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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 Quarter Ended October 13, 2002
or,
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-26396
Benihana Inc.
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(Exact name of registrant as specified in its charter)
Delaware 65-0538630
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8685 Northwest 53rd Terrace, Miami, Florida 33166
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 593-0770
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None
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Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock $.10 par value, 3,223,479 shares outstanding at November 15, 2002
Class A Common Stock $.10 par value, 5,528,084 shares outstanding at
November 15, 2002
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
SEVEN PERIODS ENDED OCTOBER 13, 2002
TABLE OF CONTENTS
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PAGE
PART I - Financial Information
Condensed Consolidated Balance Sheets (unaudited)
at October 13, 2002 and March 31, 2002 1
Condensed Consolidated Statements of Earnings
(unaudited) for the Three and Seven Periods Ended
October 13, 2002 and October 14, 2001 2 - 3
Condensed Consolidated Statement of Stockholders'
Equity (unaudited) for the Seven Periods Ended
October 13, 2002 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the Seven Periods Ended
October 13, 2002 and October 14, 2001 5
Notes to Condensed Consolidated Financial Statements
(unaudited) 6 - 9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10 - 15
PART II - Other Information 16 - 21
BENIHANA INC. AND SUBSIDIARIES
PART I - Financial Information
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share information)
October 13, March 31,
2002 2002
- ---------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 1,822 $ 5,062
Receivables 407 990
Inventories 4,655 4,097
Prepaid expenses 2,198 2,530
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Total Current Assets 9,082 12,679
Property and equipment, net 79,766 61,971
Deferred income taxes, net 1,732 1,963
Goodwill, net 16,478 16,478
Other assets 5,222 5,210
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$112,280 $98,301
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 17,554 $16,921
Current maturity of bank debt 3,000 3,000
Current maturities of obligations
under capital leases 557 668
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Total Current Liabilities 21,111 20,589
Long-term debt - bank 10,000 3,000
Obligations under capital leases 439 705
Minority Interest 563 294
Commitments and Contingencies
Stockholders' Equity:
Series A redeemable convertible
preferred stock - $1.00 par value;
authorized - 5,000,000 shares, no shares issued
Common stock - $.10 par value;
convertible into Class A Common, authorized -
12,000,000 shares, issued and outstanding -
3,238,476 and 3,276,179 shares, respectively 324 328
Class A common stock - $.10 par value;
authorized - 20,000,000 shares, issued and outstanding
5,511,589 and 4,151,319 shares, respectively 551 415
Additional paid-in capital 48,214 26,926
Retained earnings 31,221 46,160
Treasury stock - 10,553 and 9,177 shares, respectively,
of Common and Class A stock at cost (143) (116)
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Total Stockholders' Equity 80,167 73,713
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$112,280 $98,301
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See notes to condensed consolidated financial statements
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands, except per share information)
Three Periods Ended
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October 13, October 14,
2002 2001
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Revenues
Restaurant sales $41,676 $37,209
Franchise fees and royalties 282 277
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Total Revenues 41,958 37,486
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Costs and Expenses
Cost of food and beverage sales 10,323 9,560
Restaurant operating expenses 25,837 23,412
Restaurant opening costs 116 354
Marketing, general and administrative expenses 3,381 3,204
Impairment charge - 438
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Total Operating Expenses 39,657 36,968
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Income from operations 2,301 518
Interest expense, net 108 250
Minority interest 111 (33)
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Income from operations before income taxes 2,082 301
Income tax provision (benefit) 630 (81)
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Net Income $ 1,452 $ 382
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Earnings Per Share
Basic earnings per common share $ .17 $ .05
Diluted earnings per common share $ .16 $ .05
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Number of restaurants at end of period 61 60
See notes to condensed consolidated financial statements
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands, except per share information)
Seven Periods Ended
----------------------------
October 13, October 14,
2002 2001
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Revenues
Restaurant sales $98,399 $87,675
Franchise fees and royalties 718 746
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Total Revenues 99,117 88,421
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Costs and Expenses
Cost of food and beverage sales 24,313 22,786
Restaurant operating expenses 59,589 52,123
Restaurant opening costs 264 1,041
Marketing, general and administrative expenses 8,177 7,555
Impairment charge - 438
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Total Operating Expenses 92,343 83,943
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Income from operations 6,774 4,478
Interest expense, net 225 589
Minority interest 268 (40)
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Income from operations before income taxes 6,281 3,929
Income tax provision 2,039 1,100
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Net Income $ 4,242 $ 2,829
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Earnings Per Share
Basic earnings per common share $ .49 $ .39
Diluted earnings per common share $ .45 $ .37
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Number of restaurants at end of period 61 60
See notes to condensed consolidated financial statements
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands, except share information)
Series A
Redeemable
Convertible Class A Additional Total
Preferred Common Common Paid-in Retained Treasury Stockholders'
Stock Stock Stock Capital Earnings Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2002 - $328 $415 $26,926 $46,160 ($116) $73,713
Net income 4,242 4,242
Issuance of 1,141,050 shares 114 19,090 (19,181) (23)
of class A common stock
for stock dividend
Issuance of 4,000 shares 13 13
of common stock
under exercise of options
Issuance of 177,370 shares 18 1,698 1,716
of class A common stock
under exercise of options
Conversion of 41,700 (4) 4
shares of common stock
into 41,700 shares of class
A common stock
Issuance of 150 shares 3 3
of class A common stock
for incentive compensation
Purchase of treasury stock (4) (4)
Tax benefit from stock option exercises 484 484
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Balance, October 13, 2002 $0 $324 $551 $48,214 $31,221 ($143) $80,167
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See notes to condensed consolidated financial statements
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Seven Periods Ended
----------------------------
October 13, October 14,
2002 2001
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Operating Activities:
Net income $ 4,242 $ 2,829
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,563 2,845
Minority interest 268 (40)
Deferred income taxes 231 174
Loss on disposal of assets 74 158
Loss on write-down of impaired assets 3 438
Issuance of common stock for incentive compensation
Change in operating assets and liabilities that
provided (used) cash:
Receivables 584 (333)
Inventories (557) (345)
Prepaid expenses 332 (1,505)
Other assets (231) (229)
Accounts payable and accrued expenses 633 513
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Net cash provided by operating activities 9,142 4,505
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Investing activities:
Expenditures for property and equipment (21,214) (8,669)
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Net cash used in investing activities (21,214) (8,669)
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Financing Activities:
Borrowings under revolving credit facility 15,000 11,500
Proceeds from issuance of common stock
under exercise of stock options 1,729 164
Repayment of long-term debt and obligations
under capital leases (8,377) (7,990)
Dividend paid on preferred stock (5)
Purchase of treasury stock (4)
Tax benefit from stock option exercises 484
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Net cash provided by financing activities 8,832 3,669
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Net decrease in cash and cash equivalents (3,240) (495)
Cash and cash equivalents, beginning of year 5,062 935
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Cash and cash equivalents, end of period $ 1,822 $ 440
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Supplemental Cash Flow Information:
Cash paid during the seven periods:
Interest $ 254 $ 547
Income taxes 1,051 2,187
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During the current seven periods ended October 13, 2002, 41,700 shares of common
stock were converted into 41,700 shares of Class A common stock.
During the prior year seven periods, 294,737 shares of common stock were
converted into 294,737 shares of Class A common stock and 700 shares of
preferred stock were converted into 105,263 shares of Class A common stock.
See notes to condensed consolidated financial statements.
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEVEN PERIODS ENDED OCTOBER 13, 2002 AND OCTOBER 14, 2001
(UNAUDITED)
1. GENERAL
The accompanying condensed consolidated financial statements are unaudited
and reflect all adjustments (consisting only of normal recurring adjustments
at October 13, 2002 and October 14, 2001) which are, in the opinion of
management, necessary for a fair presentation of financial position and
results of operations. The results of operations for the three and seven
periods (twelve and twenty-eight weeks, respectively) ended October 13, 2002
and October 14, 2001 are not necessarily indicative of the results to be
expected for the full year. Certain information and footnotes normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. These interim financial statements should be read in
conjunction with the consolidated financial statements and accompanying
notes thereto for the year ended March 31, 2002 appearing in the Company's
Form 10-K filed with the Securities and Exchange Commission.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138,
required that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives will be recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it
is, the type of hedge transaction. The adoption of this statement, as
amended, in the first quarter of fiscal 2002 did not have a material effect
on the Company's financial statements.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for
using the purchase method of accounting, and broadens the criteria for
recording intangible assets separate from goodwill. For potential future
acquisitions, recorded goodwill and intangibles will be evaluated against
these new criteria and may result in certain intangibles being recorded as
goodwill, or alternatively, amounts previously recorded as goodwill may be
separately identified and recognized apart from goodwill. SFAS No. 142
requires the use of a nonamortization approach to account for purchased
goodwill and certain intangibles. Under a nonamortization approach, goodwill
and certain intangibles will not be amortized into results of operations,
but instead will be periodically reviewed for impairment and written down
and charged to results of operations only in the periods in which, and to
the extent, the recorded value of goodwill and certain intangibles is
determined to be more than their then fair value.
The Company adopted the provisions of SFAS No. 142 effective the beginning
of the first quarter of fiscal 2002. These standards only permit prospective
application of the new accounting; accordingly adoption of these standards
will not affect previously reported financial information. The Company
reviewed goodwill for possible impairment at the beginning of the first and
fourth quarter of fiscal 2002 and determined that there was no impairment.
In September 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS
No. 121. The new statement defines detailed criteria for assets being "held
for sale". The Company adopted the provisions of this statement effective
the beginning of the first quarter of fiscal 2003. Additionally, the
statement further defines the reporting of discontinued operations in
financial statements. The adoption of this statement in the first quarter of
fiscal 2003 did not have a material effect on the Company's financial
statements.
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEVEN PERIODS ENDED OCTOBER 13, 2002 AND OCTOBER 14, 2001
(UNAUDITED)
3. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
fiscal year presentation.
4. INVENTORIES
Inventories consist of (in thousands):
October 13, March 31,
2002 2002
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Food and beverage $1,502 $1,568
Supplies 3,153 2,529
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$4,655 $4,097
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5. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income available
to common shareholders by the weighted average number of common shares
outstanding during each period. The diluted earnings per common share
computation includes dilutive common share equivalents issued under the
Company's various stock option plans and dilutive convertible preferred
stock.
The following data shows the amounts (in thousands) used in computing
earnings per share and the effect on income and the weighted average number
of shares of dilutive potential common stock.
Seven Periods Ended
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October 13, October 14,
2002 2001
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Net income $4,242 $2,829
Less preferred dividends - (5)
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Income for computation of basic
earnings per common share 4,242 2,824
Plus preferred dividends - 5
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Income for computation of diluted
earnings per common share $4,242 $2,829
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BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEVEN PERIODS ENDED OCTOBER 13, 2002 AND OCTOBER 14, 2001
(UNAUDITED)
Seven Periods Ended
---------------------------
October 13, October 14,
2002 2001
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Weighted average number of
common shares used in basic
earnings per share 8,716 7,208
Effect of dilutive securities:
Stock options and warrants 736 310
Convertible preferred stock - 27
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Weighted average number of
common shares and dilutive
potential common stock used
in diluted earnings per share 9,452 7,545
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6. RESTAURANT OPERATING EXPENSES
Restaurant operating expenses consist of the following (in thousands):
Three Periods Ended Seven Periods Ended
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October 13, October 14, October 13, October 14,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Labor and related costs $16,306 $14,674 $37,606 $32,606
Restaurant supplies 902 858 1,968 1,811
Credit card discounts 721 640 1,690 1,492
Utilities 1,096 1,030 2,363 2,203
Occupancy costs 2,255 2,269 5,447 5,052
Depreciation and amortization 1,510 1,238 3,431 2,684
Other operating expenses 3,047 2,703 7,084 6,275
------- ------- ------- -------
Total restaurant operating expenses $25,837 $23,412 $59,589 $52,123
======= ======= ======= =======
7. STOCK DIVIDEND
On June 7, 2002, the Board of Directors declared a 15% stock dividend in
Class A stock for both the Class A and common shares. The stock dividend
was paid on August 12, 2002 to holders of record July 15, 2002. As a
result, basic and diluted earnings per common share have been adjusted as
if the stock dividend had been in existence for each period presented.
8. MASTER LEASE AGREEMENT
On June 12, 2002, the Company terminated its master lease agreement with
Wachovia Bank, National Association and two other banks. The
aforementioned master lease agreement had enabled financing in new
acquisition and construction. Upon termination, the Company purchased at
cost the three teppanyaki Benihana restaurants previously financed under
the agreement. A portion of the purchase price was provided with
replacement financing under the Company's revolving credit facility.
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEVEN PERIODS ENDED OCTOBER 13, 2002 AND OCTOBER 14, 2001
(UNAUDITED)
9. SUBSEQUENT EVENT
On November 12, 2002, the Company signed an agreement to acquire RA Sushi
Bar Restaurant, a privately owned Arizona chain currently operating four
restaurants. The four founding principals of RA are all active in
operating the business, and will continue under contracts in their present
management roles with the chain following its acquisition. Annual sales of
the five-year-old company approximates $9 million.
The $11 million purchase price and approximately $1.2 million debt
assumption at closing will be financed from the Company's credit facility
with Wachovia Bank, National Association currently being revised to
finance this acquisition. The Company also agreed to pay certain
additional amounts contingent upon sales and earnings performance.
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Our revenues consist of sales of food and beverages at our restaurants and
licensing fees from franchised restaurants. Cost of restaurant food and
beverages sold represents the direct cost of the ingredients for the prepared
food and beverages sold. Restaurant operating expenses consist of direct and
indirect labor, occupancy costs, advertising and other costs that are directly
attributed to each restaurant location. Restaurant opening costs include rent
paid during the development period, as well as labor, training and certain other
pre-opening charges which are expensed as incurred.
Restaurant revenues and expenses are dependent upon a number of factors
including the number of restaurants in operation, restaurant patronage and the
average check amount. Expenses are additionally dependent upon commodity costs,
average wage rates, marketing costs and the costs of interest and administering
restaurant operations.
Revenues, net income and earnings per diluted share increased in the current
three and seven periods ended October 13, 2002 as compared to the corresponding
periods a year ago. For the current three periods revenues increased 11.9%, net
income increased 280.1% and earnings per diluted share increased 220.0% compared
to the corresponding period a year ago, during which operations were adversely
impacted by the immediate aftermath of the events of September 11th.
The increase in net income was tempered by higher labor costs in both the three
and current seven periods as compared to the corresponding periods a year ago.
The increase in labor costs was attributable to reduced restaurant labor
productivity and to the increase in minimum wages in California.
REVENUES
Three and seven periods ended October 13, 2002 compared to October 14, 2001 --
The amounts of sales and the changes in amount and percentage change in amount
of revenues from the previous fiscal year are shown in the following tables.
Three Periods Ended Seven Periods Ended
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October 13, October 14, October 13, October 14,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net restaurant sales $41,676 $37,209 $98,399 $87,675
Franchise fees and royalties 282 277 718 746
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Total Revenues $41,958 $37,486 $99,117 $88,421
======= ======= ======= =======
Three Periods Ended Seven Periods Ended
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October 13, October 14, October 13, October 14,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Amount of change in total
revenues from previous year $4,472 $ 789 $10,696 $ 4,655
Percentage of change from the
previous year 11.9% 2.2% 12.1% 5.6%
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Restaurant revenues increased in both the three (twelve week) and seven
(twenty-eight week) periods ended October 13, 2002 compared to the corresponding
periods a year ago. A 7.5% increase in comparable restaurant sales accounted for
$2.7 million for the three periods and a 6.1% increase in comparable restaurant
sales accounted for $5.1 million for the seven periods when compared to the
corresponding periods a year ago. Restaurant revenues also increased from the
opening of new restaurants by $2.0 million for the current three periods and by
$7.1 million for the seven periods as compared to the corresponding periods a
year ago. The increases in restaurant sales were offset by restaurants
permanently closed or closed for refurbishment. The effect of the closed units
was $.4 million for the current three periods and $1.4 million for the current
seven periods when compared to the corresponding periods a year ago.
COSTS AND EXPENSES
Three and seven periods ended October 13, 2002 compared to October 14, 2001 --
The following table reflects the proportion that the various elements of costs
and expenses bore to sales and the changes in amounts and percentage changes in
amounts from the previous year's three and seven periods.
Three Periods Ended Seven Periods Ended
----------------------------- -----------------------------
October 13, October 14, October 13, October 14,
2002 2001 2002 2001
----------- ----------- ----------- -----------
COST AS A PERCENTAGE OF
RESTAURANT SALES:
Cost of food and beverage sales 24.8% 25.7% 24.7% 26.0%
Restaurant operating expenses 62.0% 62.9% 60.6% 59.5%
Restaurant opening costs .3% 1.0% .3% 1.2%
Marketing, general and
administrative expenses 8.1% 8.6% 8.3% 8.6%
AMOUNT OF CHANGE FROM
PREVIOUS COMPARABLE PERIOD
(IN THOUSANDS):
Cost of food and beverage sales $ 763 $ (333) $1,527 $ (169)
Restaurant operating expenses $2,425 $3,004 $7,466 $6,281
Restaurant opening costs $ (238) $ 25 $ (777) $ 117
Marketing, general and
administrative expenses $ 177 $ (45) $ 622 $ 345
PERCENTAGE CHANGE FROM
PREVIOUS COMPARABLE PERIOD:
Cost of food and beverage sales 8.0% (3.4%) 6.7% (.7%)
Restaurant operating expenses 10.4% 14.7% 14.3% 13.7%
Restaurant opening costs (67.2%) 7.6% (74.6%) 12.7%
Marketing, general and
administrative expenses 5.5% (1.4%) 8.2% 4.8%
The cost of food and beverage sales increased in total dollar amount in the
current three and seven periods and decreased when expressed as a percentage of
sales compared to the corresponding periods in the prior year. Costs of food and
beverage sales, which are generally variable with sales, directly increased with
changes in revenues for the three and seven periods ended October 13, 2002 as
compared to the equivalent periods ended October 14, 2001. The decrease in the
percentage of cost of food and beverage to sales resulted from lower commodities
costs, principally shrimp costs, in the current three and seven periods compared
to the prior year equivalent periods.
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Restaurant operating expenses increased in absolute amount in the current three
and seven periods compared to the corresponding periods a year ago. Restaurant
operating expenses when expressed as a percentage of sales decreased in the
current three periods and increased in the current seven periods compared to the
corresponding periods a year ago. The increase was primarily attributable to an
increase in labor and related costs. The increase in labor during the current
three and seven periods related to lower productivity and also a legislated
minimum wage increase in California. The decrease when expressed as a percentage
of sales for the three periods was a result of comparing the current three
periods with the prior year's three periods affected by the events of September
11th. Payroll taxes and benefits also increased in the current three and seven
periods due to an increase in accruals for health insurance claims based on
recent claims experience as well as an increase in the number and amount of
claims in the Company's self-insured health plan in the current seven periods
compared to the prior year seven periods. Additionally, higher insurance rates
caused an increase in property and casualty insurance costs in the current three
and seven periods compared to the corresponding periods a year ago. Depreciation
and amortization increased in both the current three and seven periods. The
increase was a result of additional depreciation and amortization costs from new
restaurants as well as from refurbishment to existing units.
Restaurant opening costs decreased in the current three and seven periods ended
October 13, 2002 compared to the prior year corresponding periods. The decrease
was attributable to pre-opening expenses in the prior year's three and seven
periods relating to three Haru restaurants and two Benihana Teppanyaki
restaurants which opened during the prior fiscal year. Restaurant opening costs
associated with opening the two Benihana Teppanyaki restaurants in the current
fiscal year were substantially less than the prior year comparable period.
Marketing, general and administrative costs increased in absolute amount, but
decreased when expressed as a percentage of sales in the current three and seven
periods compared to the corresponding periods a year ago. The increase is mainly
attributable to planned advertising expenditures in the current three and seven
periods when compared to the comparable periods a year ago. However, during the
current three periods, planned advertising was reduced. In accordance with APB
28 "Interim Financial Reporting", the amount previously expensed for the
cancelled advertising programs was adjusted.
Interest expense decreased in the current three and seven periods when compared
to the corresponding periods of the prior year. The decrease in the current
three and seven periods was attributable to a decrease in the interest rates on
our borrowings under our credit facility as well as a decrease in the average
outstanding borrowings in the current three and seven periods compared to the
previous comparable periods. Our effective income tax rate increased in the
seven periods to 32.5% from 28.0% in the prior year's seven periods. The
increase was due to a increase in net income in the current seven periods
coupled with a constant amount of net federal tax credit for FICA taxes paid on
reported tip income in both the current and prior year seven periods.
OUR FINANCIAL RESOURCES
Cash flow from operations had been the primary source to fund our capital
expenditures before we accelerated the development of new restaurants. Since we
have accelerated our building program, we are relying more upon financing
obtained from financial institutions. We have financed acquisitions principally
through the use of borrowed funds.
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We have borrowings from Wachovia Bank, National Association under a term loan
and we have a revolving line of credit facility. The line of credit allows us to
borrow up to $15,000,000 through March 31, 2004 and at October 13, 2002, we had
$8,500,000 outstanding under the revolving line of credit. We had $4,500,000
outstanding at the end of October 13, 2002 under the term loan which is payable
in quarterly installments of $750,000 until the term loan matures in March 2004.
The interest rate at October 13, 2002 of both the line of credit and the term
loan was 2.77%. We have the option to pay interest at Wachovia's prime rate plus
1%. The interest rate may vary depending upon the ratio of the sum of earnings
before interest, taxes, depreciation and amortization to our indebtedness. The
loan agreements limit our capital expenditures to certain amounts, require that
we maintain certain financial ratios and profitability amounts and prohibit the
payment of cash dividends.
We have renegotiated an increase in the amount available under the above
referenced term loan and revolving line of credit facility to a total of
$31,000,000 with Wachovia Bank, National Association and expect to have a signed
agreement in December.
To finance new restaurant development, we had entered into a master lease
agreement with Wachovia Bank, National Association and two other banks. The
master lease agreement enabled financing for up to $25,000,000 in new restaurant
acquisition and construction. Management determined that more favorable rates
were available under our line of credit and accordingly we terminated this
arrangement on June 12, 2002 by borrowing $5,000,000 from the line of credit and
using $8,000,000 in cash to pay off the outstanding facility balance and
acquiring the three restaurants financed under the facility.
Since restaurant businesses generally do not have large amounts of inventory and
accounts receivable, there is no need to finance them. As a result, many
restaurant businesses, including our own, operate with negative working capital.
The following table summarizes the sources and uses of cash and cash equivalents
(in thousands):
Seven Periods Ended
----------------------------
October 13, October 14,
2002 2001
----------- -----------
Cash provided by operations $ 9,142 $ 4,505
Cash (used in) investing activities (21,214) (8,669)
Cash provided by financing activities 8,832 3,669
--------- --------
Decrease in cash and cash equivalents $ (3,240) $ (495)
========= ========
Operating Activities
Cash provided by operations increased during the seven periods ended October 13,
2002 compared to equivalent periods in the previous year. The increase resulted
mainly from an increase in net income and from the change in cash provided by
operating assets and liabilities in the current seven periods when compared to
the previous comparable period.
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Investing Activities
Expenditures for property and equipment increased during the seven periods ended
October 13, 2002 by $12,545,000 over the prior comparable period to $21,214,000.
Approximately $13 million of the total expenditures were for the purchase of
property and equipment of three teppanyaki restaurants previously financed under
the master lease agreement which was terminated June 12, 2002.
Financing Activities
During the current seven periods there were stock options exercises with cash
proceeds to the Company of $1,729,000 as compared to $164,000 in the previous
comparable period a year ago. Our total indebtedness increased by $5,163,000
during the seven periods ended October 13, 2002 as compared to the end of fiscal
2002. We borrowed $15,000,000 under the revolving line of credit, paid down
$6,500,000 of the revolving line of credit, paid down $1,500,000 of the term
loan and repaid $377,000 of leases that are considered to be capital in nature.
Forward-Looking Statements
This quarterly report contains various "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements represent our expectations
or beliefs concerning future events, including unit growth, future capital
expenditures, and other operating information. A number of factors could, either
individually or in combination, cause actual results to differ materially from
those included in the forward-looking statements, including changes in consumer
dining preferences, fluctuations in commodity prices, availability of qualified
employees, changes in the general economy, industry cyclicality, and in consumer
disposable income, competition within the restaurant industry, availability of
suitable restaurant locations, harsh weather conditions in areas in which we and
our franchisees operate restaurants or plan to build new restaurants, acceptance
of our concepts in new locations, changes in governmental laws and regulations
affecting labor rates, employee benefits, and franchising, ability to complete
new restaurant construction and obtain governmental permits on a reasonably
timely basis and other factors that we cannot presently foresee.
The Impact of Inflation
Inflation has not been a significant factor in our business for the past several
years. We have been able to keep increasing menu prices at a low level by
strictly maintaining cost controls. A possible increase to the minimum wage is
being considered by United States Congress; any such increase will affect us, as
well as most other restaurant businesses. We do not know if or when the increase
will take effect nor have we evaluated whether the increase would be material if
enacted into law.
Market Risks
We are exposed to certain risks of increasing interest rates and commodity
prices. The interest on our indebtedness is largely variable and is benchmarked
to the prime rate in the United States or to the London interbank offering rate.
We may protect ourselves from interest rate increases from time-to-time by
entering into derivative agreements that fix the interest rate at predetermined
levels. We have a policy not to use derivative agreements for trading purposes.
We had a derivative agreement which expired May 1, 2002 without further
obligation by the Company.
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We purchase commodities such as chicken, beef, lobster and shrimp for our
restaurants. The prices of these commodities may be volatile depending upon
market conditions. We do not purchase forward commodity contracts because the
changes in prices for them have historically been short-term in nature and, in
our view, the cost of the contracts is in excess of the benefits.
Seasonality of Our Business
Our business is not highly seasonal although we do have more patrons coming to
our restaurants for special holidays such as Mother's Day, Valentine's Day and
New Year's. Mother's Day falls in our first fiscal quarter of each year, New
Year's in the third quarter and Valentine's Day in the fourth quarter.
Controls and Procedures
The Company's Chief Executive Officer and its Chief Financial Officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and
15d-14(c)) as of a date within 90 days of the filing date of this quarterly
report on Form 10-Q (the "Evaluation Date"), have concluded that as of the
Evaluation Date, The Company's disclosure controls and procedures were adequate
and effective to ensure that material information relating to the Company and
its consolidated subsidiaries would be made known to them by others within those
entities, particularly during the period in which this quarterly report on Form
10-Q was being prepared.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect the Company's disclosure controls and
procedures subsequent to the Evaluation Date, nor any significant deficiencies
or material weaknesses in such disclosure controls and procedures requiring
corrective actions. As a result, no corrective actions were taken.
BENIHANA INC. AND SUBSIDIARIES
PART II - Other Information
Item 1. Legal Proceedings
Reference is hereby made to our Annual Report on Form 10-K for the fiscal year
ended March 31, 2002 and to our Quarterly Report on Form 10-Q for the quarter
ended July 21, 2002 for a description of certain legal proceedings.
Item 4. Results of Vote of Security Holders
(a) We held our annual meeting of stockholders on August 22,
2002.
(b) The following directors were elected at the meeting:
Taka Yoshimoto and Max Pine
Other directors whose term of office continue after the
meeting are set forth below:
Joel A. Schwartz, Kevin Y. Aoki, Darwin C. Dornbush, John
E. Abdo and Norman Becker
(c) At the annual meeting, holders of our Common Stock voted to
elect one Class I director for a term of three years and
holders of our Class A Common Stock voted to elect a Class
I Director for a term of one year. In addition, holders of
our Common Stock and Class A Common Stock, voting together
as a single class, voted for the ratification of Deloitte &
Touche LLP to serve as our independent certified public
accountants for the fiscal year ending March 30, 2003.
At the meeting, the following votes for and against, as
well as the number of abstentions and broker non-votes were
recorded for each matter as set for the below:
WITHHOLD NON-
MATTER FOR AGAINST ABSTAIN AUTHORITY VOTES
-----------------------------------------------------------------------------------------------------
Election of Directors:
Class I
Taka Yoshimoto 3,136,803 7,545
Class I
Max Pine 3,722,564 5,300
Ratification of
Independent Public
Accountants: 3,515,422 1,563 150
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K - None
(b)(i) Exhibit 99.1 - Officer's Certification
(b)(ii) Exhibit 99.2 - Officer's Certification
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Benihana Inc.
------------------------------------
(Registrant)
Date November 18, 2002 /s/ Joel A. Schwartz
--------------------- -------------------------------------
Joel A. Schwartz
President and
Chief Executive Officer
CERTIFICATION
I, Joel A. Schwartz, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Benihana 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
respect the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Quarterly Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this Quarterly Report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
(c) presented in this Quarterly Report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the Audit
Committee of registrant's Board of Directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial date and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Joel A. Schwartz
- -----------------------------------
Joel A. Schwartz
President and
Chief Executive Officer
November 18, 2002
CERTIFICATION
I, Michael R. Burris, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Benihana 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
respect the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Quarterly Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this Quarterly Report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
(c) presented in this Quarterly Report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the Audit
Committee of registrant's Board of Directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial date and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Michael R. Burris
- ------------------------------------
Michael R. Burris
Chief Financial Officer
November 18, 2002
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Benihana Inc. (the "Company") on
Form 10- Q for the period ended July 21, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Joel A. Schwartz,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:
1. The Report 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 report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Joel A. Schwartz
- -----------------------------------
Joel A. Schwartz
President and
Chief Executive Officer
November 18, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Benihana Inc. (the "Company") on
Form 10-Q for the period ended July 21, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Michael R. Burris,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report 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 report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Michael R. Burris
- ------------------------------------
Michael R. Burris
Chief Financial Officer
November 18, 2002