Back to GetFilings.com



Table of Contents
 
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 August 3, 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 or organization)
  
(I.R.S. Employer
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: 8,514,597 shares of common stock as of September 6, 2002.
 

Table of Contents
 
BROOKSTONE, INC.
 
INDEX TO FORM 10-Q
 
           
Page No.
Part I:
   
Financial Information
       
Item 1:
        
  3
         
  4
         
  5
         
  6
Item 2:
        
  9
Item 4:
        
11
Part II:
   
Other Information
       
Item 1:
        
12
Item 2:
        
12
Item 3:
        
12
Item 4:
        
12
Item 5:
        
12
Item 6:
        
12
    
13
    
14
    
15
    
16
    
17

2

Table of Contents
 
BROOKSTONE, INC.
 
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
 
    
August 3, 2002
       
February 2, 2002
     
August 4, 2001
  
    
(Unaudited)
              
(Unaudited)
  
ASSETS
                             
Current assets:
                             
Cash and cash equivalents
   
$
16,096
 
     
$
28,928
 
   
$
2,391
 
Receivables, net
   
 
4,722
 
     
 
8,170
 
   
 
4,421
 
Merchandise inventories
   
 
56,547
 
     
 
55,629
 
   
 
61,969
 
Deferred income taxes
   
 
9,290
 
     
 
3,447
 
   
 
8,775
 
Other current assets
   
 
5,417
 
     
 
4,933
 
   
 
6,044
 
    
    
  
Total current assets
   
 
92,072
 
     
 
101,107
 
   
 
83,600
 
Deferred income taxes, net
   
 
4,536
 
     
 
4,536
 
   
 
3,662
 
Property and equipment, net
   
 
40,985
 
     
 
45,058
 
   
 
44,592
 
Intangible assets, net
   
 
4,588
 
     
 
4,812
 
   
 
5,086
 
Other assets
   
 
1,884
 
     
 
1,592
 
   
 
1,866
 
    
    
  
    
$
144,065
 
     
$
157,105
 
   
$
138,806
 
    
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                             
Current liabilities:
                             
Short-term borrowings
   
$
—  
 
     
$
—  
 
   
$
2,050
 
Accounts payable
   
 
9,795
 
     
 
11,232
 
   
 
13,199
 
Other current liabilities
   
 
18,907
 
     
 
22,569
 
   
 
14,309
 
    
    
  
Total current liabilities
   
 
28,702
 
     
 
33,801
 
   
 
29,558
 
Other long-term liabilities
   
 
12,656
 
     
 
13,246
 
   
 
11,954
 
Long-term obligation under capital lease
   
 
2,203
 
     
 
2,273
 
   
 
2,360
 
Commitments and contingencies
                             
Shareholders’ equity:
                             
Preferred stock, $0.001 par value:
                             
Authorized—2,000,000 shares; issued and outstanding—0 shares at August 3, 2002, February 2, 2002 and August 4, 2001
                             
Common stock, $0.001 par value:
Authorized 50,000,000 shares; issued and outstanding—8,514,597 shares at August 3, 2002, 8,369,720 shares at February 2, 2002 and 8,369,720 shares at August 4, 2001
   
 
8
 
     
 
8
 
   
 
8
 
Additional paid-in capital
   
 
52,151
 
     
 
50,666
 
   
 
50,654
 
Accumulated other comprehensive income
   
 
(447
)
     
 
(447
)
   
 
—  
 
Retained earnings
   
 
48,839
 
     
 
57,605
 
   
 
44,319
 
Treasury stock, at cost-3,616 shares at August 3, 2002, February 2, 2002 and August 4, 2001
   
 
(47
)
     
 
(47
)
   
 
(47
)
    
    
  
Total shareholders’ equity
   
 
100,504
 
     
 
107,785
 
   
 
94,934
 
    
    
  
    
$
144,065
 
     
$
157,105
 
   
$
138,806
 
    
    
  
 
Note:    The accompanying notes are an integral part of these financial statements.

3

Table of Contents
 
BROOKSTONE, INC.
 
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
    
Thirteen Weeks Ended
     
Twenty-Six Weeks Ended
  
    
August 3, 2002
     
August 4, 2001
     
August 3, 2002
     
August 4, 2001
  
Net sales
   
$
71,231
 
   
$
69,612
 
   
$
127,864
 
   
$
124,609
 
Cost of sales
   
 
49,813
 
   
 
48,840
 
   
 
93,555
 
   
 
89,681
 
    
  
  
  
Gross profit
   
 
21,418
 
   
 
20,772
 
   
 
34,309
 
   
 
34,928
 
Selling, general and administrative expenses
   
 
25,367
 
   
 
25,044
 
   
 
48,465
 
   
 
47,692
 
Gain on curtailment of retiree medical plan
   
 
(642
)
   
 
—  
 
   
 
(642
)
   
 
—  
 
    
  
  
  
Loss from operations
   
 
(3,307
)
   
 
(4,272
)
   
 
(13,514
)
   
 
(12,764
)
Interest expense, net
   
 
318
 
   
 
210
 
   
 
625
 
   
 
149
 
    
  
  
  
Loss before taxes
   
 
(3,625
)
   
 
(4,482
)
   
 
(14,139
)
   
 
(12,913
)
Income tax benefit
   
 
(1,378
)
   
 
(1,721
)
   
 
(5,373
)
   
 
(4,959
)
    
  
  
  
Net Loss
   
$
(2,247
)
   
$
(2,761
)
   
$
(8,766
)
   
$
(7,954
)
    
  
  
  
Basic/ diluted loss per share:
                                    
Net loss
   
$
(0.26
)
   
$
(0.33
)
   
$
(1.04
)
   
$
(0.95
)
    
  
  
  
Weighted average shares outstanding—basic/diluted
   
 
8,500
 
   
 
8,357
 
   
 
8,454
 
   
 
8,346
 
    
  
  
  
 
Note:    The accompanying notes are an integral part of these financial statements.

4

Table of Contents
 
BROOKSTONE, INC.
 
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
 
    
Twenty-Six Weeks Ended
  
    
August 3, 2002
     
August 4, 2001
  
Cash flows from operating activities:
                  
Net loss
   
$
(8,766
)
   
$
(7,954
)
Adjustments to reconcile net loss to net cash used by operating activities:
                  
Depreciation and amortization
   
 
6,008
 
   
 
5,288
 
Gain on curtailment of retiree medical plan
   
 
(642
)
   
 
—  
 
Amortization of debt issuance costs
   
 
120
 
   
 
92
 
Deferred income taxes
   
 
(5,843
)
   
 
(5,142
)
Related tax benefits on exercise of stock options
   
 
470
 
   
 
183
 
Decrease in other assets
   
 
—  
 
   
 
637
 
Increase in other long-term liabilities
   
 
52
 
   
 
199
 
Changes in working capital:
                  
Accounts receivable, net
   
 
3,448
 
   
 
3,056
 
Merchandise inventories
   
 
(918
)
   
 
(6,910
)
Other current assets
   
 
(276
)
   
 
(2,014
)
Accounts payable
   
 
(1,437
)
   
 
(323
)
Other current liabilities
   
 
(3,662
)
   
 
(14,657
)
    
  
Net cash used for operating activities
   
 
(11,446
)
   
 
(27,545
)
    
  
Cash flows from investing activities:
                  
Expenditures for property and equipment
   
 
(1,711
)
   
 
(7,651
)
    
  
Net cash used for investing activities
   
 
(1,711
)
   
 
(7,651
)
    
  
Cash flows from financing activities:
                  
Borrowings from revolving credit
   
 
—  
 
   
 
2,050
 
Payments for capitalized lease
   
 
(70
)
   
 
(54
)
Payment for debt issuance costs
   
 
(620
)
   
 
—  
 
Proceeds from exercise of stock options
   
 
1,015
 
   
 
194
 
    
  
Net cash provided by financing activities
   
 
325
 
   
 
2,190
 
    
  
Net decrease in cash and cash equivalents
   
 
(12,832
)
   
 
(33,006
)
Cash and cash equivalents at beginning of period
   
 
28,928
 
   
 
35,397
 
    
  
Cash and cash equivalents at end of period
   
$
16,096
 
   
$
2,391
 
    
  
 
Note:    The accompanying notes are an integral part of these financial statements.

5

Table of Contents
 
BROOKSTONE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  The results of the twenty-six week period ended August 3, 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.  As of June 11, 2002, the Board of Directors approved an amendment to the eligibility requirement of the Retiree Health Plan (“The Plan”). This amendment restricts regular full time associates from continuing to accrue points towards eligibility if those associates have not accumulated a minimum of 10 years of services as of December 31, 2002. As a result, during the quarter, the Company recorded a gain on curtailment of $642 thousand, which is stated separately on the Statement of Operations.
 
3.  The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles and practices consistently applied 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 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 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 2001 annual report.
 
4.  Total comprehensive income is composed of net income plus minimum pension liability. For the twenty-six week period ended August 3, 2002 there was no change in the accumulated other comprehensive income balance of $447 thousand. As of August 4, 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 $470 thousand for the twenty-six week period ended August 3, 2002.
 
6.  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.
 
7.  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 retail stores including 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 site www.Brookstone.com and corporate sales. Direct marketing product distribution is conducted through the Company’s direct marketing call center and distribution facility located in Mexico,

6

Table of Contents
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 and twenty-six week periods ended August 3, 2002 and August 4, 2001 (in thousands).
 
Thirteen Weeks:
 
    
Net Sales
   
Pre-tax Loss
  
    
August 3,
2002
   
August 4,
2001
   
August 3,
2002
     
August 4,
2001
  
Reportable segment:
                                
Retail
   
$
58,598
   
$
58,059
   
$
(3,497
)
   
$
(3,493
)
Direct marketing
   
 
12,633
   
 
11,553
   
 
190
 
   
 
(779
)
Reconciling items:
                                
Interest expense
   
 
—  
   
 
—  
   
 
(393
)
   
 
(272
)
Interest income
   
 
—  
   
 
—  
   
 
75
 
   
 
62
 
    
  
  
  
Consolidated:
   
$
71,231
   
$
69,612
   
$
(3,625
)
   
$
(4,482
)
    
  
  
  
 
Twenty-six Weeks:
 
    
Net Sales
   
Pre-tax Loss
  
    
August 3,
2002
   
August 4,
2001
   
August 3,
2002
     
August 4,
2001
  
Reportable segment:
                                
Retail
   
$
104,911
   
$
102,377
   
$
(13,349
)
   
$
(10,719
)
Direct marketing
   
 
22,953
   
 
22,232
   
 
(165
)
   
 
(2,045
)
Reconciling items:
                                
Interest expense
   
 
—  
   
 
—  
   
 
(811
)
   
 
(563
)
Interest income
   
 
—  
   
 
—  
   
 
186
 
   
 
414
 
    
  
  
  
Consolidated:
   
$
127,864
   
$
124,609
   
$
(14,139
)
   
$
(12,913
)
    
  
  
  

7

Table of Contents
 
8.  Basic and diluted earnings per share (EPS) were calculated for the thirteen-week and twenty-six week periods ended August 3, 2002 and August 4, 2001 as follows:
 
      
Thirteen Weeks
Ended
       
Twenty-Six Weeks
Ended
  
      
August 3,
2002
       
August 4,
2001
       
August 3,
2002
       
August 4,
2001
  
Net loss
     
$
(2,247
)
     
$
(2,761
)
     
$
(8,766
)
     
$
(7,954
)
      
    
    
    
Weighted average number of common shares outstanding
     
 
8,500
 
     
 
8,357
 
     
 
8,454
 
     
 
8,346
 
Effect of dilutive securities:
                                            
Stock options
     
 
—  
 
     
 
—  
 
     
 
—  
 
     
 
—  
 
      
    
    
    
Weighted average number of common shares as adjusted
     
 
8,500
 
     
 
8,357
 
     
 
8,454
 
     
 
8,346
 
      
    
    
    
Net loss per share—basic/diluted
     
$
(0.26
)
     
$
(0.33
)
     
$
(1.04
)
     
$
(0.95
)
      
    
    
    
 
For the thirteen-week and twenty-six week periods ended August 3, 2002, antidilutive shares of 155,260 and 148,224 respectively were excluded from the computations of diluted earnings per share. For the thirteen-week and twenty-six week periods ended August 4, 2001, antidilutive shares of 168,427 and 532,462 respectively were excluded from the computations of diluted earnings per share.
 
9.  Recent Accounting Pronouncements:
 
In April 2002, the Financial Accounting Standards Board (“FASB”) issued Statement No. 145 (“SFAS 145”), “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” was issued. This statement provides guidance on the classification of gains and losses from the extinguishments of debt and the accounting for certain specified lease transactions. The Company does not expect the provisions of SFAS 145 to have a material impact, if any, on the Company’s consolidated financial statements.
 
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”). This statement provides guidance on the recognition and measurement of liabilities associated with disposal activities and is effective for the Company on January 1, 2003. The Company does not expect the provisions of SFAS 146 to have a material impact, if any, on the Company’s consolidated financial statements.

8

Table of Contents
 
BROOKSTONE, INC.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
THE THIRTEEN-WEEK AND TWENTY-SIX WEEK PERIODS ENDED AUGUST 3, 2002
 
Results of Operations
 
For the thirteen-week and twenty-six week periods ended August 3, 2002, net sales increased 2.3% and 2.6% respectively over the comparable periods last year. The retail sales increases for the thirteen-week and twenty-six week periods of 0.9% and 2.5% respectively reflected the results of opening 20 new stores subsequent to the second quarter of Fiscal 2001. The net sales from these new store openings were partially offset by the closing of three stores since the second quarter of Fiscal 2001 and a decrease in comparable store sales for the thirteen-week and twenty-six week periods of 3.7% and 3.5% respectively. This decrease is principally related to weakness in travel-related products, and locations dependent on travel, such as airport and tourist locations, which experienced same-store sales decreases approximately twice that of the Company’s other stores. The total number of stores open at the end of the twenty-six week period ended August 3, 2002 was 248 versus 231 at the end of the comparable period in Fiscal 2001. Direct marketing sales for the thirteen-week and twenty-six week periods ended August 3, 2002 increased 9.3% and 3.2% respectively over the comparable periods ended August 4, 2001 on relatively unchanged circulation for the quarter and a year-to-date circulation decrease of 9.0% compared to the same periods last year.
 
For the thirteen-week and twenty-six week periods ended August 3, 2002, gross profit as a percentage of net sales was 30.1% and 26.8% respectively versus 29.8% and 28.0% for the comparable periods last year. The increase in the gross profit percentage for the thirteen-week period was primarily attributable to a decrease in net material costs, partially offset by an increase in occupancy costs relating to new stores and increased order postage expense. The twenty-six week decrease in gross profit as a percentage of net sales was primarily attributable to increases in occupancy costs and order postage expense. By operating segment the retail channel experienced a 10 basis point decrease for the quarter while the direct segment realized an increase of 70 basis points. For the twenty-six week period the retail channel gross profit decreased 160 basis points with the direct channel increasing 50 basis points.
 
Selling, general and administrative expenses as a percentage of net sales for the thirteen-week and twenty-six week periods ended August 3, 2002 were 35.6% and 37.9% respectively versus 36.0% and 38.3% respectively for the comparable periods last year. The thirteen-week and twenty-six week period decreases in percentage were principally related to a decrease in catalog costs and good expense control. By operating segment the retail channel experienced a 100 basis point increase for the quarter while the direct segment realized a decrease of 750 basis points. For the twenty-six week period the retail channel selling, general and administrative expenses increased 130 basis points with the direct channel decreasing 800 basis points.
 
During the quarter ended August 3, 2002, the Company recorded a gain of $642 thousand related to the curtailment of the Company’s retiree medical plan (see Note 2 of the Notes to Consolidated Financial Statements).
 
Net interest expense for the thirteen-week and twenty-six week periods ended August 3, 2002 was $318 thousand and $625 thousand respectively compared to $210 thousand and $149 thousand during the comparable periods last year. The increase for the thirteen-week period was primarily the result of higher interest expense associated with The Amended and Restated Credit Agreement in Fiscal 2002. The increase for the twenty-six week period resulted from higher interest expense as well as lower interest income 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 $2.2 million, or $0.26 per basic and diluted share (after reflecting a one time gain of $642 thousand or $0.05 per basic and diluted share related to the curtailment of the Company’s retiree medical plan), for the thirteen-week period ended August 3, 2002, as compared to a net loss of $2.8 million, or $0.33 per basic and diluted share, for the comparable period last year. For the twenty-six week period ended August 3, 2002 the Company reported a net loss of $8.8 million, or $1.04 per basic and diluted share as compared to an $8.0 million net loss, or $0.95 per basic and diluted share, for the comparable period last year.

9

Table of Contents
 
Financial Condition
 
For the twenty-six week period ended August 3, 2002, net cash used by operating activities totaled $11.4 million, primarily as a result of the net loss and the payment of income taxes, partially offset by a decrease in accounts receivable. Cash used for investment activities during the first twenty-six weeks of Fiscal 2002, representing the purchase of property and equipment, amounted to $1.7 million. Cash from financing activities during the twenty-six week period of Fiscal 2002 amounted to $325 thousand, resulting primarily from the exercise of stock options, partially offset by payment of debt issuance costs and capitalized lease payments.
 
For the twenty-six week period ended August 4, 2001, net cash used by operating activities totaled $27.5 million, primarily as a result of the net loss, the payment of income taxes and the purchase of inventory, partially offset by a decrease in accounts receivable. Cash used for investment activities during the first twenty-six weeks of Fiscal 2001, representing the purchase of property and equipment, amounted to $7.7 million. Cash from financing activities during the twenty-six week period of Fiscal 2001 amounted to $2.2 million, acquired primarily through borrowings under the Company’s revolving credit agreement and the exercise of stock options.
 
Receivables decreased 42.7% to $4.7 million at August 3, 2002 compared to $8.2 million at February 2, 2002 as a result of the collection of landlord allowances and decreases in debit memos and trade receivables. The accounts payable balance was $9.8 million at August 3, 2002 compared to $11.2 million at February 2, 2001.
 
The Company’s capital expenditures in the second quarter of Fiscal 2002 were principally related to the remodeling of two stores, which were completed during the second quarter. Capital expenditures were also made during the second quarter of Fiscal 2002 that are related to new store openings and the remodeling of current stores which are scheduled for completion during the third and fourth quarters of Fiscal 2002. The Company anticipates opening approximately 15 new stores, of which approximately half will be airport locations, and expects 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. At August 3, 2002, the Company had no outstanding borrowings under its Revolving Credit Agreement. At August 4, 2001 the Company had approximately $2.1 million in outstanding borrowings under its revolving credit agreement.
 
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.
 
The Company believes that available borrowings, cash on hand and anticipated cash generated from operations will be sufficient to finance operations and planned retail store openings, remodelings and other capital requirements throughout Fiscal 2002.
 
Recent Accounting Pronouncements:
 
In April 2002, the Financial Accounting Standards Board (“FASB”) issued Statement No. 145 (“SFAS 145”), “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” was issued. This statement provides guidance on the classification of gains and losses from the extinguishments of debt and the accounting for certain specified lease transactions. The Company does not expect the provisions of SFAS 145 to have a material impact, if any, on the Company’s consolidated financial statements.
 
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”). This statement provides guidance on the recognition and measurement of liabilities associated with disposal activities and is effective for the Company on January 1, 2003. The Company does not expect the provisions of SFAS 146 to have a material impact, if any, on the Company’s consolidated financial statements.

10

Table of Contents
 
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.
 
Item 4:     Controls and Procedures
 
There were no significant changes in the Company’s internal controls or in any other factors that could significantly affect the Company’s internal controls, and there were no corrective actions taken with regard to any significant deficiencies or material weaknesses in the Company’s internal controls, subsequent to the date of the most recent evaluation of the Company’s internal controls by the principal executive officer and principal financial officer.

11

Table of Contents
 
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
 
A)  The 2002 Annual Meeting of Stockholders of the Company was held on June 11, 2002.
 
B)  The following persons were elected Directors at the 2002 Annual Meeting for a one-year term expiring at the 2003 Annual Meeting of Stockholders.
 
    
For
   
Withheld
Michael F. Anthony
   
6,910,630
   
842,752
Mone Anathan, III
   
7,750,425
   
2,957
Michael L. Glazer
   
7,751,451
   
1,931
Kenneth E. Nisch
   
6,251,219
   
1,502,163
Andrea M. Weiss
   
7,747,651
   
5,731
 
C)  The appointment of PricewaterhouseCoopers LLP as the independent accountants to examine the financial statements of the Company and its subsidiaries for the fiscal year ending February 1, 2003 was ratified.
 
For
     
Against
     
Abstain
7,645,328
     
108,054
     
0
 
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.

12

Table of Contents
 
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        
Philip W. Roizin
Executive Vice President, Finance and Administration,
Treasurer and Secretary
(Principal Financial Officer
and duly authorized to sign on behalf of registrant)
 
September 13, 2002

13

Table of Contents
 
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Michael F. Anthony, certify that:
 
1.  I have reviewed this quarterly report on Form 10-Q of Brookstone, Inc.;
 
2.  Based on my knowledge, this quarterly 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 quarterly report;
 
3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report.
 
/s/    MICHAEL F. ANTHONY        
Michael F. Anthony
Chairman, President and Chief Executive Officer
 
Date: September 13, 2002

14

Table of Contents
 
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Philip W. Roizin, certify that:
 
1.  I have reviewed this quarterly report on Form 10-Q of Brookstone, Inc.;
 
2.  Based on my knowledge, this quarterly 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 quarterly report;
 
3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report.
 
/s/    PHILIP W. ROIZIN        
Philip W. Roizin
Executive Vice President, Finance
and Administration, Treasurer and
Secretary and Chief Financial Officer
 
Date:    September 13, 2002

15

Table of Contents
 
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 August 3, 2002 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 August 3, 2002 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
 
 
Dated:    September 13, 2002

16

Table of Contents
 
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:
 
3)  the Company’s Form 10-Q for the quarterly period ended August 3, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
4)  the information contained in the Company’s Form 10-Q for the quarterly period ended August 3, 2002 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:    September 13, 2002

17