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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 January 4, 2004
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 check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act.) 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, 3,171,979 shares outstanding at
February 13, 2004
Class A Common Stock $.10 par value, 5,892,959 shares outstanding at
February 13, 2004
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE AND TEN PERIODS ENDED JANUARY 4, 2004
TABLE OF CONTENTS
PAGE
PART I - Financial Information
Condensed Consolidated Balance Sheets (unaudited)
at January 4, 2004 and March 30, 2003 1
Condensed Consolidated Statements of Earnings
(unaudited) for the Three and Ten Periods Ended
January 4, 2004 and January 5, 2003 2 - 3
Condensed Consolidated Statement of Stockholders'
Equity (unaudited) for the Ten Periods Ended
January 4, 2004 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the Ten Periods Ended
January 4, 2004 and January 5, 2003 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
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
Certifications 18 - 21
BENIHANA INC. AND SUBSIDIARIES
PART I - Financial Information
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share information)
January 4, March 30,
2004 2003
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Assets
Current Assets:
Cash and cash equivalents $ 2,271 $ 2,299
Receivables 1,022 626
Inventories 6,295 5,328
Prepaid expenses 2,762 2,236
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Total current assets 12,350 10,489
Property and equipment, net 94,622 84,482
Deferred income taxes, net 392 1,172
Goodwill, net 27,131 27,131
Other assets 4,734 5,207
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$139,229 $128,481
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Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 21,661 $ 19,407
Current maturity of bank debt 3,000 3,000
Current maturities of obligations
under capital leases 275 373
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Total current liabilities 24,936 22,780
Long-term debt - bank 19,000 19,000
Obligations under capital leases 96 299
Minority interest 1,250 771
Commitments and contingencies
Stockholders' Equity:
Common stock - $.10 par value; convertible into Class A Common stock;
authorized - 12,000,000 shares; issued and outstanding - 3,171,979
and 3,184,479 shares, respectively 317 318
Class A Common stock - $.10 par value; authorized -
20,000,000 shares; issued and outstanding -
5,892,959 and 5,595,084 shares, respectively 590 560
Additional paid-in capital 50,407 48,444
Retained earnings 42,776 36,452
Treasury stock - 10,828 shares of Common and
Class A Common stock at cost (143) (143)
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Total stockholders' equity 93,947 85,631
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$139,229 $128,481
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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
------------------------------
January 4, January 5,
2004 2003
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Revenues
Restaurant sales $46,607 $43,521
Franchise fees and royalties 365 301
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Total revenues 46,972 43,822
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Costs and Expenses
Cost of food and beverage sales 12,096 10,569
Restaurant operating expenses 27,237 25,833
Restaurant opening costs 720 89
Marketing, general and administrative expenses 3,789 3,808
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Total operating expenses 43,842 40,299
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Income from operations 3,130 3,523
Interest expense, net 91 145
Minority interest 141 102
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Income from operations before income taxes 2,898 3,276
Income tax provision 988 1,108
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Net Income $ 1,910 $ 2,168
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Earnings Per Share
Basic earnings per common share $ .21 $ .25
Diluted earnings per common share $ .21 $ .24
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Number of restaurants at end of period 68 65
See notes to condensed consolidated financial statements
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands, except per share information)
Ten Periods Ended
------------------------------
January 4, January 5,
2004 2003
- -----------------------------------------------------------------------------------------------------
Revenues
Restaurant sales $151,074 $141,920
Franchise fees and royalties 1,235 1,019
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Total revenues 152,309 142,939
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Costs and Expenses
Cost of food and beverage sales 38,899 34,882
Restaurant operating expenses 89,024 85,423
Restaurant opening costs 1,552 354
Marketing, general and administrative expenses 12,500 11,983
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Total operating expenses 141,975 132,642
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Income from operations 10,334 10,297
Interest expense, net 324 371
Minority interest 479 370
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Income from operations before income taxes 9,531 9,556
Income tax provision 3,207 3,147
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Net Income $ 6,324 $ 6,409
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Earnings Per Share
Basic earnings per common share $ .72 $ .74
Diluted earnings per common share $ .70 $ .68
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Number of restaurants at end of period 68 65
See notes to condensed consolidated financial statements
BENIHANA INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands, except share information)
Class A Additional Total
Common Common Paid-in Retained Treasury Stockholders'
Stock Stock Capital Earnings Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 30, 2003 $318 $560 $48,444 $36,452 $(143) $85,631
Net income 6,324 6,324
Issuance of 12,000 shares of common stock
under exercise of options 2 61 63
Issuance of 66,375 shares of Class A
common stock under exercise of options 6 378 384
Conversion of 30,000 shares of common stock
into 30,000 shares of Class A common stock (3) 3
Issuance of 207,000 shares
under exercise of warrants 21 1,422 1,443
Tax benefit from stock options 102 102
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Balance, January 4, 2004 $317 $590 $50,407 $42,776 $(143) $93,947
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See notes to condensed consolidated financial statements
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands, except share information)
Ten Periods Ended
------------------------------
January 4, January 5,
2004 2003
- --------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 6,324 $ 6,409
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,436 5,406
Minority interest 479 370
Deferred income taxes 780 330
Loss on disposal of assets 124 74
Issuance of common stock for incentive compensation 3
Change in operating assets and liabilities that provided (used) cash:
Receivables (396) 526
Inventories (967) (1,234)
Prepaid expenses (526) (847)
Other assets 80 (434)
Accounts payable and accrued expenses 2,254 1,807
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Net cash provided by operating activities 14,588 12,410
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Investing Activities:
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Business acquisition, net of cash acquired (11,374)
Expenditures for property and equipment (16,307) (23,270)
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Net cash used in investing activities (16,307) (34,644)
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Financing Activities:
Borrowings under revolving line of credit 13,400 31,300
Proceeds from issuance of common stock under exercise of
stock options and warrants 1,890 1,769
Repayment of long-term debt and obligations under capital leases (13,701) (14,331)
Purchase of treasury stock (4)
Tax benefit from stock option exercises 102 484
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Net cash provided by financing activities 1,691 19,218
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Net decrease in cash and cash equivalents (28) (3,016)
Cash and cash equivalents, beginning of year 2,299 5,062
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Cash and cash equivalents, end of period $ 2,271 $ 2,046
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Supplemental Cash Flow Information:
Cash paid during the ten periods:
Interest $ 432 $ 364
Income taxes $ 1,400 $ 2,208
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Business Acquisition, Net of Cash Acquired:
- --------------------------------------------------------------------------------------------------------------
Fair value of assets acquired, other than cash $ 2,358
Liabilities assumed (1,595)
Purchase price in excess of the net assets acquired 10,611
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$11,374
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During the ten periods ended January 4, 2004, 30,000 shares of common stock were
converted into 30,000 shares of Class A common stock.
During the ten periods ended January 5, 2003, 100,700 shares of common stock
were converted into 100,700 shares of Class A common stock.
During the ten periods ended January 5, 2003, a stock dividend of 1,141,050
shares of Class A common stock was paid.
See notes to condensed consolidated financial statements.
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND TEN PERIODS ENDED JANUARY 4, 2004 AND JANUARY 5, 2003
(UNAUDITED)
1. GENERAL
The accompanying condensed consolidated financial statements are unaudited
and reflect all adjustments (consisting only of normal recurring
adjustments) 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 ten periods (twelve and forty weeks) ended
January 4, 2004 and January 5, 2003 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 30, 2003 appearing in
Benihana Inc. and Subsidiaries (the "Company") Form 10-K filed with the
Securities and Exchange Commission.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. Certain prior period amounts have been
reclassified to conform to the current period presentation.
The Company has a 52/53-week fiscal year and divides the year into 13
periods of four weeks. The Company's first fiscal quarter consists of 16
weeks, and the remaining three quarters are 12 weeks each, except in the
event of a 53-week year with the final quarter composed of 13 weeks. Because
of the differences in length of these accounting periods, results of
operations between the first quarter and the later quarters of a fiscal year
are not comparable.
2. RECENT ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY
In January 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest
Entities". This Interpretation clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements", to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 requires an enterprise to
consolidate a variable interest entity if that enterprise will absorb a
majority of the entity's expected losses, is entitled to receive a majority
of the entity's expected residual returns, or both. FIN 46 also requires
disclosures about unconsolidated variable interest entities in which an
enterprise holds a significant variable interest. FIN 46 is currently
effective for variable interest entities created or entered into after
January 31, 2003. This statement did not have any impact on the Company's
consolidated financial statements.
In December 2003, the FASB revised FIN 46 which changed the effective date
to the first reporting period ending after March 15, 2004 for variable
interest entities in which an enterprise holds a variable interest.
3. STOCK-BASED COMPENSATION
The Company accounts for stock options issued to employees under the
intrinsic value method of accounting for stock-based compensation. The
Company generally recognizes no compensation expense with respect to such
awards because stock options are granted at the fair market value of the
underlying shares on the date of the grant.
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND TEN PERIODS ENDED JANUARY 4, 2004 AND JANUARY 5, 2003
(UNAUDITED)
Had the Company accounted for its stock-based awards under the fair value
method, the table below shows the pro forma effect on net income and
earnings per share for the three and ten periods ended:
Three Periods Ended Ten Periods Ended
--------------------------- ------------------------------
January 4, January 5, January 4, January 5,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net Income
As reported $1,910 $2,168 $6,324 $6,409
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards 129 164 426 465
------- ------- ------- -------
Pro forma $1,781 $2,004 $5,898 $5,944
======= ======= ======= =======
Basic earnings per share
As reported $ .21 $ .25 $ .72 $ .74
------- ------- ------- -------
Pro forma $ .20 $ .23 $ .67 $ .68
======== ======= ======= =======
Diluted earnings per share
As reported $ .21 $ .24 $ .70 $ .68
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Pro forma $ .19 $ .22 $ .65 $ .63
======= ======= ======= =======
4. INVENTORIES
Inventories consist of (in thousands):
January 4, March 30,
2004 2003
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Food and beverage $2,148 $1,612
Supplies 4,147 3,716
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$6,295 $5,328
========== ==========
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.
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND TEN PERIODS ENDED JANUARY 4, 2004 AND JANUARY 5, 2003
(UNAUDITED)
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.
Ten Periods Ended
-------------------------
January 4, January 5,
2004 2003
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Net income for computation of basic and
diluted earnings per common share $6,324 $6,409
========== ==========
Ten Periods Ended
-------------------------
January 4, January 5,
2004 2003
---------- ----------
Weighted average number of
common shares used in basic
earnings per share 8,829 8,728
Effect of dilutive securities:
Stock options and warrants 269 702
---------- ----------
Weighted average number of
common shares and dilutive
potential common stock used
in diluted earnings per share 9,098 9,430
========== ==========
6. RESTAURANT OPERATING EXPENSES
Restaurant operating expenses consist of the following (in thousands):
Three Periods Ended Ten Periods Ended
----------------------------- ------------------------------
January 4, January 5, January 4, January 5,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Labor and related costs $16,629 $16,300 $54,323 $53,906
Restaurant supplies 931 788 2,961 2,756
Credit card discounts 801 762 2,615 2,452
Utilities 1,003 900 3,683 3,262
Occupancy costs 2,785 2,365 8,720 7,811
Depreciation and amortization 1,943 1,771 6,171 5,202
Other operating expenses 3,145 2,947 10,551 10,034
--------- ---------- --------- ----------
Total restaurant operating expenses $27,237 $25,833 $89,024 $85,423
========= ========== ========= ==========
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND TEN PERIODS ENDED JANUARY 4, 2004 AND JANUARY 5, 2003
(UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES
In December 1999, the Company completed the acquisition of 80% of the equity
of Haru Holding Corp. ("Haru"). The acquisition was accounted for using the
purchase method of accounting. Pursuant to the purchase agreement, at any
time during the period of July 1, 2005 through September 30, 2005, the
holders of the balance of Haru's equity (the "Minority Stockholders") have a
one-time option to sell their shares to the Company. In the event that the
Minority Stockholders do not exercise their right to sell their shares, then
the Company has a one-time option to purchase the shares of the Minority
Stockholders between the period of October 1, 2005 and December 31, 2005.
The price for both the put and call options will be determined based on a
defined cash flow measure for the acquired business. As of January 4, 2004,
the price for both the put and call options at the purchase dates is not
determinable as a number of unknown future factors could, either
individually or in combination, cause material changes in the value of the
put and call options.
In connection with our acquisition of RA Sushi in 2002, we agreed to pay a
base purchase price that consisted of $11.4 million along with the
assumption of approximately $1.2 million of debt and other costs of $0.5
million. The purchase price also included additional contingent purchase
price consideration to the sellers of the restaurants. The additional
payments are generally contingent upon the achievement of stipulated levels
of operating earnings and revenues by the acquired restaurants over a three
year period commencing with the end of fiscal 2004, and are not contingent
on the continued employment of the sellers of the restaurants. The minimum
contingent payment levels will likely be met in the fourth quarter and it
is likely that the Company will pay a maximum of $500,000 of contingent
purchase price for the fiscal 2004. The Company will account for the
contingent payments as an addition to the purchase price.
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 increased 7.2% in the current three periods and increased 6.6% in the
current ten periods, when compared to the corresponding periods a year ago. Net
income and earnings per diluted share decreased in the current three and ten
periods when compared to the equivalent periods of the prior year. Both the
current three and ten periods' decreases in net income and earnings per diluted
share are attributable to increased restaurant opening costs and commodity costs
while partially offset by an improved relationship of fixed costs to sales. Net
income and earnings per fully diluted share were positively affected in both the
three and ten periods by an improved relationship of labor costs to sales when
compared to the equivalent periods of a year ago.
REVENUES
Three and ten periods ended January 4, 2004 compared to January 5, 2003 -- 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 (in
thousands).
Three Periods Ended Ten Periods Ended
------------------------------- -------------------------------
January 4, January 5, January 4, January 5,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Restaurant sales $46,607 $43,521 $151,074 $141,920
Franchise fees and royalties 365 301 1,235 1,019
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Total revenues $46,972 $43,822 $152,309 $142,939
======== ========= ========= =========
Three Periods Ended Ten Periods Ended
------------------------------- -------------------------------
January 4, January 5, January 4, January 5,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Amount of change in total
revenues from previous year $3,150 $3,640 $9,370 $14,336
---------- ---------- --------- ----------
Percentage of change from the
previous year 7.2% 9.1% 6.6% 11.1%
========== ========== ========= ==========
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Restaurant revenues increased in the three and ten periods ended January 4, 2004
compared to the corresponding periods a year ago. Restaurant sales increased
from acquired and newly opened restaurants by $3.8 million for the current three
periods and by $11.1 million for the current ten periods as compared to the
corresponding periods a year ago. The increase in restaurant sales was
contributed to by positive comparable sales of 0.2%, an increase of $0.1 million
in the current three periods and offset by a decrease in comparable sales of
0.6%, a decrease of $0.8 million in the current ten periods when compared to the
equivalent periods a year ago. Restaurant sales were also negatively impacted by
temporary and permanent restaurant closures of $0.8 million for the current
three periods and $1.1 million for the current ten periods when compared to the
equivalent periods a year ago. The acquired RA Sushi restaurants sales are
included for the tenth period only in comparable sales as they were acquired in
December of fiscal 2003.
COSTS AND EXPENSES
Three and ten periods ended January 4, 2004 compared to January 5, 2003 -- The
following table reflects the proportion that the various elements of costs and
expenses bore to restaurant sales and the changes in amounts and percentage
changes in amounts from the previous year's three and ten periods.
Three Periods Ended Ten Periods Ended
-------------------------------- ---------------------------------
January 4, January 5, January 4, January 5,
2004 2003 2004 2003
---------- ---------- ---------- ----------
COST AS A PERCENTAGE OF
RESTAURANT SALES:
Cost of food and beverage sales 26.0% 24.3% 25.7% 24.6%
Restaurant operating expenses 58.4% 59.4% 58.9% 60.2%
Restaurant opening costs 1.5% 0.2% 1.0% 0.2%
Marketing, general and
administrative expenses 8.1% 8.7% 8.3% 8.4%
Three Periods Ended Ten Periods Ended
------------------------------- --------------------------------
January 4, January 5, January 4, January 5,
2004 2003 2004 2003
---------- ---------- ---------- ----------
AMOUNT OF CHANGE FROM
PREVIOUS COMPARABLE PERIOD
(IN THOUSANDS):
Cost of food and beverage sales $1,527 $ 956 $4,017 $2,483
Restaurant operating expenses $1,404 $2,468 $3,601 $9,935
Restaurant opening costs $ 631 $ 40 $1,198 $ (736)
Marketing, general and
administrative expenses $ (19) $ 546 $ 517 $1,166
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Periods Ended Ten Periods Ended
-------------------------------- --------------------------------
January 4, January 5, January 4, January 5,
2004 2003 2004 2003
---------- ---------- ---------- ----------
PERCENTAGE CHANGE FROM
PREVIOUS COMPARABLE PERIOD:
Cost of food and beverage sales 14.4% 9.9% 11.5% 7.7%
Restaurant operating expenses 5.4% 10.6% 4.2% 13.2%
Restaurant opening costs 709.0% 81.6% 338.4% (67.5%)
Marketing, general and
administrative expenses (0.5%) 16.7% 4.3% 10.8%
The cost of food and beverage sales increased in total dollar amount and when
expressed as a percentage of sales in the current three and ten periods when
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 ten periods ended January 4, 2004 as
compared to the equivalent periods ended January 5, 2003. The increase was also
a result of commodities price increases, principally beef and lobster costs, in
the current three and ten periods as compared to the equivalent periods in the
prior year.
Restaurant operating expenses increased in absolute amount in the current three
and ten periods, but decreased when expressed as a percentage of sales compared
to the corresponding periods a year ago. The increase in absolute amount was due
to the acquisition of the four RA Sushi restaurants and the newly opened
teppanyaki and RA Sushi restaurants in the current three and ten periods when
compared to the equivalent periods. The decrease when expressed as a percentage
of sales is due to lower labor and related costs in the current year's three and
ten periods when compared to the prior year's three and ten periods. Labor costs
and related costs improved as a result of increased labor productivity and a
reduction of overtime wages in the current three and ten periods and from lower
health insurance costs as a result of a decrease in the total dollar amount of
health insurance claims coupled with increased employee contributions to health
insurance costs.
Restaurant opening costs increased in the current three and ten periods ended
January 4, 2004 compared to the prior year corresponding periods. The increase
is a result of the growth in restaurant development activity compared to the
equivalent periods a year ago. The increase in store opening costs relates to
opening expenses of eight restaurants opened or under development in the current
ten periods compared to two restaurants in the equivalent periods a year ago.
Marketing, general and administrative costs decreased in absolute amount in the
current three periods and increased in the current ten periods when compared to
the equivalent periods a year ago. Marketing, general and administrative costs
decreased when expressed as a percentage of sales in the current three periods
and ten periods when compared to the equivalent periods a year ago. The decrease
in absolute amount in the current three periods is mainly attributable to
decreased advertising expenditures and the increase in the current ten periods
is due to increased salaries and benefits from additional management personnel
who were hired by the Company in connection with the acquisition of the RA Sushi
concept.
Interest expense decreased in the current three and ten periods when compared to
the corresponding periods of the prior year. The decrease in the current three
and ten periods was attributable to a decrease in the average interest rate in
the equivalent periods a year ago.
Our effective income tax rate increased in the ten periods to 33.6% from 32.9%
in the prior year's ten periods. The effective tax rate increased due to
additional state taxes associated with RA Sushi that was acquired in period ten
of the prior year.
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OUR FINANCIAL RESOURCES
Cash flow from operations has historically been the primary source to fund our
capital expenditures. 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.
We have borrowings from Wachovia Bank, National Association ("Wachovia") under a
term loan as well as a revolving line of credit facility. The line of credit
facility allows us to borrow up to $15,000,000 through December 31, 2007 and at
January 4, 2004, we had $9,000,000 outstanding under the revolving line of
credit. We also had a $1,000,000 letter of credit outstanding against such
facility in connection with our workers compensation insurance program. At
January 4, 2004, we had $13,000,000 outstanding under the term loan which is
payable in quarterly installments of $750,000 through December 2004 and $833,333
thereafter until the term loan matures in December 2007. The interest rate at
January 4, 2004 of both the line of credit and the term loan was 2.2%. 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.
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):
Ten Periods Ended
-----------------------------
January 4, January 5,
2004 2003
---------- ----------
Cash provided by operations $ 14,588 $ 12,410
Cash (used in) investing activities (16,307) (34,644)
Cash provided by financing activities 1,691 19,218
--------- ----------
Decrease in cash and cash equivalents $ (28) $(3,016)
========= ==========
Our future capital requirements depend on numerous factors, including market
acceptance of our products, the timing and rate of expansion of our business,
acquisitions, and other factors. We have experienced increases in our
expenditures consistent with growth in our operations and we anticipate that our
expenditures will continue to increase in the foreseeable future. We believe
that our cash from operations and the funds available under our term loan and
line of credit will provide sufficient capital to fund our operations and
restaurant expansion for at lease the next twelve months.
Operating Activities
Cash provided by operations increased during the ten periods ended January 4,
2004 compared to the equivalent period in the previous year. The increase
resulted mainly from net income adjusted for depreciation and amortization, the
change in deferred income taxes and by the change in cash provided by operating
assets and liabilities in the current ten periods when compared to the previous
comparable period.
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The increase in accounts receivable from March 30, 2003 is attributable to a
lease incentive owed to us by a new landlord. The increase in inventory from
March 30, 2003 is due to new restaurant openings.
Investing Activities
Expenditures for property and equipment decreased during the ten periods ended
January 4, 2004 from the prior comparable period. The decrease is attributable
to expenditures of approximately $13 million made in the prior year ten periods
for the purchase of property and equipment of three teppanyaki restaurants
previously financed under a master lease agreement which was terminated June 12,
2002. The decrease is also attributable to the $11.3 million acquisition of RA
Sushi in the prior year ten periods. The decreases are offset by increased
construction expenditures over the prior year for new restaurants.
Financing Activities
During the current ten periods there were stock option exercises and warrants
with cash proceeds to the Company of $1,890,000 as compared to $1,769,000 in the
previous comparable period a year ago. Our total indebtedness decreased by
$301,000 during the ten periods ended January 4, 2004 as compared to the end of
fiscal 2003. We had net borrowings of $3,000,000 from the revolving line of
credit, paid down $3,000,000 of the term loan and paid $301,000 under 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 have no derivative agreements as of January 4, 2004.
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
The Company has a 52/53-week fiscal year and divides the year into 13 periods of
four weeks. The Company's first fiscal quarter consists of 16 weeks, and the
remaining three quarters are 12 weeks each, except in the event of a 53-week
year with the final quarter composed of 13 weeks. Because of the differences in
length of these accounting periods, results of operations between the first
quarter and the later quarters of a fiscal year are not comparable.
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
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the principal
executive officer and principal financial officer, of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation,
the principal executive officer and principal financial officer concluded that
the Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. There was no change in the Company's internal control over financial
reporting during the Company's most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
BENIHANA INC. AND SUBSIDIARIES
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) On November 11, 2003 the Company filed a report Form
8-K covering its earnings press release for the
fiscal quarter ended October 12, 2003.
(b)(i) Exhibit 31.1 - Chief Executive Officer's certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
(b)(ii) Exhibit 31.2 - Chief Financial Officer's certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
(b)(iii) Exhibit 32.1 - Chief Executive Officer's certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b)(iv) Exhibit 32.2 - Chief Financial Officer's certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
SIGNATURE
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 February 13, 2004 /s/ Joel A. Schwartz
---------------------- ---------------------
Joel A. Schwartz
President and
Chief Executive Officer
and Director
Exhibit 31.1
CERTIFICATION
I, Joel A. Schwartz, President and Chief Executive Officer and Director, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Benihana 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 registrant'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 registrant,
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 registrant'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 registrant's internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant'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 registrant'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 registrant's internal
control over financial reporting.
Date: February 13, 2004
/s/ Joel A. Schwartz
---------------------
Joel A. Schwartz
President and
Chief Executive Officer
and Director
Exhibit 31.2
CERTIFICATION
I, Michael R. Burris, Senior Vice President - Finance and Chief Financial
Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Benihana, 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 registrant'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 registrant,
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 registrant'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 registrant's internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant'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 registrant'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 registrant's internal
control over financial reporting.
Date: February 13, 2004
/s/ Michael R. Burris
----------------------
Michael R. Burris
Senior Vice President-
Finance and Chief Financial
Officer
Exhibit 32.1
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 January 4, 2004 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Joel A. Schwartz,
President and Chief Executive Officer and Director 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
and Director
February 13, 2004
Exhibit 32.2
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 January 4, 2004 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Michael R. Burris,
Senior Vice President - Finance and 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
Senior Vice President -
Finance and Chief Financial
Officer
February 13, 2004