares 533,724 were excluded from the computations of diluted earnings per share. 7 BROOKSTONE, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Thirteen-week Period Ended May 4, 2002 Results of Operations For the thirteen-week period ended May 4, 2002, net sales increased 3.0% over the comparable period last year. The retail sales increase for the thirteen-week period of 4.5% reflected the results of opening 26 new stores subsequent to the first quarter of Fiscal 2001 offset by the closing of three stores. The total number of stores open at the end of the thirteen-week period ended May 4, 2002 was 248 versus 225 at the end of the comparable period in Fiscal 2001. Comparable store sales for the thirteen-week period decreased 3.3% which has continued to improve since the third quarter of last year. Direct marketing sales for the thirteen-week period ended May 4, 2002 decreased approximately 3.4% when compared to the thirteen-week period ended May 5, 2001, primarily as a result of a planned decreased in circulation of 20%. For the thirteen-week period ended May 4, 2002, gross profit as a percentage of net sales was 22.8% versus 25.7% for the comparable period last year. The decrease in the gross profit percentage for the thirteen-week period was principally related to an increase in occupancy costs resulting from the opening of 26 new stores and to a lesser extent a slight increase in order postage expense. Selling, general and administrative expenses as a percentage of net sales for the thirteen-week period ended May 4, 2002 were 40.8% versus 41.2% for the comparable period last year. The thirteen-week decrease in percentage was primarily a result of reduced catalog circulation and good expense control. This decrease was offset by increases in payroll and fringe and benefit costs associated with the opening of the 26 new stores subsequent to the end of first quarter of Fiscal 2001. Net interest expense for the thirteen-week period ended May 4, 2002 was $307 thousand compared to $61 thousand of net interest income during the comparable period last year. The change from net interest income in Fiscal 2001 to net interest expense in Fiscal 2002 resulted primarily from lower interest rates earned on invested cash balances in Fiscal 2002 as compared to the same period in Fiscal 2001. As a result of the foregoing, the Company reported a net loss of $6.5 million, or $0.78 per basic and diluted share, for the thirteen-week period ended May 4, 2002, as compared to a $5.2 million net loss, or $0.62 per basic and diluted share, for the comparable period last year. Financial Condition For the thirteen-week period ended May 4, 2002, net cash used by operating activities totaled $13.7 million, reflecting primarily the net loss, the purchase of inventory and the payment of income taxes which is included in other current liabilities. Cash used for investment activities during the thirteen-week period of Fiscal 2002, representing the purchase of property and equipment amounted to approximately $1.1 million. Cash used for financing activities during the thirteen-week period of Fiscal 2002 amounted to $56 thousand primarily as a result of proceeds from the exercise of stock options offset by payments for debt issuance costs and capitalized lease payments. For the thirteen-week period ended May 5, 2001, net cash used by operating activities totaled $29 million, primarily as a result of the net loss, the purchase of inventory and the payment of income taxes. Cash used for investment activities during the first thirteen-weeks of Fiscal 2001, representing the purchase of property and equipment, amounted to $2.6 million. Cash from financing activities during the thirteen-week period of Fiscal 2001 amounted to $13 thousand, acquired primarily through the exercise of stock options, partially offset by capitalized lease payments. Merchandise inventories were $57.6 million at May 4, 2002 compared to $55.6 at February 2, 2002. This slightly higher inventory level is related to inventory purchases for the second quarter Father's Day selling period. 8 For the thirteen-week period ended May 4, 2002 other assets is $2.7 million compared to $1.6 million at February 2, 2002. This $1.1 million increase is principally the result of costs associated with catalogs to be mailed in the beginning of the second quarter. The Company's capital expenditures for the thirteen-week period ended May 4, 2002 were principally related to the opening of one store and construction related to stores anticipated to open in the upcoming fiscal quarter. The Company anticipates opening approximately 15 new stores, including up to seven airport locations, and to remodel approximately six stores during Fiscal 2002. 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. This revolving credit agreement was scheduled to expire in July 2002. Management finalized negotiations in January 2002 to amend and restate this agreement and signed the Amended and Restated Credit Agreement on February 21, 2002 with a term that expires February 21, 2005 (for further details of the Amended and Restated Credit Agreement, see Note 7 to the Company's Fiscal 2001 annual report). At May 4, 2002 and at May 5, 2001 the Company had no borrowings outstanding 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 2002. 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, the effectiveness of e-commerce technology, the 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. Words such as "estimate", "project", "plan", "believe", "feel", "anticipate", "assume", "may", "will", "should", and similar words and phrases may identify forward looking statements. 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 PART II Other Information Item 1: LEGAL PROCEEDINGS In March, 2002, the Company was served with a lawsuit brought in California superior court in Los Angeles as a class action on behalf of current and former managers and assistant managers of the Company's California stores, alleging that they were improperly classified as exempt employees. The lawsuit seeks damages including overtime pay, restitution and attorneys fees. The Company has filed an answer denying the allegations and opposing class certification. At the present time, no class has been certified, nor has there been any determination regarding exempt classification or the extent to which overtime pay may or may not be owed. The Company is vigorously investigating and defending this litigation, but because the case is in the very early stages, the financial impact to the Company, if any, cannot be predicted at this time. Brookstone is also 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) None 10 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 ----------------------------------------- June 18, 2002 (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 -----END PRIVACY-ENHANCED MESSAGE-----