10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 30, 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 03054

(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: 20,347,740 shares of common stock as of November 30, 2004.

BROOKSTONE, INC.

Index to Form 10-Q/A

		Page No.
Explanatory note		3
Part I: Financial Information
Item 1:
	Consolidated Balance Sheet as of October 30, 2004, January 31, 2004 and November 1, 2003	4
	Consolidated Statement of Operations for the thirteen & thirty-nine weeks ended October 30, 2004 and November 1, 2003	5
	Consolidated Statement of Cash Flows for the thirty-nine weeks ended October 30, 2004 and November 1, 2003	6
	Notes to Consolidated Financial Statements	7

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

Explanatory Note

This amendment to our quarterly report on Form 10-Q for the quarterly period ended October 30, 2004 is filed to correct for mechanical and transposition errors and other items contained in our prior filing as follows:

1) the amount disclosed in the Consolidated Balance Sheet for Other current liabilities for the period ended November 1, 2003, was changed from $25,767 to $25,787 (both amounts in thousands);

2) the amount disclosed as the Increase in other long-term liabilities in the Consolidated Statement of Cash Flows for the fiscal period ended October 30, 2004 was changed from $1,190 to $2,546 (both amounts in thousands);

3) brackets were inserted to indicate a decrease in working capital as a result of Other current liabilities in the Statement of Cash Flows for both fiscal periods ended October 30, 2004 and November 1, 2003.

4) inclusion in Note 4 of January 31, 2004 other current liabilities detail and other long-term liabilities detail;

5) The Company’s Consolidated Balance Sheet disclosure was expanded to include a non-current asset line item for “Intangible assets, net” and reporting those balances of $3,920, $4,123 and $4,191 (in thousands) for the fiscal periods ended October 30, 2004, January 31, 2004 and November 1, 2003, respectively. The amounts disclosed for Other assets were reduced to $10,263, $2,390 and $7,610 (in thousands) for the fiscal periods ended October 30, 2004, January 31, 2004 and November 1, 2003, respectively, to reflect the break out of net intangible assets.

All totals and subtotals on the Company’s Consolidated Balance Sheet and Consolidated Statement of Cash Flows were unaffected by the changes noted above. This amendment includes Item 1. No other items were impacted.

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PART I

Item 1:

BROOKSTONE, INC.

CONSOLIDATED BALANCE SHEET

(In thousands, except share data)

(Unaudited)

	October 30, 2004			January 31, 2004			November 1, 2003
Assets
Current assets:
Cash and cash equivalents	$	3,700		$	69,738		$	1,544
Receivables, net		8,002			7,476			7,044
Merchandise inventories		98,845			66,876			84,771
Deferred income taxes		13,027			4,799			15,258
Other current assets		7,389			6,217			6,548
Total current assets		130,963			155,106			115,165
Deferred income taxes, net		4,731			4,738			5,091
Property and equipment, net		74,796			53,970			50,300
Intangible assets, net		3,920			4,123			4,191
Other assets		10,263			2,390			7,610
	$	224,673		$	220,327		$	182,357
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	31,092		$	15,759		$	27,001
Other current liabilities		28,767			41,417			25,787
Total current liabilities		59,859			57,176			52,788
Other long-term liabilities		17,544			15,676			14,934
Long-term debt		8,986			1,941			1,985
Commitments and contingencies
Other party interests in consolidated entities		1,088			410			350
Shareholders’ equity:
Preferred stock, $0.001 par value:
Authorized - 2,000,000 shares; issued and outstanding - 0 shares at October 30, 2004, January 31, 2004 and November 1, 2003
Common stock, $0.001 par value:
Authorized 50,000,000 shares; issued – 20,354,939 shares at October 30, 2004, 20,032,424 shares at January 31, 2004 and 19,965,281 shares at November 1, 2003; outstanding – 20,346,803 shares at October 30, 2004, 20,024,288 shares at January 31, 2004 and 19,957,145 shares at November 1, 2003		20			20			20
Additional paid-in capital		65,187			59,169			58,344
Unearned stock compensation		(2,291	)		(184	)		—
Accumulated other comprehensive loss		(1,042	)		(991	)		(1,031	)
Retained earnings		75,369			87,157			55,014
Treasury stock, at cost-8,136 shares at October 30, 2004, January 31, 2004 and November 1, 2003		(47	)		(47	)		(47	)
Total shareholders’ equity		137,196			145,124			112,300
	$	224,673		$	220,327		$	182,357

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						Thirty-Nine Weeks Ended
	October 30, 2004			November 1, 2003			October 30, 2004			November 1, 2003
Net sales	$	85,355		$	73,657		$	261,122		$	215,088
Cost of sales		58,927			51,993			176,955			152,010
Gross profit		26,428			21,664			84,167			63,078
Selling, general and administrative expenses		36,113			30,903			101,389			86,194
Loss from operations		(9,685	)		(9,239	)		(17,222	)		(23,116	)
Interest expense, net		315			298			760			609
Loss before taxes and other party interests in consolidated entities		(10,000	)		(9,537	)		(17,982	)		(23,725	)
Income tax benefit		(3,464	)		(3,672	)		(6,537	)		(9,134	)
Loss before other party interests in consolidated entities		(6,536	)		(5,865	)		(11,445	)		(14,591	)
Other party interests in consolidated entities, net of tax		143			—			343			—
Net loss	$	(6,679	)	$	(5,865	)	$	(11,788	)	$	(14,591	)
Basic and diluted loss per share:
Net loss	$	(0.33	)	$	(0.30	)	$	(0.58	)	$	(0.75	)
Weighted average shares outstanding – basic and diluted		20,341			19,737			20,183			19,424

The accompanying notes are an integral part of these financial statements.

5

BROOKSTONE, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

	Thirty-Nine Weeks Ended
	October 30, 2004			November 1, 2003
Cash flows from operating activities:
Net loss	$	(11,788	)	$	(14,591	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		10,164			8,990
Amortization of debt issuance costs		139			166
Stock based compensation expense		544			—
Deferred income taxes		(8,221	)		(10,334	)
Related tax benefits on exercise of stock options		1,560			1,879
Increase in other assets		(8,012	)		(5,761	)
Increase in other long-term liabilities		2,546			1,120
Changes in working capital:
Accounts receivable, net		(526	)		(965	)
Merchandise inventories		(31,969	)		(25,784	)
Other current assets		(1,172	)		(1,227	)
Accounts payable		15,333			16,281
Other current liabilities		(13,388	)		(7,055	)
Net cash used for operating activities		(44,790	)		(37,281	)
Cash flows from investing activities:
Expenditures for property and equipment		(30,787	)		(19,348	)
Net cash used for investing activities		(30,787	)		(19,348	)
Cash flows from financing activities:
Proceeds from loan		8,000			—
Payments on long-term debt		(216	)		(125	)
Payment for debt issuance costs		—			(102	)
Proceeds from exercise of stock options		1,755			4,256
Net cash provided by financing activities		9,539			4,029
Net decrease in cash and cash equivalents		(66,038	)		(52,600	)
Cash and cash equivalents at beginning of period		69,738			54,144
Cash and cash equivalents at end of period	$	3,700		$	1,544

The accompanying notes are an integral part of these financial statements.

6

BROOKSTONE, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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 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 2003 annual report on Form 10-K.

2. The results of the thirteen-week and thirty-nine week periods ended October 30, 2004 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:

	October 30, 2004		January 31, 2004		November 1, 2003
Other Current Liabilities:
Merchandise credits and gift certificates	$	10,532,000	$	10,238,000	$	9,235,000
Accrued employee compensation and benefits		3,495,000		9,687,000		3,093,000
Rent payable		1,102,000		1,185,000		1,028,000
Income taxes payable		—		9,125,000		—
Sales Returns Reserve		3,353,000		2,916,000		3,027,000
Accrued expenses		10,285,000		8,266,000		9,404,000
	$	28,767,000	$	41,417,000	$	25,787,000
Other Long-term Liabilities:
Straight-line rent liability	$	7,576,000	$	7,104,000	$	7,282,000
Employee benefit obligations		3,905,000		3,825,000		3,989,000
Other long term liabilities		6,063,000		4,747,000		3,663,000
	$	17,544,000	$	15,676,000	$	14,934,000

5. Accumulated other comprehensive loss consists of the Company’s minimum pension liability and its unrealized loss on cash flow hedge related to the Company’s debt which is disclosed in the accompanying consolidated balance sheets. Total comprehensive loss for the thirteen and thirty-nine week periods is presented below (in thousands):

	Thirteen-weeks						Thirty-nine weeks
	October 30, 2004			November 1, 2003			October 30, 2004			November 1, 2003
Net loss	$	(6,679	)	$	(5,865	)	$	(11,788	)	$	(14,591	)
Other comprehensive loss:
Unrealized loss on cash flow hedge, net of tax of $33		(51	)		—			(51	)		—
Total comprehensive loss	$	(6,730	)	$	(5,865	)	$	(11,839	)	$	(14,591	)

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6. Stock-Based Compensation

The Company has stock option plans in effect that provide for the issuance of non-qualified and incentive stock options. Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation”, as amended by Statement of Financial Accounting Standards No. 148 (“SFAS 148”), permits the Company to follow the measurement provisions of APB Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees”. Stock Options have historically been granted at or above the market price on the date of the grant. The Company has also issued restricted and deferred stock awards under its stock option plans. During Fiscal 2004, 18,000 options were issued under the provisions of the 1996 Directors’ Stock Option Plan, the Board of Directors approved the award of 65,000 options issued under the 1999 Equity Incentive Plan, 1,000 shares of restricted stock under the 1999 Equity Incentive Plan, and 136,274 shares of deferred stock under the 2004 Equity Incentive Plan. Restricted and deferred stock awards are issued at no cost to the recipient of the award. The market value in excess of cost is charged to income ratably over the period during which these awards vest. The unearned compensation related to these awards is included as a component of shareholders equity. The restricted shares issued in the second quarter of Fiscal 2004 vest ratably over a four-year period as the restrictions lapse commencing May 1, 2005. The deferred shares issued in the second quarter of Fiscal 2004 are subject to the satisfaction of certain performance criteria and vest following the first fiscal quarter of 2007. Had compensation cost for the Company’s stock-based incentive compensation plans been determined based on the fair value at the grant dates of awards under those plans, consistent with the methodology prescribed by SFAS No. 123, as amended by SFAS No. 148, the Company’s net loss and related loss per share for the thirteen-week and thirty-nine week periods ended October 30, 2004 and November 1, 2003 would have been increased to the pro forma amounts indicated below:

	Thirteen-weeks						Thirty-nine weeks
	October 30, 2004			November 1, 2003			October 30, 2004			November 1, 2003
Net loss - as reported	$	(6,679	)	$	(5,865	)	$	(11,788	)	$	(14,591	)
Deduct: Stock-based employee compensation expense determined under fair value based method, net of related tax effects		(327	)		(200	)		(685	)		(575	)
Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects		209			3			347			3
Net loss - pro forma	$	(6,797	)	$	(6,062	)	$	(12,126	)	$	(15,163	)
Net loss per share – basic and diluted
As reported	$	(0.33	)	$	(0.30	)	$	(0.58	)	$	(0.75	)
Pro forma	$	(0.33	)	$	(0.31	)	$	(0.60	)	$	(0.78	)

7. The exercise of stock options 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 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. Such exercises resulted in a tax benefit of approximately $1.6 million and $1.9 million for the thirty-nine week periods ended October 30, 2004 and November 1, 2003, respectively, which is reflected in the Company’s operating cash flow.

8. In March of 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 sought damages including overtime pay, restitution and attorneys fees. On August 15, 2003, a

8

settlement agreement was finalized with a maximum amount of $1.5 million for this matter. As a result of this settlement and settlement of other ongoing routine legal matters, a charge of $1.1 million was recorded during the second quarter of 2003. On April 16, 2004 and April 29, 2004, the Los Angeles Superior Court (“Court”) held hearings to determine whether the Class Action Settlement and Release Agreement (“Agreement”) negotiated between Brookstone and various named Plaintiffs should be granted final approval. On April 29, 2004, the Court ruled that the Agreement was fair, reasonable, and adequate to the class members, certified a class for settlement purposes only, and overruled the one objection to the Agreement filed by one class member. On May 5, 2004, the Court: (1) entered an order granting final approval to the Agreement; and (2) entered judgment dismissing the wage and hour class actions filed in Los Angeles County (Berry, et al. v. Brookstone) and Santa Barbara (Charbonnea v. Brookstone) against Brookstone with prejudice as to all class members, with the exception of the four class members who opted out of the Agreement. On July 6, 2004, one class member appealed the final order of the Court. Settlement funds will be distributed on terms ordered by the Court after the appeal is resolved.

9. 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 Gardeners Eden), the Internet sites www.Brookstone.com and www.Gardenerseden.com and sales to corporate customers. Direct marketing product distribution is conducted through the Company’s direct marketing customer sales and contact center, through its distribution facility located in Mexico, Missouri and 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 so charged while all remaining operating costs are charged to the retail segment. The Company’s management does not review assets by segment nor are assets by segment available.

The tables below disclose segment net sales and pre-tax loss for the thirteen-week and thirty-nine week periods ended October 30, 2004 and November 1, 2003 (in thousands).

	Net Sales				Income (Loss) before taxes and other party interests in consolidated entities
	October 30, 2004		November 1, 2003		October 30, 2004			November 1, 2003
Thirteen-weeks:
Reportable segment:
Retail	$	69,542	$	60,247	$	(10,756	)	$	(9,526	)
Direct Marketing		15,813		13,410		1,071			287
Reconciling items:
Interest expense		—		—		(422	)		(379	)
Interest income		—		—		107			81
Consolidated:	$	85,355	$	73,657	$	(10,000	)	$	(9,537	)
	Net Sales				Income (Loss) before taxes and other party interests in consolidated entities
	October 30, 2004		November 1, 2003		October 30, 2004			November 1, 2003
Thirty-nine weeks:
Reportable segment:
Retail	$	217,193	$	177,551	$	(18,071	)	$	(23,121	)
Direct Marketing		43,929		37,537		849			5
Reconciling items:
Interest expense		—		—		(1,140	)		(1,085	)
Interest income		—		—		380			476
Consolidated:	$	261,122	$	215,088	$	(17,982	)	$	(23,725	)

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10. In the first quarter of Fiscal 2004, the Board of Directors approved a 3-for-2 stock split in the form of a 50 percent stock dividend which was paid on April 26, 2004 to shareholders of record as of April 19, 2004. All common shares and per share amounts in these financial statements reflect the stock split.

Basic and diluted earnings per share (EPS) were calculated for the thirteen-week and thirty-nine week periods ended October 30, 2004 and November 1, 2003 as follows:

	Thirteen-Weeks Ended						Thirty-Nine Weeks Ended
	October 30, 2004			November 1, 2003			October 30, 2004			November 1, 2003
Net loss	$	(6,679	)	$	(5,865	)	$	(11,788	)	$	(14,591	)
Weighted average number of common shares outstanding		20,341			19,737			20,183			19,424
Effect of dilutive securities:
Stock options		—			—			—			—
Weighted average number of common shares as adjusted		20,341			19,737			20,183			19,424
Net loss per share – basic and diluted	$	(0.33	)	$	(0.30	)	$	(0.58	)	$	(0.75	)

For the thirteen-week and thirty-nine week periods ended October 30, 2004, antidilutive shares of 704,493 and 744,265 were excluded from the computations of diluted earnings per share. For the thirteen-week and thirty-nine week periods ended November 1, 2003, antidilutive shares of 739,517 and 571,304 respectively were excluded from the computations of diluted earnings per share.

11. Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities”. In December 2003, the FASB revised this interpretation (“FIN46R”). Interpretation No. 46R requires variable interest entities to be consolidated if the total equity investment at risk is not sufficient to permit the entity to finance its activities without financial support or the equity investors lack certain specified characteristics of a controlling financial interest. Interpretation No. 46R was adopted by the Company during the first quarter of Fiscal 2004. See also Note 10.

In May 2004, the FASB released Staff Position No. 106-2, “Accounting and Disclosure Requirements related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-2”), which supercedes Staff Position No. 106-1. FSP 106-2 addresses the accounting and disclosure implications that are expected to arise as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 enacted on December 8, 2003. The Company reviewed its medical plan and has not been able to determine if it is actuarially equivalent to medicare and the post retirement medical costs disclosed in Note 13 do not reflect any amount associated with the federal subsidy. Changes to assumptions resulting from the incorporation of this Act will be recorded in conjunction with the next plan measurement date.

12. Joint Ventures

The Company operates two of its airport stores in Chicago, four airport stores in Atlanta and one airport store in Las Vegas under three separate Joint Venture arrangements. The Company has a 70% ownership interest in the Chicago venture, a 49% ownership interest in the Atlanta venture and an 80% ownership in the Las Vegas venture. The Chicago and Las Vegas ventures have been consolidated since inception

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(Fiscal 2001 for the Chicago venture and Fiscal 2003 for the Las Vegas venture) based on the Company’s ownership of the majority voting interests in accordance with Accounting Research Bulletin No. 51.

Under the requirements of FIN46R, variable interest entities are required to be consolidated if the total equity investment at risk is not sufficient to permit the entity to finance its activities without financial support or the equity investors lack certain specified characteristics of a controlling financial interest. The Company has reviewed the requirements of FIN 46R and has determined that the Atlanta Joint Venture qualifies as a Variable Interest Entity (“VIE”) as of its inception date in Fiscal 2001 and that the Company is the primary beneficiary of the VIE. As primary beneficiary, the Company consolidated this entity effective for the first fiscal quarter of 2004 which is the Company’s first interim or annual reporting period ending after March 15, 2004 as required by this interpretation. As a result of the consolidation, $1.1 million of the Atlanta joint venture assets, $581 thousand in majority interests and no liabilities are reflected in the Company’s October 30, 2004 balance sheet. Additionally, as a result of the Atlanta joint venture consolidation, the Company’s revenues increased by $1.2 million and $3.6 million, cost of sales increased $578 thousand and $1.8 million, selling and general administrative expenses increased $355 thousand and $1.0 million, and other party interests in consolidated entities, net of tax increased $93 thousand and $214 thousand respectively for the thirteen and thirty-nine week periods ended October 30, 2004. Additionally, interest expense increased by $1 thousand and $3 thousand for the thirteen and thirty-nine week periods ended October 30, 2004 respectively. The consolidation had no impact on the Company’s consolidated net loss for the thirteen and thirty-nine week periods ended October 30, 2004.

13. Post-Retirement Pension and Medical Benefit Plans

The Company contributed more than the minimum required amount for the past year to the pension plan. As a result, there is no required contribution during Fiscal 2004, but in September of 2004, the Company contributed approximately $340 thousand to maintain a funded status that is more than the minimal required level under IRS regulations.

The components of net periodic pension cost were as follows:

	Thirteen-Weeks Ended						Thirty-Nine Weeks Ended
	October 30, 2004			November 1, 2003			October 30, 2004			November 1, 2003
Service cost	$	31,000		$	32,000		$	93,000		$	95,000
Interest cost		78,000			76,000			234,000			228,000
Expected return on plan assets		(74,000	)		(60,000	)		(219,000	)		(179,000	)
Recognized net actuarial loss		25,000			25,000			75,000			74,000
Net periodic benefit cost	$	60,000		$	73,000		$	183,000		$	218,000

The components of the net periodic post-retirement medical benefits cost were:

	Thirteen-Weeks Ended						Thirty-Nine Weeks Ended
	October 30, 2004			November 1, 2003			October 30, 2004			November 1, 2003
Service cost	$	4,000		$	3,000		$	12,000		$	9,000
Interest cost		16,000			17,000			48,000			51,000
Amortization of prior service cost		(15,000	)		(15,000	)		(45,000	)		(45,000	)
Recognized net actuarial gain		(4,000	)		(5,000	)		(12,000	)		(15,000	)
Net periodic benefit cost	$	1,000		$	—		$	3,000		$	—

14. Defined Contribution Supplemental Executive Retirement Plan

On September 7, 2004, the Compensation Committee of the Board of Directors of Brookstone, Inc. approved a Defined Contribution Supplemental Executive Retirement Plan and named Michael F. Anthony, the Company’s Chairman, President and Chief Executive Officer, and Director as a participant in such plan. A charge of approximately $184 thousand was recorded to selling, general and administrative expenses during the quarter as a result of this plan.

11

15. Revolving Credit Agreement

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 30, 2004 and at November 1, 2003 the Company had no borrowings outstanding under its revolving credit agreement. Amounts due under the facility were collateralized by the personal property of the Company, tangible or intangible including all stock of Brookstone, Inc.’s subsidiaries, but excluding real property, machinery and equipment encumbered on February 21, 2002, and general intangibles. The collateral interest in the facility was subject to collateral release conditions dependent upon four consecutive quarters fixed charge coverage ratio of 1.40 to 1.00 and consolidated EBITDA for the four quarters then ended of at least $34.5 million. During the second fiscal quarter of 2004, the Company agreed with its lenders to forego its collateral release conditions in exchange for reduced interest rates within its revolving credit agreement (“Amendment No. 2”). The new fixed charge coverage ratios that determine which of three different levels of fees and applicable margin rates are to be charged on applicable borrowings are as follows: the Company may borrow at either the agent bank’s base lending rate plus the applicable percentage (0.250%, 0.000% or 0.000%), or the Eurodollar rate for the applicable period plus the applicable percentage (1.750%, 1.500%, or 1.250%). In addition, the Company is obligated to pay a fee of 0.500%, 0.375% or 0.300% on the unused portion of the commitment, 0.875%, 0.750%, or 0.625% on the documentary letters of credit and 1.875%, 1.625% or 1.375% on the standby letters of credit. Amendment No. 2 also adjusted certain capital expenditure restrictions, including an increase in aggregate spending allowed for the new headquarters facility from $10.0 million to $11.0 million in either Fiscal 2003 or Fiscal 2004.

16. Debt

In August of Fiscal 2004, the Company entered into an $8.0 million mortgage loan agreement with a ten-year term to finance its new headquarters facility. Concurrent with the mortgage loan agreement, the Company entered into an interest rate swap agreement with a notional amount of $4.0 million to hedge a portion of future fluctuations in the mortgage loan’s interest rates. The mortgage loan requires monthly principal payments of $66,666.67 and the interest rate is tied to the LIBOR rate index plus 1%. The interest rate swap agreement carries a fixed interest rate of 5.67%. The mortgage loan is collateralized by the facility. Additionally, the Company relocated its headquarters operations to the new facility during August 2004.

Scheduled payments of principal on the mortgage loan (in thousands) are as follows:

Fiscal Year	2004		2005	2006	2007	2008	Thereafter	Total
	$	333	800	800	800	800	4,467	$	8,000

Of the 2004 amount, $133 thousand has been paid prior to October 30, 2004.

12

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 15, 2004         (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

13

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael F. Anthony, certify that:

1) I have reviewed this amendment to report on Form 10-Q of Brookstone, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5) The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize, and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/ Michael F. Anthony

Michael F. Anthony

Chairman, President and Chief Executive Officer, Director

(Principal Executive Officer)

Dated: December 15, 2004

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Philip W. Roizin, certify that:

1) I have reviewed this amendment to report on Form 10-Q of Brookstone, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5) The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize, and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/ Philip W. Roizin

Philip W. Roizin

Executive Vice President, Finance and Administration,

Treasurer and Secretary and Chief Financial Officer

(Principal Financial Officer)

Dated: December 15, 2004

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Executive Officer of Brookstone, Inc. (the “Company”), does hereby certify that to the undersigned’s knowledge:

1) the Company’s Form 10-Q for the quarterly period ended October 30, 2004 as amended herein fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) the information contained in the Company’s Form 10-Q for the quarterly period ended October 30, 2004 as amended herein fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael F. Anthony

Michael F. Anthony

Chairman, President and Chief Executive Officer, Director

Dated: December 15, 2004

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Financial Officer of Brookstone, Inc. (the “Company”), does hereby certify that to the undersigned’s knowledge:

1) the Company’s Form 10-Q for the quarterly period ended October 30, 2004 as amended herein fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) the information contained in the Company’s Form 10-Q for the quarterly period ended October 30, 2004 as amended herein fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Philip W. Roizin

Philip W. Roizin

Executive Vice President, Finance and Administration, Treasurer and

Secretary and Chief Financial Officer

Dated: December 15, 2004