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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 July 18, 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
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Indicate the 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, 2,992,979 shares outstanding at August 26, 2004
Class A Common Stock $.10 par value, 6,161,475 shares outstanding at August
26, 2004
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FOUR PERIODS ENDED JULY 18, 2004
TABLE OF CONTENTS
PAGE
PART I - Financial Information
Item 1. Financial Statements - unaudited
Condensed Consolidated Balance Sheets (unaudited)
at July 18, 2004 and March 28, 2004 1
Condensed Consolidated Statements of Earnings
(unaudited) for the Four Periods Ended
July 18, 2004 and July 20, 2003 2
Condensed Consolidated Statement of Stockholders'
Equity (unaudited) for the Four Periods Ended
July 18, 2004 3
Condensed Consolidated Statements of Cash Flows
(unaudited) for the Four Periods Ended
July 18, 2004 and July 20, 2003 4
Notes to Condensed Consolidated Financial Statements
(unaudited) 5 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 15
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 15
Item 4. Controls and Procedures 16
PART II - Other Information
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
Certifications 19 - 22
BENIHANA INC. AND SUBSIDIARIES
PART I - Financial Information
ITEM 1. FINANCIAL STATEMENTS - UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share information) July 18, March 28,
2004 2004
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Assets
Current Assets:
Cash and cash equivalents $ 3,285 $ 2,196
Receivables 816 882
Inventories 6,300 6,147
Prepaid expenses 2,196 2,426
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Total current assets 12,597 11,651
Property and equipment, net 100,717 98,219
Goodwill, net 27,783 27,783
Other assets 4,903 4,757
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$146,000 $142,410
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Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 22,314 $ 20,730
Current maturity of bank debt 3,167 3,000
Current maturities of obligations under capital leases 203 273
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Total current liabilities 25,684 24,003
Long-term debt - bank 8,333 18,500
Obligations under capital leases 3 26
Deferred income taxes, net 1,391 1,237
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Total liabilities 35,411 43,766
Commitments and contingencies (Note 7)
Minority interest 1,626 1,414
Series B Mandatory Redeemable Convertible Preferred Stock -
$1.00 par value; convertible into Common stock; authorized -
5,000,000 shares; issued and outstanding - 400,000 at
July 18, 2004 (Note 6) 9,253
Stockholders' Equity:
Common stock - $.10 par value; convertible into Class A
Common stock; authorized - 12,000,000 shares;
issued and outstanding - 2,992,979 and 3,134,979
shares, respectively 299 313
Class A Common stock - $.10 par value; authorized -
20,000,000 shares; issued and outstanding -
6,161,475 and 5,967,527 shares, respectively 616 597
Additional paid-in capital 51,361 50,772
Retained earnings 47,577 45,691
Treasury stock - 10,828 shares of Common and
Class A Common stock at cost (143) (143)
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Total stockholders' equity 99,710 97,230
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$146,000 $142,410
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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)
Four Periods Ended
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July 18, July 20,
2004 2003
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Revenues
Restaurant sales $64,934 $60,542
Franchise fees and royalties 457 560
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Total revenues 65,391 61,102
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Costs and Expenses
Cost of food and beverage sales 17,279 15,571
Restaurant operating expenses 38,283 35,484
Restaurant opening costs 254 243
Marketing, general and administrative expenses 6,331 5,013
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Total operating expenses 62,147 56,311
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Earnings from operations 3,244 4,791
Interest expense, net 114 148
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Earnings from operations before income taxes and minority interest 3,130 4,643
Income tax provision 1,006 1,502
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Earnings before minority interest 2,124 3,141
Minority interest 212 189
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Net Income $ 1,912 $ 2,952
Less: Preferred Stock dividends 26 0
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Net income attributable to common stockholders $ 1,886 $ 2,952
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Earnings Per Share
Basic earnings per common share $ .21 $ .34
Diluted earnings per common share $ .20 $ .33
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Number of restaurants at end of period 70 64
See notes to condensed consolidated financial statements
BENIHANA INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOUR PERIODS ENDED JULY 18, 2004
(UNAUDITED)
(In thousands, except share information)
Class A Additional Total
Common Common Paid-in Retained Treasury Stockholders'
Stock Stock Capital Earnings Stock Equity
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Balance, March 28, 2004 $313 $597 $50,772 $45,691 $(143) $97,230
Net income 1,912 1,912
Issuance of 51,598 shares of Class A
common stock under exercise of options 5 458 463
Conversion of 142,000 shares of common stock
into 142,000 shares of Class A common stock (14) 14
Issuance of 350 shares of Class A
common stock for incentive compensation 7 7
Deemed dividends on Series B Preferred Stock (26) (26)
Tax benefit from stock options 124 124
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Balance, July 18, 2004 $299 $616 $51,361 $47,577 $(143) $99,710
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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) Four Periods Ended
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July 18, July 20,
2004 2003
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Operating Activities:
Net income $ 1,912 $ 2,952
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,844 2,460
Minority interest 212 189
Deferred income taxes 154 132
Issuance of Class A common stock for incentive compensation 7
Loss on disposal of assets 160 40
Change in operating assets and liabilities that provided (used) cash:
Receivables 66 (238)
Inventories (153) (482)
Prepaid expenses 230 714
Other assets (259) 47
Accounts payable and accrued expenses 1,584 550
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Net cash provided by operating activities 6,757 6,364
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Investing Activities:
Expenditures for property and equipment (5,389) (4,261)
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Net cash used in investing activities (5,389) (4,261)
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Financing Activities:
Borrowings under revolving line of credit 500 2,300
Proceeds from issuance of Series B Preferred Stock, net 9,253
Proceeds from issuance of common stock under exercise of
stock options and warrants 463 67
Tax benefit from stock option exercises 124
Repayment of long-term debt and obligations under capital leases (10,593) (5,944)
Dividends on Series B Preferred stock (26)
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Net cash used in financing activities (279) (3,577)
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Net increase (decrease) in cash and cash equivalents 1,089 (1,474)
Cash and cash equivalents, beginning of year 2,196 2,299
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Cash and cash equivalents, end of period $ 3,285 $ 825
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Supplemental Cash Flow Information:
Cash paid during the four periods:
Interest $ 200 $ 220
Income taxes $ 829 $ 189
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During the four periods ended July 18, 2004, 142,000 shares of common stock were
converted into 142,000 shares of Class A common stock.
During the four periods ended July 20, 2003, 10,000 shares of common stock were
converted into 10,000 shares of Class A common stock.
See notes to condensed consolidated financial statements.
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOUR PERIODS ENDED JULY 18, 2004 AND JULY 20, 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 four periods (sixteen weeks) ended July 18, 2004 and July
20, 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 28, 2004 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. 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
FOUR PERIODS ENDED JULY 18, 2004 AND JULY 20, 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 four periods ended:
Four Periods Ended
------------------------------
July 18, July 20,
2004 2003
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Net Income (in thousands)
As reported $1,912 $2,952
Preferred dividends 26
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Net income attributable to
common stockholders 1,886 2,952
Deduct: Total stock-based
employee compensation
Expense determined under
fair value based method
for all awards 226 178
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Pro forma $1,660 $2,774
======= =======
Basic earnings per share
As reported $ .21 $ .34
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Pro forma $ .18 $ .32
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Diluted earnings per share
As reported $ .20 $ .33
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Pro forma $ .17 $ .31
======= =======
3. INVENTORIES
Inventories consist of (in thousands):
July 18, March 28,
2004 2004
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Food and beverage $2,431 $2,090
Supplies 3,869 4,057
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$6,300 $6,147
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4. 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 conversion rights of Series B
Preferred Stock.
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOUR PERIODS ENDED JULY 18, 2004 AND JULY 20, 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:
Four Periods Ended
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July 18, July 20,
2004 2003
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Net income $1,912 $2,952
Less Series B preferred stock dividends (26) 0
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Income for computation of basic
earnings per common share 1,886 2,952
Series B preferred stock 26 0
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Income for computation of diluted
earnings per common share $1,912 $2,952
======= =========
Four Periods Ended
---------------------------
July 18, July 20,
2004 2003
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Weighted average number of
common shares used in basic
earnings per share 9,133 8,781
Effect of dilutive securities:
Stock options and warrants 555 240
Series B preferred stock 87 0
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Weighted average number of
common shares and dilutive
potential common stock used
in diluted earnings per share 9,775 9,021
====== ========
During the four periods ended July 18, 2004 and July 20, 2003, stock options and
warrants to purchase 1,138,000 and 1,739,000 shares, respectively, of common
stock were excluded from the calculation of diluted earnings per share since the
effect would be considered antidilutive.
5. RESTAURANT OPERATING EXPENSES
Restaurant operating expenses consist of the following (in thousands):
Four Periods Ended
------------------------------
July 18, July 20,
2004 2003
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Labor and related costs $23,150 $21,766
Restaurant supplies 1,249 1,155
Credit card discounts 1,153 1,073
Utilities 1,558 1,462
Occupancy costs 3,850 3,398
Depreciation and amortization 2,782 2,353
Other operating expenses 4,541 4,277
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Total restaurant operating expenses $38,283 $35,484
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BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOUR PERIODS ENDED JULY 18, 2004 AND JULY 20, 2003
(UNAUDITED)
6. RELATED PARTY TRANSACTION
John E. Abdo, a director of the Company, is a director and Vice Chairman of
the Board of BFC Financial Corporation ("BFC") and is a significant
shareholder of BFC. On July 1, 2004, the Company received $10,000,000 net of
issuance costs of approximately $747,000, representing the funding of the
first tranche of its previously announced sale of $20,000,000 aggregate
principal amount of Series B Preferred Stock from BFC. The Company has the
option to issue another 400,000 shares of the Series B Preferred Stock from
time to time during the two-year period commencing on June 8, 2005. The
Series B Preferred Stock is convertible into Common Stock of the Company at
a conversion price of $19.00 per share; subject to adjustment, carries a
dividend of 5.0% payable in cash or additional Series B Preferred Stock and
will vote on an "as if converted" basis together with the Company's Common
Stock on all matters put to a vote of the holders of Common Stock. In
addition, under certain circumstances, the approval of a majority of the
Series B Preferred Stock will be required for certain events outside the
ordinary course of business.
The holders of the Series B Preferred Stock will be entitled to nominate
one director at all times and one additional director in the events that
dividends are not paid for two consecutive quarters.
The Series B Preferred Stock will be available for redemption at its
original issue price on July 2, 2014, which date may be extended by the
holders of a majority of the then-outstanding shares of Series B Preferred
Stock to a date no later than July 2, 2024. At the Company's option, it may
pay the redemption in cash or shares of Common Stock valued at then-current
market prices. In addition, the Series B Preferred Stock may be redeemed in
cash or common stock at any time beginning three years from the date of
issue if the volume-weighted average price of the Common Stock exceeds
$38.00 per share for sixty consecutive trading days.
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 July 18, 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. For fiscal
2004 the contingent payment amounted to $652,000. The minimum contingent
payment is not yet determinable for fiscal 2005. The Company accounts for
the contingent payments as an addition to the purchase price.
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOUR PERIODS ENDED JULY 18, 2004 AND JULY 20, 2003
(UNAUDITED)
On July 2, 2004, Benihana of Tokyo, Inc. ("BOT"), which owns approximately
51% of the Company's outstanding Common Stock, commenced a lawsuit in the
Court of Chancery of the State of Delaware against the Company, members of
the Company's Board of Directors and BFC. The action, which purports to be
brought both individually and derivatively on behalf of the Company, seeks
temporary and permanent injunctive relief, and unspecified monetary damages
and recovery of costs and expenses, in connection with the recent closing
of a $20,000,000 sale of a new class of Series B Convertible Preferred
Stock ("Series B Preferred Stock") of the Company to BFC, a diversified
holding company with operations in banking, real estate and other
industries. John E. Abdo, a director of the Company, serves as a Vice
Chairman, director, and is a significant shareholder of BFC. Among other
relief sought, the action seeks rescission of the sale of preferred stock
to BFC.
The action alleges that the director defendants breached their fiduciary
duties in approving the financing transaction with BFC by diluting the
voting power represented by BOT's Common Stock holdings in the Company. The
action is currently in the discovery stage. A trial date of November 8,
2004 has been set. All of the defendants to the action have filed motions
to dismiss the complaint, which has not been ruled upon by the Court of
Chancery of the State of Delaware. The Company and its Board of Directors
believe that the BFC financing was and is in the best interests of the
Company and all of its shareholders, that there is no merit to the action
brought by BOT and intend to vigorously defend and oppose the action. Based
on the above discussion, the Company has not recorded a reserve balance for
this lawsuit, but anticipates legal costs to be incurred in future periods
to defend their position.
BENIHANA INC. AND SUBSIDIARIES
ITEM 2. 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 7.0% in the current four periods when compared to the
corresponding periods a year ago. Net income and earnings per diluted share
decreased 35.2% and 39.4%, respectively, in the current four periods when
compared to the equivalent periods of the prior year. The current four periods'
decreases in net income and earnings per diluted share are attributable
primarily to increase in commodity costs and fees relating to planning and
architectural design work for the construction and renovation program for the
Company's teppanyaki concept.
REVENUES
Four periods ended July 18, 2004 compared to July 20, 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).
Four Periods Ended
--------------------------------
July 18, July 20,
2004 2003
--------- ---------
Restaurant sales $64,934 $60,542
Franchise fees and royalties 457 560
--------- ---------
Total revenues $65,391 $61,102
========= =========
Four Periods Ended
---------------------------------
July 18, July 20,
2004 2003
--------- ----------
Amount of change in total
revenues from previous year $4,289 $3,943
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Percentage of change from the
previous year 7.0% 6.9%
======= ========
BENIHANA INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Restaurant revenues increased for the four periods ended July 18, 2004 compared
to the corresponding periods a year ago. Restaurant sales increased from newly
opened restaurants by $4.1 million for the current four periods as compared to
the corresponding periods a year ago. The increase in restaurant sales was
attributable to positive comparable sales of $1.6 million in the current four
periods when compared to the equivalent periods a year ago. Restaurant sales
were also negatively impacted by temporary and permanent restaurant closures of
$1.3 million for the current four periods when compared to the equivalent
periods a year ago.
Comparable restaurant sales growth for restaurants opened longer than one year
was 2.7% in the current four periods compared to the equivalent periods a year
ago. Comparable sales for the teppanyaki restaurants increased 1.7%, comparable
sales for the Haru restaurants increased 5.8%, comparable sales for the RA Sushi
restaurants increased 9.9% and for the one Doraku restaurant comparable sales
increased 6.1% in the current four periods when compared to the equivalent
periods a year ago.
COSTS AND EXPENSES
Four periods ended July 18, 2004 compared to July 20, 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 four periods.
Four Periods Ended
--------------------------------
July 18, July 20,
2004 2003
--------- ---------
COST AS A PERCENTAGE OF
RESTAURANT SALES:
Cost of food and beverage sales 26.6% 25.7%
Restaurant operating expenses 59.0% 58.6%
Restaurant opening costs 0.4% 0.4%
Marketing, general and
administrative expenses 9.7% 8.3%
Four Periods Ended
--------------------------------
July 18, July 20,
2004 2003
--------- ---------
AMOUNT OF CHANGE FROM
PREVIOUS COMPARABLE PERIOD
(IN THOUSANDS):
Cost of food and beverage sales $1,708 $1,581
Restaurant operating expenses $2,799 $1,732
Restaurant opening costs $ 11 $ 95
Marketing, general and
administrative expenses $1,318 $ 217
BENIHANA INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Four Periods Ended
--------------------------------
July 18, July 20,
2004 2003
--------- ---------
PERCENTAGE CHANGE FROM
PREVIOUS COMPARABLE PERIOD:
Cost of food and beverage sales 11.0% 11.3%
Restaurant operating expenses 7.9% 5.1%
Restaurant opening costs 4.5% 64.2%
Marketing, general and
administrative expenses 26.3% 4.5%
The cost of food and beverage sales increased in total dollar amount and when
expressed as a percentage of sales in the current four 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 four periods ended July 18, 2004 as compared to the equivalent
periods ended July 20, 2003. The increase was also a result of commodities price
increases, principally beef and lobster costs, in the current four periods as
compared to the equivalent periods in the prior year. Beef costs comprise
approximately 40% of our total commodity costs. Average beef costs increased
23.1% in the current four periods compared to the equivalent periods a year ago.
Lobster costs which comprise 15% of our total commodity costs increased an
average of 4.5% in the current four periods compared to the equivalent periods a
year ago. All other commodity cost fluctuations were not significant.
Restaurant operating expenses increased in absolute amount and when expressed as
a percentage of sales in the current four periods compared to the corresponding
periods a year ago. The increase was due to occupancy costs and depreciation and
amortization from the newly opened teppanyaki and RA Sushi restaurants and from
capital expenditures made to existing restaurants in the current four periods
when compared to the equivalent periods.
Restaurant opening costs increased slightly in the current four periods ended
July 18, 2004 compared to the prior year corresponding periods.
Marketing, general and administrative costs increased in absolute amount and
when expressed as a percentage of sales in the current four periods when
compared to the equivalent periods a year ago. The increase is due to increased
labor and related costs and professional fees. The increase in labor and related
costs is attributable to additional corporate personnel hired to accommodate the
Company's growth plans. The increase in professional fees is attributable to
consulting fees relating to planning and architectural design work for the
construction and renovation program for the Company's teppanyaki concept and
also to professional fees relating to Sarbanes-Oxley Section 404 compliance.
Interest expense decreased in the current four periods when compared to the
corresponding periods of the prior year. The decrease in the current four
periods was attributable to lower average borrowings outstanding in the current
year compared to the equivalent periods a year ago.
Our effective income tax rate decreased in the four periods to 32.1% from 32.4%
in the prior year's four periods.
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.
BENIHANA INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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
July 18, 2004, we had the full line available for borrowing. We also had a
$1,000,000 letter of credit outstanding against such facility in connection with
our workers compensation insurance program. At July 18, 2004, we had $11,500,000
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 July 18, 2004 of both the line of
credit and the term loan was 2.58%. 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.
For the quarter ended July 18, 2004, the Company was not in compliance with a
Consolidated EBITDA covenant of the Company's credit agreement with Wachovia.
The Company received a waiver from Wachovia to cure its non-compliance on August
11, 2004. There can be no assurance that such non-compliance will not occur in
future periods or that if it does, the Company's lender will agree to waive any
such non-compliance.
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):
Four Periods Ended
---------------------------
July 18, July 20,
2004 2003
---------- -----------
Cash provided by operations $ 6,757 $ 6,364
Cash (used in) investing activities (5,389) (4,261)
Cash (used in) financing activities (279) (3,577)
--------- ----------
Increase (decrease) in cash and cash equivalents $ 1,089 $ (1,474)
========= ==========
During the quarter, the Company issued $10,000,000 in principal amount of the
Series B Preferred Stock and received net proceeds of $9.3 million from the
issuance. The Company has the option to issue an additional $10,000,000 in
principal amount of the Series B Preferred Stock from time to time during the
two-year period commencing on the first anniversary of the closing of the
initial issuance.
We have announced a major renovation program to approximately 20 of our
teppanyaki restaurants which is expected to begin in the third quarter of fiscal
2005. We anticipate that the total cost of these renovations will range from $25
to $30 million over a three-year period. Our other 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 and future issuances of Series
B Preferred Stock pursuant to our agreement with BFC Financial Corporation will
provide sufficient capital to fund our operations and restaurant expansion for
at least the next twelve months.
BENIHANA INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operating Activities
Cash provided by operations increased during the four periods ended July 18,
2004 compared to the equivalent period in the previous year. The increase
resulted mainly from the change in cash provided by operating assets and
liabilities in the current four periods when compared to the comparable period a
year ago offset by a decrease in net income adjusted for depreciation and
amortization.
Investing Activities
Expenditures for property and equipment increased during the four periods ended
July 18, 2004 from the prior comparable period. The increase is attributable to
increased capital expenditures for new restaurants in the current four periods
when compared to the equivalent periods a year ago.
Financing Activities
On July 1, 2004, the Company issued 400,000 shares of Series B Preferred Stock
at $25.00 per share which resulted in net proceeds of $9.3 million. The Company
has the option to issue another 400,000 shares of the Series B Preferred Stock
from time to time during the two-year period commencing on June 8, 2005. The
Series B Preferred Stock is convertible into Common Stock of the Company at a
conversion price of $19.00 per share; subject to adjustment, carries a dividend
of 5.0% payable in cash or additional Series B Preferred Stock and will vote on
an "as if converted" basis together with the Company's Common Stock on all
matters put to a vote of the holders of Common Stock. In addition, under certain
circumstances, the approval of a majority of the Series B Preferred Stock will
be required for certain events outside the ordinary course of business.
The holders of the Series B Preferred Stock will be entitled to nominate one
director at all times and one additional director in the events that dividends
are not paid for two consecutive quarters.
The Series B Preferred Stock will be available for redemption at its original
issue price on July 2, 2014, which date may be extended by the holders of a
majority of the then-outstanding shares of Series B Preferred Stock to a date no
later than July 2, 2004. At the Company's option, it may pay the redemption in
cash or shares of Common Stock valued at then-current market prices. In
addition, the Series B Preferred Stock may be redeemed at any time beginning
three years from the date of issue if the volume-weighted average price of the
Common Stock exceeds $38.00 per share for sixty consecutive trading days.
During the current four periods there were stock option exercises and warrants
with cash proceeds to the Company of $463,000 as compared to $67,000 in the
previous comparable period a year ago. Our total indebtedness decreased by
$10,093,000 during the four periods ended July 18, 2004. We paid down $1,500,000
of the term loan, $8,500,000 of the revolving line of credit and paid $93,000
under leases that are considered to be capital in nature. (See Note 7).
BENIHANA INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 July 18, 2004.
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.
BENIHANA INC. AND SUBSIDIARIES
ITEM 4. 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 1. Legal Proceedings
On July 2, 2004, BOT, which owns approximately 51% of the Company's outstanding
Common Stock, commenced a lawsuit in the Court of Chancery of the State of
Delaware against the Company, members of the Company's Board of Directors and
BFC Financial Corporation. The action, which purports to be brought both
individually and derivatively on behalf of the Company, seeks temporary and
permanent injunctive relief, and unspecified monetary damages and recovery of
costs and expenses, in connection with the recent closing of a $20,000,000 sale
of a new class of Series B Preferred Stock of the Company to BFC Financial
Corporation, a diversified holding company with operations in banking, real
estate and other industries. John E. Abdo, a director of the Company, serves as
a Vice Chairman, director, and is a significant shareholder of BFC. Among other
relief sought, the action seeks rescission of the sale of preferred stock to
BFC.
The action alleges that the director defendants breached their fiduciary duties
in approving the financing transaction with BFC by diluting the voting power
represented by BOT's Common Stock holdings in the Company. The action is
currently in the discovery stage. A trial date of November 8, 2004 has been set.
All of the defendants to the action have filed motions to dismiss the complaint,
which has not been ruled upon by the Court of Chancery of the State of Delaware.
The Company and its Board of Directors believe that the BFC financing was and is
in the best interests of the Company and all of its shareholders, that there is
no merit to the action brought by BOT and intend to vigorously defend and oppose
the action.
Item 5. Other Information
The Company has postponed the date for its 2004 Annual Meeting of Shareholders
and has not set a new date. The deadline for shareholders to submit proposals
for inclusion in the Company's Proxy Statement was March 17, 2004, but because
the 2004 Annual Meeting will take place more than 30 days later than last year's
meeting, the Company shall treat as timely any shareholder proposal submitted
within a reasonable time prior to printing the Company's proxy materials.
Item 6. Exhibits and Reports on Form 8-K
(a) On August 9, 2004 the Company filed a report on Form
8-K covering its press release announcing its first
quarter sales and comparable sales results for the
fiscal quarter ended July 18, 2004.
(a)(i) On July 7, 2004 the Company filed a report on Form 8-K
covering an action brought against the Company,
members of the Company's Board of Directors and BFC
Financial Corporation by Benihana of Tokyo, Inc.
(b) Exhibit 31.1 - Chief Executive Officer's certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
(b)(i) Exhibit 31.2 - Chief Financial Officer's certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
(b)(ii) Exhibit 32.1 - Chief Executive Officer's certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b)(iii) 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: August 27, 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: August 27, 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: August 27, 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 July 18, 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
August 27, 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 July 18, 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
August 27, 2004