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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 1996
or,
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-12644
Benihana Inc.
(Exact name of registrant as specified in its charter)
Delaware 65-0538630
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8685 Northwest 53rd Terrace, Miami, Florida 33166
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (305) 593-0770
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.10 per share
Class A Common Stock, par value $.10 per share
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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of April 28, 1996, 3,516,016 shares of Common Stock and 2,316,300 shares of
Class A Common Stock were outstanding, and the aggregate market value of the
common equity of Benihana Inc. held by non-affiliates was approximately
$39,589,317.
DOCUMENTS INCORPORATED BY REFERENCE
Portion of the Registrant's Annual Report to Stockholders for the year ended
March 31, 1996 are incorporated by reference in Parts I and II.
Portion of the Registrant's Proxy Statement for the Annual Meeting to be held
July 19, 1996 are incorporated by reference in Part III.
1
Item 1. Business
Benihana Inc. (The "Company") owns and operates 38 Benihana and Benihana Grill
dinnerhouse restaurants and licenses eight others.
Organization
Effective May 15, 1995, the Company became the successor to Benihana National
Corp. ("BNC") through the merger (the"Merger") of BNC and a wholly owned
subsidiary of the Company. Simultaneously with the Merger, the Company acquired
from Benihana of Tokyo, Inc. ("BOT"), a corporation privately owned by Rocky H.
Aoki, the Company's Chairman of the Board and founder of the Benihana restaurant
chain, all of BOT's Benihana restaurants (the "BOT Restaurants") in the
continental United States, consisting of 17 company-owned and 5 licensed
locations. The merger and asset acquisition (collectively, the "Reorganization")
were accounted for in a manner similar to a pooling of interests. References to
the " Company" in this report include BNC, the Company's predecessor.
BNC had been organized in 1982 by BOT in connection with BNC's initial public
offering.
General
The Company has the right to own, develop or license Benihana and Benihana Grill
restaurants in the United States (subject to certain rights granted to BOT with
respect to the State of Hawaii) Central and South America and the Caribbean
Islands.
A description of the Company-owned and licensed restaurants is set forth below
under "Properties".
Sales by the Company's owned restaurants were approximately $81,094,000 for the
fiscal year ended March 31, 1996, as compared to approximately $72,772,000 for
the prior fiscal year.
Benihana Format and Menu
The Benihana restaurants feature the teppanyaki style of Japanese cooking in
which the food is prepared by a Benihana chef on a grill which forms a part of
the table at which it is served. The Benihana restaurants feature a distinctly
Japanese design creating an authentic atmosphere for its guests. Most of the
Company's Benihana restaurants are open for both lunch and dinner. The
restaurants have a limited menu offering a full course meal consisting of an
appetizer, soup, salad, tea, and an entree of steak, seafood, chicken or a
combination of them. Specific menu items may be different in the various
restaurants depending upon the local geographic market. The servings are all
portion controlled to provide consistency in quantities served to each customer.
Alcoholic beverages, including specialty mixed drinks, wines, beers and soft
drinks are available. The average check size per person was $22.68 during the
year ended 1996. During the fiscal year ended March 31, 1996, beverage sales in
both the lounges and dining rooms accounted for approximately 20% of total
restaurant sales. The Company offers sushi both at the teppanyaki grill and at
separate sushi bar areas within most restaurants. During fiscal 1996, the
Company added sushi as carry-out item at selected locations.
Generally, an entire teppanyaki table is filled at one time. The chef is
assisted in the service of the meal by the waitress or waiter who takes beverage
and food orders. An entire dinnertime meal takes approximately one hour and
thirty minutes.
In October 1995, the Company opened its first Benihana Grill restaurant. The
Benihana Grill is a smaller version of the typical Benihana restaurant that is
suitable for smaller markets and for strip shopping centers. The Company
believes that the Benihana Grill provides for greater potential for unit growth
because the costs to design, construct and open the Benihana Grill is
approximately one-third of the cost of a standard sized Benihana restaurant.
Of the 38 owned Benihana and Benihana Grill restaurants, 27 are located in free
standing, special use restaurant buildings, three in shopping centers, and eight
in office or hotel building complexes. The free standing restaurants were built
to the Company's specifications as to size, style and interior and exterior
decor. The other locations were adapted to the Benihana interior decor. The free
standing units, which are generally one story buildings are substantially
uniform in design and appearance, average approximately 8,000 square feet and
are constructed on a lot of approximately 1.25 to 1.50 acres with parking for
100 to 125 cars. The shopping center, office building and hotel Benihana
restaurants are of similar size, but differ somewhat in appearance from location
to location in order to conform to the existing buildings. The designs for the
Benihana Grill calls for between 3,500 and 4,000 square feet and 10 and 12
teppanyaki tables. A typical Benihana restaurant has eighteen teppanyaki tables.
The Benihana
2
restaurants seat from 92 to 178 persons in the dining rooms (at the teppanyaki
tables which seat six to ten customers) and 47 to 124 persons in the bar lounge
areas.
Operations and Control of Benihana Restaurants
The Benihana and Benihana Grill restaurants are centrally managed by the
Executive Vice President - Restaurant Operations. The restaurants are divided
among five geographic regions, each managed by a regional manager.
Each Benihana restaurant has a manager and one or more assistant managers
responsible for the operation of the restaurant, including hiring, local
inventory purchasing, maintenance of quality control standards, cleanliness and
service.
The Company uses various incentive compensation plans pursuant to which key
restaurant personnel share in the results of operations at both a local and
company-wide level.
Specific strict guidelines as documented in restaurant operations manuals are
followed to assure consistently high quality in customer service and food
quality from location to location. Operating specifications are used for quality
of ingredients, preparation of food, maintenance of premises and employee
conduct and are incorporated in manuals used by the managers and assistant
managers. Food products and portion sizes are regularly and systematically
tested for quality and compliance with the Company's standards. Lobster is
purchased under long-term contracts for 22 of the restaurants under which a
certain number of pounds are purchased at a specific price. Most of the other
food products are purchased in local markets. Most of the restaurant operating
supplies are purchased centrally and distributed to the restaurants from the
Company's warehouse or one of two bonded warehouses.
The chefs are trained in the Teppanyaki style of cooking and customer service in
training programs lasting from eight to twelve weeks. A portion of the training
is spent working in a Benihana restaurant under the direct supervision of an
experienced head chef. The program includes lectures on the Company's method of
restaurant operations and training in both tableside and kitchen food
preparation as applied in Benihana restaurants. Manager training is similar
except that the manager trainee is given in-depth exposure to each position in
the restaurant, from busboy to maitre'd to manager. Other categories of
employees are trained by the manager and assistant manager at the restaurant
itself. On-going continuing education programs and seminars are provided to
restaurant managers and chefs to improve restaurant quality and implement
changes in operating policy or menu items.
The Company provides restaurant managers with centralized financial and
management control systems through use of data processing information systems
and prescribed reporting procedures.
Each restaurant forwards sales reports, vendor invoices, payroll and other
operational data to the home office on a weekly and four week period basis. The
Company utilizes this information to centrally monitor sales, product, labor and
other costs and to prepare periodic financial and management reports. The
Company believes that its centralized accounting, payroll and human resources,
cash management and information systems improve its ability to control and
manage its operations efficiently.
Marketing
The Company utilizes television, radio, billboard and print media to promote the
restaurants. The advertising programs are tailored to each local market and
television advertising is concentrated around certain specific dates to increase
efficiency. The advertising program is designed to emphasize the inherently
fresh and healthful aspects of a Benihana meal and the entertainment value of
the food preparation at the table. The entertainment value of the chef preparing
the meal is emphasized to distinguish the Benihana style of food preparation
from all other restaurant concepts.
Licensing
The Company offers licenses in markets where it considers expansion to be of
benefit to the Benihana system.
Licensees bear all direct costs involved in the development, construction and
operation of their restaurants. The Company provide licensees support for site
selection, prototypical architectural plans, interior and exterior design and
layout, training, marketing and sales techniques and opening assistance. All
licensees are required to operate their restaurants in accordance with Benihana
standards and specifications including menu offerings, food quality and
preparation.
3
The current standard licensing agreements provide for payment to the Company of
a non-refundable license fee of $30,000 to $50,000 per restaurant and royalties
of 3% to 6% of sales.
The Company presently licenses Benihana restaurants in Las Vegas, Nevada;
Beverly Hills, California; Seattle, Washington; Key West, Florida; Harrisburg;
Pennsylvania; Tracy, California; Modesto, California, and Honolulu, Hawaii.
License agreements have also been entered into for future Benihana restaurants
opening in Bogota, Colombia, Little Rock, Arkansas and the Island of Aruba. To
comply with the terms of these licenses entered into by the Company in the
United States, the Company is prohibited from opening additional restaurants
within certain areas (the "Licensee Zones") in which the Company's existing
licensees have the exclusive right to open additional Benihana restaurants. In
general, such license agreements currently provide for an initial payment to
Benihana with respect to each new restaurant opened by a licensee (although in
certain cases, no license fee is required) and continuing royalty payments to
the licensor based upon a percentage of a licensee's gross sales from each such
restaurant throughout the term of the license.
In connection with the Reorganization, BOT was granted an exclusive license to
own and operate Benihana restaurants in the State of Hawaii, including the
restaurant operated by BOT in Honolulu. BOT's license for Hawaii is royalty free
with respect to all restaurants in Hawaii beneficially owned by Mr. Aoki.
BOT continues to own the rights to the Benihana name and trademarks outside of
the United States, Central and South America and the islands of the Caribbean
Sea. Except for certain obligations accrued in favor of the Company with respect
to managerial services that may from time-to-time be provided by the Company,
the Company has no interest in any restaurants operated by BOT.
Restaurant Expansion
The Company intends to open additional owned and licensed Benihana and Benihana
Grill restaurants as specific opportunities arise and as permitted by the
Company's financial resources. In evaluating prospective restaurant sites, the
Company analyzes demographics (including income levels, family characteristics
and other factors), local economic conditions, visibility and accessibility of
the site, rate of growth, complementary businesses, traffic patterns and
proximity to major thoroughfares and places of public concentration, such as
shopping malls and offices. Management estimates the cost of building and
equipping a restaurant to range between $550,000 and $650,000 for a Benihana
Grill and $1,500,000 and $1,800,000 for standard Benihana restaurant depending
on size and location. Such costs do not include the acquisition of land as the
Company generally leases the real property underlying restaurant premises,
although purchases of real property may be effected if favorable opportunities
arise.
The development, construction and opening of any new restaurant is subject to a
number of uncertainties, principal among which are (I) locating and competing
for appropriate restaurant sites, (ii) obtaining leases at acceptable terms for
such sites, (iii) obtaining necessary construction financing upon acceptable
terms should internal cash resources be insufficient (iv) hiring and training
sufficient supervisory and operating personnel, and (v) receiving liquor and
food restaurant operating licenses, requisite zoning, environmental, health and
similar regulatory approvals. Additionally, unforseen construction or other
delays could postpone the restaurant's opening. Some of these elements are
dependent upon circumstances over which the Company does not have control and,
accordingly, there can be no assurance as to the time period for the Company's
anticipated development of additional restaurants.
Trade Names and Service Marks
Benihana is Japanese for "red flower". The United States "Benihana" and
"Benihana of Tokyo" names and "flower" logo, which Management believes to be of
material importance to the Company's business, are owned by the Company and are
registered in the United States Patent and Trademark Office ("Patent Office")
and certain foreign countries.
Employees
At March 31, 1996, the Company employed 1,793 persons, of which 1,746 were
restaurant employees and 47 were corporate personnel. Certain of the Company's
corporate employees perform administrative services for BOT for which the
Company is reimbursed. Most employees, except restaurant management and
corporate management personnel, are paid on an hourly basis. The Company also
employs some restaurant personnel on a part-time basis to provide the services
necessary during the peak periods of restaurant operations. The Company believes
its relation with its employees are good.
4
Competition
The restaurant business is highly competitive. The Company's restaurants compete
directly and indirectly with a large number of national and regional restaurant
operations, as well as with locally-owned restaurants of various types.
Competition is based upon a number of factors including food quality, location,
personnel, attractiveness of facilities, name recognition and price points of
menu offerings. There are several other companies engaged in restaurant
operations or franchising programs which have substantially greater financial
resources and a significantly higher total sales volume than that of the
Company. The restaurant industry is affected by, among other factors, general
economic conditions, changing consumer tastes, concerns over health and spending
habits. The Company believes that its competitive position is enhanced by
offering a quality food product at an appropriate price with the unique
entertainment provided by the chefs in an attractive, relaxed atmosphere.
Regulation
Each of the Company's restaurants is subject to licensing and regulation by the
health, sanitation, safety standards, fire department and the alcoholic beverage
control authorities in the state or municipality where it is located.
Difficulties or failures in obtaining the required licensing or requisite
approvals could result in delays or cancellations in the opening of new
restaurants. Federal and state environmental regulations have not had a material
effect on the Company's operations, but more stringent and varied requirements
of local governmental bodies with respect to zoning, land use and environmental
factors could delay construction of new restaurants.
The Company is also subject to federal and state regulations regarding franchise
offering and sales. Such laws impose registration and disclosure requirements on
franchisors in the offer and sale of franchises, or impose substantive standards
on the relationship between licensee and licensor.
The Americans with Disabilities Act, (the "Act") prohibits discrimination on the
basis of disability in public accommodations and employment. The Act, which
mandates accessibility standards for individuals with physical disabilities
increases the cost of construction of new restaurants and of remodeling older
restaurants.
The Company is also subject to the Fair Labor Standards Act which governs such
matters as minimum wages, overtime and other working conditions. A significant
portion of the Company's food service personnel are paid at rates related to
federal or state minimum wages rates, and accordingly, increases in any such
minimum wage will increase the Company's labor costs.
Seasonality
The Company's sales are not significantly affected by season.
5
Item 2. Properties
Of the Company's 38-owned Benihana restaurants, 33 restaurant properties are
leased pursuant to leases which require either a specific monthly rental amount,
or a minimum rent and contingent additional rent based upon a percentage of
gross sales. Leases for the free standing units require the Company to pay for
real estate taxes, insurance and all repairs. Leases for the office building,
shopping center and hotel locations typically require an increase in rent based
on an index (such as the consumer price index) or increases in the landlord's
cost.
The following table sets forth certain information concerning the Company's
restaurants:
Renewal Options
Approx. Approximate Seating Expiration Date Years
Sq. Ft. of Dining Date Exclusive of No.Of of Each
Benihana Location Building Room Lounge Opened Options Options Option
- - ----------------- --------- ---- ------ ------ ----------- ------- -------
2100 E. Ball Rd. 8,710 208* 67 03/17/80 03/31/05 3 5
Anaheim, CA (1)
2143 Peachtree Road 8,244 153* 65 05/10/74 12/31/02 0 0
Atlanta [I], GA (2)
229 Peachtree St. NE 6,244 126* 34 04/26/81 12/31/01 0 0
Atlanta [II], GA (1)
9205 S.W. Cascade 6,077 112 54 08/07/86 08/07/06 0 0
Beaverton, OR (1)
7315 Wisconsin Ave. 6,374 128 47 10/25/74 07/31/00 0 0
Bethesda, MD (2)
1496 Old Bayshore Hwy 8,740 160 99 02/28/78 01/31/03 4 5
Burlingame, CA (1)
5255 Marlton Pike 7,000 146* 93 02/14/78 11/30/02 2 5
Pennsauken, NJ (1)
(Cherry Hill)
166 E. Superior Street 7,288 163 85 04/06/68 02/28/13 0 0
Chicago, IL (1)
50 Tri-County Pkwy 7,669 144 91 06/03/78 06/30/03 2 5
Cincinnati, OH (1)
17877 Gale Avenue 8,000 156* 50 11/14/88 11/30/03 4 5
City of Industry, CA (1)
1989 Diamond Blvd. 8,250 144 84 02/12/80 02/28/05 4 5
Concord, CA (1)
(1) Lease provides for minimum rent, plus additional rent based upon a
percentage of gross sales.
(2) Lease provides for fixed rent.
* Including Sushi seating: Anaheim (48); Atlanta [II] (17); Atlanta [I]
(11); Pennsauken (10); City of Industry (12)
6
Renewal Options
Approx. Approximate Seating Expiration Date Years
Sq. Ft. of Dining Date Exclusive of No. Of of Each
Benihana Location Building Room Lounge Opened Options Options Option
- - ----------------- --------- ---- ------ ------ --------------- ------- ------
2074 Vallco Fashion Pk 7,937 152* 45 07/15/80 06/30/05 0 0
Cupertino, CA (1)
12700 Park Central Pl 8,007 160 115 01/15/76 07/31/00 0 0
Dallas, TX (2)
3295 S. Tamarac Drive 7,572 128 82 02/17/77 12/31/01 1 5
Denver, CO (1)
16226 Ventura Blvd. 7,790 152 64 10/06/70 03/31/00 0 0
Encino, CA (2)
276 E. Commercial Blvd. 8,965 160 70 06/05/70 N/A Owned N/A
Lauderdale-by-the-Sea,
FL
1318 Louisiana St. 6,938 140* 60 05/09/75 05/31/99 0 0
Houston [I], TX (2)
9707 Westheimer Rd. 7,669 144 120 11/11/77 11/30/02 2 5
Houston [II], TX (1)
8830 Keystone Crossing 8,460 144 93 02/08/79 02/29/04 2 5
Indianapolis, IN (1)
8727 So. Dixie Hwy. 8,700 138* 66 03/24/89 12/31/03 0 0
Miami, FL (2)
747 E. Butterfield Rd. 9,200 168 51 04/13/85 N/A Owned N/A
Lombard, IL
1510 Lake Shore Court 7,572 128 88 07/20/78 07/31/03 2 5
Louisville, KY (1)
2105 Northern Blvd. 8,252 144 88 12/15/78 08/31/03 2 10
Munsey Park, NY (1)
(Manhasset)
(1) Lease provides for minimum rent, plus additional rent based upon a
percentage of gross sales.
(2) Lease provides for fixed rent.
* Including Sushi seating: Cupertino (8); Houston [II] (12); Miami (16).
7
Renewal Options
Approx. Approximate Seating Expiration Date Years
Sq. Ft. of Dining Date Exclusive of No. Of of Each
Benihana Location Building Room Lounge Opened Options Options Option
- - ----------------- --------- ---- ------ ------ --------------- ------ ------
14160 Panay Way 4,840 96 66 03/24/72 05/14/01 0 0
Marina Del Rey, CA (1)
912 Ridgelake Blvd. 8,680 155* 78 10/16/79 10/31/04 2 5
Memphis, TN (1)
1665 NE 79 Street 8,938 206* 86 09/27/73 N/A Owned N/A
Miami Beach, FL
120 East 56 Street 3,859 86 24 05/15/66 12/31/04 0 0
New York, NY (2)
47 West 56 Street 7,340 112 59 06/16/73 03/31/98 0 0
New York, NY (2)
4250 Birch Street 8,275 172* 72 03/14/78 03/31/02 5 5
Newport Beach, CA (4)
1751 Hotel Park Blvd. 8,145 136* 85 10/19/88 10/18/98 2 5
Lake Buena Vista, FL
(Orlando (3) )
5489 E. Sunrise Blvd. 3,798 88 8 10/12/95 08/31/05 0 0
Citrus Heights, CA
(Sacramento)
165 SW Temple Bldg. 1 6,000 120 72 04/14/77 03/31/06 2 5
Salt Lake City, UT (1)
477 Camino Del Rio So. 7,981 165* 68 05/10/77 10/31/01 2 5
San Diego, CA (1)
1737 Post Street 7,990 140 45 12/15/80 12/31/00 0 0
San Francisco, CA (2)
1200 E. Higgins Road 8,388 160 48 07/26/92 N/A Owned N/A
Schaumburg, IL
840 Morris Turnpike 11,500 160* 56 10/31/76 03/31/01 0 0
Short Hills, NJ (2)
3602 SE Ocean Blvd. 8,485 160 69 02/01/77 N/A Owned N/A
Stuart, FL
21327 Hawthorne Blvd. 7,430 128 63 05/09/80 05/31/05 2 5
Torrance, CA (1)
(1) Lease provides for minimum rent, plus additional rent based upon a
percentage of gross sales.
(2) Lease provides for fixed rent..
(3) Rent is based on a percentage of sales.
(4) Rent is fixed plus a percentage of profits.
* Including Sushi Seating: Memphis (11); Miami Beach (28);
Newport Beach (28); Orlando (8); San Diego (21); Short Hills (16)
8
The Company leases approximately 10,100 square feet of space for its general
administrative offices in Miami at an annual rental of $162,692 and 8,000 square
feet for a warehouse also in Miami at an annual rental of $24,154. The leases
expires May 31, 1999 and October 31, 1996, respectively.
Item 3. Legal Proceedings
There are no material legal proceedings to which the Company or any of its
subsidiaries is a party other than ordinary litigation incidental to the conduct
of the Company's business.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter.
9
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to
page 27 of the Company's 1996 Annual Report to Shareholders.
Item 6. Selected Consolidated Financial Data
The information required by this Item is incorporated herein by reference to
page 2 of the Company's 1996 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this Item is incorporated herein by reference to
pages 7 through 10 of the Company's 1996 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is incorporated herein by reference to
pages 11 through 23 of the Company's 1996 Annual Report to Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
10
PART III
Item 10. Directors and Executive Officers of the Company
Directors. The information appearing under the caption "Election of Directors"
on pages 2 through 4 of the Company's Proxy Statement for its Annual Meeting of
Stockholders to be held on July 19, 1996 (the "Proxy Statement") is incorporated
herein by reference.
Item 11. Executive Compensation
The information appearing under the caption "Executive Compensation" commencing
on page 7 of the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing under the caption "Security Ownership of Management"
on pages 7 and 8 of the Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information appearing under the captions "Certain Relationships and Related
Transactions" on page 11of the Proxy Statement is incorporated herein by
reference.
11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements:
The following consolidated financial statements of the Company and
its subsidiaries, which are set forth on pages 11 through 23 of
the Company's 1996 Annual Report to Shareholders included
herein as Exhibit 13, are incorporated herein by reference as
part of this report.
Consolidated Balance Sheets as of March 31, 1996 and March 26,
1995.
Statements of Income for the fifty-three weeks ended March 31,
1996, the fifty-two weeks ended March 29, 1995 and fifty-two weeks
ended March 27, 1994.
Statements of Stockholders' Equity for the fifty-three weeks ended
March 31, 1996, the fifty-two weeks ended March 26, 1995 and
fifty-two weeks ended March 27, 1994.
Statements of Cash Flows for the fifty-three weeks ended March 31,
1996, the fifty-two weeks ended March 26, 1995 and the fifty-two
weeks ended March 27, 1994.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
2. Financial Statement Schedules:
Supplemental Schedule of Calculation of Earnings Per Share.
3. Exhibits:
2.01 Amended and Restated Agreement and Plan of
Reorganization, dated as of December 29, 1994 and
amended as of March 17, 1995 among BNC, BOT, the
Company and BNC Merger Corp. Incorporated by
reference to Exhibit 2.01 to the Company's
Registration Statement on Form S-4, Registration No.
33-88295, made effective March 23, 1995 (the "S-4").
3.01 Certificate of Incorporation of the Company.
Incorporated by reference to Exhibit 3.01 to the S-4.
3.02 By-Laws of the Company. Incorporated by reference
to Exhibit 3.02 to the S-4.
4.01 Certificate of Designation of Rights, Preferences and
Terms for the Series A Convertible Preferred Stock of
the Company. Incorporated by reference to Exhibit
4.01 to the Company's Current Report on Form 8-K
dated May 15, 1995.
4.02 Form of Certificate representing shares of the
Company's Common Stock. Incorporated by reference
to Exhibit 4.02 to the S-4.
4.03 Form of Certificate representing shares of the
Company's Class A Common Stock. Incorporated by
reference to Exhibit 4.03 to the S-4.
10.01 License Agreement, dated as of May 15, 1995 between
BNC and BOT Inc. Incorporated by reference to
Exhibit 10.01 to the S-4.
10.02 7 1/2% unsecured Promissory Note dated May 15, 1995
delivered by the Company to BOT as part of the
consideration for the Transfer. Incorporated by
reference to Exhibit 10.02 to the S-4.
12
10.03 Employment Agreement dated May 15, 1995 between
Rocky H. Aoki and the Company. Incorporated by
reference to Exhibit 10.03 to the S-4.
10.04 Employment Agreement dated May 15, 1995 between Joel
A. Schwartz and the Company. Incorporated by
reference to Exhibit 10.04 to the S-4.
10.05 Promissory Note made by BOT in favor of BNC dated
September, 1992. Incorporated by reference to
Exhibit No. 10.13 to BNC's Annual Report on
Form 10-K for the fiscal year ended March 28, 1993.
10.06 BNC's 1985 Employee's Stock Option Plan. Incorporated
by reference to Appendix II to BNC Proxy Statement
for its Annual Meeting of Stockholders held on
December 11, 1985. Incorporated by reference to
Exhibit 10.06 to the S-4.
10.07 1994 Employees' Stock Option Plan Incorporated by
reference to Exhibit 10.07 to the S-4.
10.08 Directors Stock Option Plan. Incorporated by
reference to Exhibit 10.08 to the S-4.
10.09 Employment Agreement dated January 1, 1995 between
Taka Yoshimoto and BNC. Incorporated by reference to
Exhibit 10.09 to the S-4.
10.10 Employment Agreement dated January 1, 1995 between
Michael Burris and the Company. Incorporated by
reference to Exhibit 10.10 to the S-4.
10.11 Second Amended and Restated Credit Agreement, dated
as of May 1, 1995, among BNC, its Subsidiaries named
as co-makers, its Subsidiaries named as guarantors,
the Company, First Union National Bank of Florida,
the successor in interest to the Federal Deposit
Insurance Corporation, as receiver of Southeast
Bank, N.A., and First Union National Bank of
Florida, as Agent for the Lenders. Incorporated by
reference to Exhibit 10.11 to the Company's Annual
Report on Form 10-K for the fiscal year ended
March 26, 1995.
10.12 Benihana Incentive Compensation Plan.
11.01 Supplemental Schedule - Calculation of Earnings
Per Share.
13.01 Portions of Annual Report to Stockholders for the
year ended March 31, 1996.
22.01 List of Subsidiaries. Incorporated by reference to
Exhibit No. 22.01 to the S-4.
23.01 Consent of Deloitte & Touche LLP.
(b) Reports on Form 8-K.
None.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: May 22, 1996 BENIHANA INC.
By: /s/ Joel A. Schwartz
Joel A. Schwartz, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on the date indicated above by the following persons on behalf
of the registrant and in the capacities indicated.
Signature Title Date
/s/ Rocky H. Aoki Chairman of the May 22, 1996
- - ------------------------ Board and Director
Rocky H. Aoki (Principal Executive Officer)
/s/ Joel A. Schwartz President and May 22, 1996
- - ------------------------ Director (Principal
Joel A. Schwartz Executive Officer)
Executive Officer)
/s/ Taka Yoshimoto Vice President - May 22, 1996
- - ------------------------ Operations and Director
Taka Yoshimoto
/s/ Irwin K. Chapman Director May 22, 1996
- - ------------------------
Irwin K. Chapman
/s/ Robert B. Greenberg Director May 22, 1996
- - ------------------------
Robert B. Greenberg
/s/ John E. Abdo Director May 22, 1996
- - ------------------------
John E. Abdo
/s/ Michael R. Burris Treasurer and Vice May 22, 1996
- - ------------------------ President of Finance
Michael R. Burris (Chief Financial Officer and
Principal Accounting Officer)
/s/ Darwin C. Dornbush Secretary and Director May 22, 1996
- - ------------------------
Darwin C. Dornbush
14
Exhibit 10.12 - BENIHANA INCENTIVE COMPENSATION PLAN
The Benihana Incentive Compensation Plan (the "Plan) is adopted by Benihana
Inc., a Delaware corporation, and its subsidiaries (the "Company").
1. Purpose of the Plan..
1.1 The purpose of this Plan is to improve the long-term
sustainable results of operations of the Company by more fully
aligning the interests of management and key employees with the
shareholders of the Company. This is to be accomplished by providing
financial incentive to management to produce excellent results based
upon actual results by fostering teamwork and mutual cooperation
and communication and by building sensitivity to costs, quality and
service.
2. Definitions.
2.1 "Adjusted Plan Income - First Level" means, for any Fiscal Year,
the amount obtained by subtracting from (x) Plan Income for such Fiscal
Year, (y) an amount equal to (i) the amount allocated to the Bonus Pool
pursuant to Section 4.3(a) with respect to such Fiscal Year, reduced by
(ii) the amount by which the Company's federal income tax liability was
reduced by the availability for deduction for tax purposes of the
amount described in clause (I) hereof.
2.2 Adjusted Plan Income - Second Level" means, for any Fiscal Year,
the amount obtained by subtracting from (x) Plan Income for such Fiscal
Year, (y) an amount equal to (i) the amount allocated to the Bonus Pool
pursuant to Sections 4.3 (a) and (b) with respect to such Fiscal Year
reduced by (ii) the amount by which the Company's federal income tax
liability was reduced by the availability for deduction for tax
purposes of the amount described in clause (i) hereof.
2.3 "Adjusted Plan Income - Third Level" means, for any Fiscal Year,
the amount obtained by subtracting from (x) Plan Income for such Fiscal
Year, (y) an amount equal to (i) the amount allocated to the Bonus Pool
pursuant to Sections 4.3(a), (b) and (c) with repect to such Fiscal
Year reduced by (ii) the amount by which the Company's federal income
tax liability was reduced by the availability for deduction for tax
purposes of the amount described in clause (i) hereof.
2.4 "Bonus Pool" means the sum computed in accordance with Section 4.1
hereof, available for payment of bonuses hereunder to Participants in
any Fiscal Year.
2.5 Board of Directors" means the Board of Directors of Benihana Inc.
2.6 "Cause" means the Participant, in the reasonable judgment of the
Board of Directors, (i) materially breaches any of his agreements,
duties or obligations under any employment agreement he or she may have
with the Company and has not cured such breach or commenced in good
faith to correct such breach within thirty (30) days after notice; (ii)
fails to carry out a lawful directive of the Board of Directors or of
senior management of the Company; (iii) embezzles or converts to his
own use any funds of the Company or any client or customer of the
Company; (iv) converts to his own use or unreasonably destroys,
intentionally, any property of the Company, without the Company's
consent (v) is convicted of a felony; (vi) is adjudicated an
incompetent; (vii) is habitually intoxicated or is diagnosed by an
independent medical doctor to be addicted to a controlled substance, or
(viii) behaves in a manner which, with intent to do so, materially
impairs the Company's relations with its customers or others in its
industry or otherwise disparages the reputation of the Company.
2.7 "Committee" means the Compensation Committee of the Board of
Directors, appointed by the Board of Directors, to administer the
Plan. The initial Committee consists of John E. Abdo, Darwin C.
Dornbush and Robert Greenberg.
2.8 "Company" means Benihana Inc. and its subsidiaries.
2.9 "Eligible Salary" means, for each Participant in any Fiscal Year,
the amount of compensation paid to such Participant during such Fiscal
Year as shown of the Company's payroll records for such Participant,
reduced by (a) 40% of the maximum amount of compensation which is
generally subject to FICA
15
withholding, and (b) the amount of any such compensation attributable
to awards under this Plan; but in no case shall such eligible salary be
reduced below zero.
2.10 "Executive Employees" means the Chairman of the Board, the
President and all Vice Presidents of Benihana Inc.
2.11 "Fiscal Year" means the fiscal year of the Company.
2.12 "Improved Performance Rate" means the three levels of ROE which
are the threshold for increased percentages in the Bonus Pool
determined pursuant to Section 4.2 hereof.
2.13 "Improved Performance Rate Income" means, for any level in any
Fiscal Year, the amount of Net Income for such Fiscal Year which is the
product of multiplying (a) the ROE which is the Improved Performance
Rate for such level for such Fiscal Year, times (b) Stockholders Equity
for such Fiscal Year.
2.14 "Managerial Employees" means employees of Benihana Inc. who have
the titles "Director" or "Controller".
2.15 "Net Income" means for any Fiscal Year the amount of the item "Net
Income" in the Company's audited Consolidated Statements of Operations
for such Fiscal Year.
2.16 "Participants" mean persons who are officers, and employees of the
Company eligible to participate in the Plan pursuant to the provision
of Section 3.1.
2.17 "Plan" means the Benihana Incentive Compensation Plan.
2.18 "Plan Income" means, for each Fiscal Year, the Net Income for such
Fiscal Year increased by the amount, if any, of expenses (net of
applicable state and federal income tax effect) charged against such
Net Income for bonuses under this Plan with respect to such Fiscal
Year.
2.19 "President" means the President of Benihana Inc.
2.20 "ROE" means the Return on Equity for each Fiscal Year, computed as
a ratio expressed as a percentage for such Fiscal Year by dividing the
amount of Net Income for such Fiscal Year by Stockholders Equity.
2.21 "Savings Plan" means the Benihana Inc. Executive Retirement
Savings Plan.
2.22 "Staff and Administrative Employees" means employees of the
Company at its executive offices who are not Executive Employees or
Managerial Employees.
2.23 "Stock" means the Class A Common Stock of Benihana Inc., par
value $.10 per share.
2.24 "Stockholders Equity" means, for any Fiscal Year the amount stated
at the start of such Fiscal Year in the line item "Total stockholders
equity" on the Company's audited Consolidated Balance Sheets.
2.25 "Target Income" means, for any Fiscal Year, the amount of Net
Income for such Fiscal Year which is the Product of multiplying (a) the
Target Rate of ROE for such Fiscal Year, times (b) Stockholders Equity
for such Fiscal Year.
2.26 "Target Rate" means the minimum ROE above which bonuses may be
awarded hereunder determined pursuant to Section 4.1 hereof.
2.27 "Term" means the Term of the Plan computed in accordance with
Article 11.
2.28 "Termination" means the termination of employment with the
Company. For purposes of this definition, employees receiving
short-term disability shall not be deemed to have suffered a
Termination; employees receiving long-term disability and employees to
whom salary is continued only as part of a severance arrangement shall
be deemed to have suffered a Termination.
16
3. Eligible Participants.
3.1 The persons eligible to be Participants in the Plan shall be the
Executive Employees, the Managerial Employees and the Staff and
Administrative Employees employed at the executive offices of the
Company located, at the date of adoption of the Plan, at 8685 Northwest
53rd Terrace, Miami, Florida 33166.
3.2 No person shall be a Participant in the Plan with respect to any
Fiscal Year unless such person is employed by the Company as an
Executive Employee, a Managerial Employee or a Staff and Administrative
Employee on the day which is 180 days from the end of such Fiscal Year
and who shall not have suffered a Termination prior to the time bonuses
under the Plan are awarded with respect to such Fiscal Year.
4. Calculation of Bonus Pool; Allocation into Sub-Pools.
4.1 Prior to the start of each Fiscal Year after Fiscal Year 1996 and
for the Term of the Plan, the Committee shall determine a ROE to be the
Target Rate for such Fiscal Year based on a review of the rate of
return on equity of comparable publicly traded restaurant companies.
The determination of which other restaurant companies are to be
considered comparable is in the sole discretion of the Committee. The
Target Rate shall be 15% for Fiscal Year 1996.
4.2 Prior to the start of each Fiscal Year after Fiscal Year 1996 and
for the Term of this Plan, the Committee shall determine ROE's to
constitute three Improved Performance Rates (to be denoted "Improved
Performance Rate - First Level", "Improved Performance Rate - Second
Level" and "Improved Performance Rate - Third Level") as higher levels
of excellence of operating results may be achieved. In no event shall
the Improved Performance Rate - First Level be less than five (5)
percentage points in excess of the ROE for the Target Rate, and the
increments between ROE's for the three levels of Improved Performance
Rate shall also be not less than five (5) percentage points. The ROE
for the Improved Performance Rates for Fiscal Year 1996 shall be as
follows:
First Level 20%
Second Level 25%
Third Level 30%
4.3 As soon as practicable after the end of each Fiscal Year during the
Term of the Plan, the Company's Chief Financial Officer shall compute
the amount of the Bonus Pool, which shall be as follows:
(a) 20% of the amount, if any, by which the Plan Income
for such Fiscal Year exceeds the Target Income for
such Fiscal Year; plus
(b) 40% of the amount, if any, by which the Adjusted Plan
Income - First Level for such Fiscal Year exceeds the
Improved Performance Rate Income - First Level for
such Fiscal Year; plus
(c) 60% of the amount, if any, by which the Adjusted Plan
Income - Second Level for such Fiscal Year exceeds
the Improved Performance Rate Income - Second Level,
for such Fiscal Year; plus
(d) 75% of the amount, if any, by which the Adjusted Plan
Income - Third Level for such Fiscal Year exceeds the
Improved Performance Rate - Third Level for such
Fiscal year.
4.4 Promptly after determination of the Bonus Pool for each Fiscal
Year, the Chief Financial Officer of the Company shall allocate the
Bonus Pool into three sub-pools denoted the "Executive Employee
Sub-Pool" for participation by Executive Employees, the "Managerial
Employee Sub-Pool" for participation by Managerial Employees and the "
Staff and Administrative Employee Sub-Pool" for participation by the
Staff and Administrative Employees. Such allocation shall be made on
the basis that each Sub-Pool shall be the same percentage of the Bonus
Pool as the aggregate Eligible Salaries of the Participants
participating in that sub-pool is to the aggregate Eligible Salaries of
all Participants.
5. Allocation of Bonuses to Participants.
5.1 The Committee, in its sole discretion, shall determine the portion
of the Executive Employee Sub- Pool which is to be allocated to the
Chairman and the President. The remaining amount allocated to the
Executive Employee Sub-Pool shall be allocated among the other
Executive Employees by the President in his sole discretion.
5.2 The amount allocated to the Managerial Employee Sub-Pool and the
Staff and Administrative Sub- Pool shall be allocated among the
departments in which Participants are employed by the President in his
sole discretion. The amounts of each Sub-Pool allocated to each
department shall be allocated (subject to the approval of the
President) among the Managerial Employees and the Administrative and
Staff Employees, respectively, in such department by the Vice President
responsible for such department in his or her discretion.
5.3 The allocation to Participants contemplated by this Article 5 shall
be made on the basis of the contributions of the various Participants
to the long-term success and profitability of the Company considering
the duties and responsibilities of their positions, as well as on the
contributions of each to the results of the subject Fiscal Year.
5.4 Prior to the allocation pursuant to this Article 5, nothing in this
Plan, including the existence of funds in the Bonus Pool or any
Sub-Pool, shall give any Participant the right to receive any bonus
under this Plan.
5.5 In no event shall the amount of the bonus allocated to any
Participant pursuant to this Article 5 with respect to any Fiscal Year
exceed 50% of such Participant's Eligible Salary for such Fiscal Year.
In the event that, because of the limitation contained in this Section
5.5, the entire amount in any Sub-Pool cannot be allocated to
Participants in that Sub-Pool in any Fiscal Year, the amount in that
Sub-Pool and in the Bonus Pool for such Fiscal Year shall be reduced by
the amount which could not be so allocated.
6. Vesting of Awards.
6.1 All awards in amounts of One Thousand $1,000) Dollars or less shall
be immediately due and payable by the Company to the Participant to
whom awarded.
6.2 All awards in each Fiscal Year in excess of One Thousand ($1,000)
Dollars shall vest in accordance with the following schedule:
(a) One-third of such award shall be immediately payable,
(b) One-third of such award shall vest and be payable on
the last business day of the Fiscal Year following
the Fiscal Year with respect to which such award was
made, and
(c) The balance of such award shall vest and be payable
on the last business day of the second First Year
following the Fiscal Year with respect to which such
award was made.
6.3 Notwithstanding the provisions of Section 6.2 in the event that any
Participant shall suffer a Termination (i) by the Company for Cause or
(ii) by reason of such Participant's resignation (other than at or
after such Participant's 65th birthday), all awards under this Plan
made to such Participant which have not vested on the date of such
Termination shall be forfeited. No awards so forfeited shall be
reallocated or re- awarded to other Participants. In the event that any
Participant shall suffer a Termination (i) on accouant of such
Participant's death or disability or (ii) at or after such
Participant's 65th birthday, all awards under this Plan made to such
Participant which have not vested on the date of such Termination shall
be deemed immediately vested and payable to such Participant or such
Participant's legal representative.
7. Payment Options.
7.1 All Participants may elect to receive their awards under this Plan
either in a lump sum cash payment (subject to the vesting requirements
of Article 6 hereof) or by the purchase of Stock pursuant to Section
7.2. Participants who are eligible to participate in the Savings Plan
shall have the additional option of electing to defer payment of any
vested awards under this Plan pursuant to the provisions of the Savings
Plan.
7.2 Any Participant receiving an award under this Plan may elect to
receive all or a portion of the vested portion of such award in Stock
valued at eighty-five (85%) percent of the numerical averages of the
closing prices of the Stock (as such price is quoted in The Wall Street
Journal) for the last seven (7) days on which the Stock was traded
prior to the day on which the awards of bonuses under the Plan are
announced.
17
Such election shall be made by completing, signing and returning to the
Company a form to such effect to be supplied annually by the Company
within ten (10) business days of the announcement of the awards under
this Plan (which time may be extended at the option of the Committee in
cases of hardship). The Company may satisfy its obligation to deliver
Stock under this Section 7.2 with newly issued or treasury Stock, or
with Stock purchased for such purpose. No elections to receive Stock
under this Section 7.2 shall be effective or binding on the Company
unless there is an effective Registration Statement on Form S-8 (or
other applicable form) relating to the sale of the Stock hereunder
filed with the U.S. Securities and Exchange Commission.
In the event that the Company shall have adopted a Qualified Employee
Stock Purchase Plan to the extent permitted by such Plan, a Participant
may elect to have all or a portion of any award hereunder adjusted for
the 15% discount contemplated by this Section 7.2 contributed to such
plan. It is contemplated that such 15% discount would be in lieu of,
and not in addition to, any discount which may be available under plan.
Certificates representing the shares of Stock purchased under this
Section 7.2 will be delivered to the respective Participants as, if and
when the awards hereunder with respect to which such purchases are
being made vest pursuant to the provisions of Section 6.2. Prior to
such vesting, the Participant shall have no right as a stockholder with
respect to such shares of Stock. The amount of all Stock purchases
hereunder which have not vested shall be equitably adjusted to reflect
any split, reverse split, stock dividend or other change in the amount
or nature of the Company's Stock outstanding.
7.3 Any other provision of this Article 7 to the contrary
notwithstanding, the Committee shall, at the time of the award of any
Bonuses under this Plan, have the option, in its sole discretion, to
require that a portion or all of any Bonus be taken as deferred
payments (deferred for such period as the Committee may determine) or
by purchase of Stock pursuant to Section 7.2 if the Committee deems
such action necessary or advisable because of the Company's cash flow
requirements.
8. Interpretations.
All decisions and interpretations made by the Board of Directors or the
Committee with regard to any question arising under the Plans shall be
binding and conclusive on the Company and the Participants.
9. No Right of Employment.
No Participant shall have any right of continued employment with the
Company by virtue of his or her participation in the Plan. No employee
of the Company shall have any right to participate in the Plan except
as stated herein.
10. No Alienation.
No Participant in the Plan shall have any right to pledge, assign or
otherwise alienate his right to receive any payments from or under the
Plan except pursuant to an order of a court of competent jurisdiction.
11. Term of Plan.
The Plan shall commence with respect to the Fiscal Year ending March
31, 1996 and will terminate (but for the vesting provisions of Article
6 and for any payments which have been deferred pursuant to Section
7.3) after awards have been made with respect to the Fiscal Year ending
in 2005.
12. Amendment.
The Board of Directors shall have the right to amend the Plan at any
time or from time to time except that no such amendment shall adversely
effect the right of any Participant to receive payments under the Plan
with respect to any Fiscal Year completed prior to such amendment.
13. Choice of Law.
This Plan, and all rights hereunder, shall be governed by the laws of
the State of Florida.
18
14. Tax Withholding.
All payments to be made to Participant under this Plan shall be subject
to all required withholding of federal, state and local taxes. In the
event a Participant elects to purchase Stock pursuant to Section 7.2,
the Company will make all such required withholdings with respect
thereto either (i) from awards hereunder elected in cash, or (ii) from
the Participants salary, or the Company may require that the
Participant deposit the amount of required withholding as a condition
to his or her receipt of such Stock.
19
Exhibit 11.01
BENIHANA INC.
CALCULATION OF EARNINGS PER SHARE
YEAR ENDED
1996 1995 1994
---- ---- ----
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 5,821,191 5,732,151 5,732,050
(COMMON & CLASS A) COMMON STOCK
ISSUED TO BOT IN CONNECTION WITH
THE REORGANIZATION 76,905 76,905
DILUTIVE EFFECT OF WARRANTS
OUTSTANDING (1) 118,629 24,732
DILUTIVE EFFECT OF STOCK OPTIONS
OUTSTANDING USED IN CALCULATION
OF EARNINGS PER SHARE 62,884 32,679
----------- ----------- -----------
6,002,704 5,866,467 5,808,955
=========== =========== ===========
NET INCOME $4,410,000 $2,751,000 $2,039,000
PRO FORMA EFFECT OF DIVIDEND ON
PREFERRED STOCK ISSUED IN
CONNECTION WITH THE REORGANIZATION (120,000) (120,000) (120,000)
PRO FORMA INTEREST ON DEBT INCURRED
TO FINANCE ACQUISITION OF BOT
RESTAURANTS (36,250) (261,000) (261,000)
PRO FORMA INTEREST ON DEBT ISSUED
TO BOT TO FINANCE ACQUISITION OF BOT
RESTAURANTS (6,806) (49,000) (49,000)
INCOME TAX EFFECT ON INTEREST ON
ACQUISITION DEBT INDEBTEDNESS 17,222 124,000 124,000
----------- ----------- ------------
PRO FORMA NET INCOME $4,264,166 $2,445,000 $1,733,000
=========== =========== ============
EARNINGS PER SHARE $ .71 $.42 $.30
======= ==== ====
(1) Antidilutive in 1994
20
Exhibit 13.01 - SELECTED FINANCIAL DATA
The following table sets forth selected financial data with respect to the
Company. This table should be read in conjunction with the consolidated
financial statements, including the notes thereto, which are included elsewhere
in this annual report. The table reflects the number of restaurants in operation
during all or part of the indicated years. The fiscal year ended March 31, 1996
consists of 53 weeks and all other fiscal years presented consist of 52 weeks.
The financial data in the following table is qualified in its entirety by, and
should be read in conjunction with the financial statements and notes thereto
and "Management's Discussion and Analyses of Financial Condition and Results of
Operations."
Years Ended
-----------
March 31, March 26, March 27, March 28, March 29,
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Unaudited)
(All dollar amounts in thousands, except for per share amounts)
INCOME STATEMENT DATA:
Restaurant sales $81,094 $72,772 $69,315 $64,939 $63,024
Other Income 512 492 451 459 618
Cost of sales and restaurant
expenses 69,804 64,764 62,354 59,423 57,744
General and administrative
expenses 4,801 4,841 4,167 3,943 4,127
Interest expense, net 1,226 1,140 1,202 1,284 1,427
Provision for closed units 427
Income tax provision (benefit) 1,365 (232) (423) (80) 31
Income from continuing
operations 4,410 2,751 2,039 828 313
Cumulative effect of a change
in accounting principle 353
Net income 4,410 2,751 2,039 828 666
Proforma net income available
for common shareholders 4,264 2,445 1,733 522 360
Proforma net income per
common share (1) $.71 $.42 $.30 $.09 $.06
BALANCE SHEET DATA: (Unaudited) (Unaudited)
Current assets $ 7,727 $ 5,111 $ 4,644 $ 4,607 $ 3,967
Total assets $36,257 $33,722 $34,220 $35,187 $35,191
Long-term debt and obligations
under capital leases $10,904 $12,883 $10,657 $12,697 $13,942
Current liabilities $ 8,027 $ 8,634 $ 8,764 $ 9,768 $ 9,268
Stockholders' equity $17,326 $12,205 $14,799 $12,722 $11,943
(1) The pro forma net income per common share was computed using the weighted
average shares and common stock equivalents outstanding in each year. The
amounts of preferred dividends and interest expense that would have been
incurred as a result of the acquisition of the BOT Restaurants have been
factored in the calculation of proforma net income per common share for all
periods that are presented prior to the acquisition. (See Note 2 to the
consolidated financial statements).
21
Overview
The Company achieved record earnings during 1996. Income before income taxes
increased 129.3% to $5,775,000 as compared to $2,519,000 in 1995 and $1,616,000
in 1994. After tax income increased 60.3% to $4,410,000 as compared to
$2,751,000 in 1995 and $2,039,000 in 1994. Net income as a percentage of sales
was 5.4%, 3.8% and 2.9% in fiscal 1996, 1995 and 1994, respectively. Total sales
increased 11.4%.
At March 31, 1996 there were 38 owned and eight franchised Benihana restaurants.
One new owned restaurant near Sacramento, California and one franchised
restaurant opened in Modesto, California during fiscal 1996.
The Company's financial statements and the discussion and data presented below
reflect the Reorganization pursuant to which the Company acquired 17
restaurants, four license agreements and the U.S. trademarks of Benihana of
Tokyo, Inc. (BOT) and include the financial condition and results of operations
of Benihana National Corp. which was merged into a subsidiary of the Company
through a share-for-share exchange of common stock. The Reorganization was
accounted for in a manner similar to that of a pooling of interests. Under the
pooling of interests method, assets, liabilities and equity are carried over
based upon their historical book values and operating results are included for
each of the entire fiscal years presented. Additionally, proforma effect to per
share earnings was given for all periods prior to the Reorganization to the
incremental amounts of interest on additional indebtedness and dividends on the
preferred stock that was issued to effect the Reorganization.
The Company's revenues consist of sales of food and beverages sold in each of
the owned restaurants and licensing fees received from licensees. Cost of
restaurant food and beverage sold represents the direct cost of the ingredients
for the prepared food and beverages sold. Restaurant expenses consist of direct
and indirect labor, occupancy costs, advertising and other costs that are
directly attributed to each restaurant location.
Restaurant revenues and expenses are dependent upon a number of factors
including the number of restaurants in operation and restaurant patronage.
Revenues are also dependent on the average check amount and expenses are
additionally dependent upon the costs of food and beverages sold, average wage
rates, marketing costs and the costs of interest and administering restaurant
operations.
Revenues
The amounts of sales and the changes in amount and percentage change in amount
of sales from the previous fiscal year are shown in the following tables:
YEAR ENDED MARCH
----------------
1996 1995 1994
------- ------- -------
Net restaurant sales $81,094 $72,772 $69,315
Other income 512 492 451
------- ------- -------
$81,606 $73,264 $69,766
======= ======= =======
YEAR ENDED MARCH
----------------
1996 1995 1994
------ ------- -------
Amount of change from the previous year $8,342 $ 3,498 $ 4,368
Percentage change from the previous year 11.4% 5.0% 6.7%
Average sales per restaurant $2,118 $ 1,966 $ 1,836
Percentage growth in comparable sales per restaurant 7.7% 7.1% 5.3%
Year ended March 31, 1996 compared to March 26, 1995 -- Total restaurant sales
increased $8,322,000 over fiscal 1995. Fiscal 1996 consisted of 53 weeks and
fiscal 1995 consisted of 52 weeks. The additional week represented $1,667,000 of
the increase. Comparable unit sales excluding the additional week, increased
7.7% during the year from fiscal 1995. Comparable unit sales increased as a
result of a number of factors: sushi was
22
introduced at seven restaurants during the year which resulted in $610,000 of
incremental sales, restaurants have increased their hours of operation to offer
weekend lunch as well as offering Sunday brunch, and a program to improve upon
the physical attractiveness of the restaurants was accelerated during the year.
One additional restaurant, the Benihana Grill near Sacramento, California,
opened in October 1995 and represents $450,000 of the increase in sales.
Finally, a continuing consumer trend in dining towards the $15 to $30 per check
price range has benefited the market in which the Company operates. Menu price
increases had little impact on the increase in revenues as weighted average
increases were less than 1 1/2%.
Year ended March 26, 1995 compared to March 27, 1994 -- Restaurant revenues
continued to increase in fiscal 1995 from fiscal 1994 despite fiscal 1994's
revenues including sales of $750,000 from one unit that was closed during 1994's
third quarter. The increase in sales results from increases in the amount of
comparable per unit sales which in 1995 was 7.1% greater than fiscal 1994. The
increase in comparable per unit sales results from increased patronage over
fiscal 1994. Management attributes the increased patronage to increased
effectiveness of its advertising programs and also several of the restaurants
began serving lunch during weekends as well as offering and Sunday brunch,
increasing the total number of customers, but with a lower average check size
than dinner.
Costs and Expenses
Costs of restaurant sales, which are generally variable with sales, directly
increased with changes in revenues for each of the fiscal years. The following
table reflects the proportion that the various elements of costs and expenses
bore to sales and the changes in amounts and percentage changes in amounts from
the previous fiscal year.
YEAR ENDED MARCH
1996 1995 1994
---- ---- ----
COST AS PERCENTAGE OF RESTAURANT SALES:
Cost of restaurant food and beverage sales 26.1% 28.5% 27.4%
Restaurant expenses 60.0% 60.5% 62.5%
General and administrative expenses 5.9% 6.7% 6.0%
CHANGES FROM PREVIOUS YEAR
Amounts (in thousands):
Cost of restaurant food and beverage sales $ 384 $1,744 $ 774
Restaurant expenses $ 4,656 $ 666 $ 2,157
General and administrative expenses $( 40) $ 674 $ 224
Percentages:
Cost of restaurant food and beverage sales .2% 9.2% 4.2%
Restaurant expenses 10.6% 1.5% 5.2%
General and administrative expenses ( .1%) 16.2% 5.7%
Year ended March 31, 1996 compared to March 26, 1995 -- The cost of food and
beverage sales increased in total amount as a result of increased sales but was
reduced as a percentage of sales as a result of lower overall commodity costs of
seafood and other factors. Long-term contracts have been entered into with
producers to purchase lobster that effectively lock in lower prices for 22 of
the Company's restaurants where such arrangements are feasible. Additionally,
the Company obtained more favorable pricing from several vendors for other food
products and services at several of the 17 restaurants that were purchased from
BOT. Restaurant operating costs increased in dollar amount and as a percentage
of sales. Restaurant labor expense and related benefits costs increased by
$2,767,000 as a result of the increased sales, increased operating hours at
several restaurants and service improvements that were made in some of the
primary markets. Advertising and promotional costs increased by $606,000 as a
result of additional television and print advertising. Maintenance and repairs
expense increased $214,000 resulting from additional spending to improve the
appearance at several of the restaurants. Other restaurant expenses increased
resulting from increased operating hours and certain expenses that are variable
to sales.
Interest expense increased by $86,000 during the year because of the additional
borrowings made to acquire the BOT Restaurant properties. Despite the increase
in debt, interest expense has not risen significantly due to the Company's
successful effort in reducing its interest rate as part of the consolidation of
its bank indebtedness.
23
Certain significant infrequently occurring expenses included in general and
administrative expenses were incurred in the previous year where no such
expenses were incurred during fiscal 1996. In the fourth quarter of fiscal 1995,
the Company wrote off $659,000 of barter exchange credits and $125,000 of
deferred financing costs.
Year ended March 26, 1995 compared to March 27, 1994 -- The cost of food and
beverage sales increased in total amount as a result of increased sales and also
increased as a percentage of sales resulting from a higher level of commodity
costs of seafood from fiscal 1994. Restaurant expenses increased in absolute
amount but decreased as a percentage of sales principally as a result of
improved control over labor costs. Marketing and other controllable costs
decreased in amount and as a percentage of sales from fiscal 1994. Included in
general and administrative costs in fiscal 1995 is a write down of the amount of
barter exchange credits of approximately $659,000. The write down was a result
of management's evaluation of the Company's long range marketing strategy, and
management had concluded that these credits had no future value to the Company.
Interest costs decreased largely as a result of repayments made under the
Company's bank term loans and capital lease obligations. Interest costs are
expected to increase in the fiscal year ending 1996 as a result of new
borrowings to complete the Reorganization.
Income Taxes
The Company has had significant amounts of net operating loss carryforward that
resulted in tax assets. The amounts of these tax assets relating to net
operating loss carryforwards were $99,000, $2,488,000 and $3,088,000 in 1996,
1995 and 1994, respectively. Other tax assets resulted from income tax credits
and certain temporary differences. Valuation allowances were established to
reduce the tax assets when, in management's judgment that it was more likely
than not that such assets would not be realized. The amounts of valuation
allowance were $790,000 and $1,300,000, respectively at the end of fiscal 1995
and 1994. Reductions in the valuation allowances were made when realization of
the tax assets became probable as the Company's profitability improved. As a
result, benefits for federal income taxes of $407,000 and $582,000 were recorded
in fiscal 1995 and 1994. The effective federal tax rate was 17% in fiscal 1996
and is less than the statutory rate of 34% principally because of the reduction
of the valuation allowance that was required. Additionally, a tax credit for
FICA taxes paid on reported employee tip income was $436,000 in 1996 and
$290,000 in 1995.
Liquidity and Capital Resources
The Company does not require significant amounts of inventory or receivables.
Therefore, the Company, as is typical with many restaurant companies, does not
have to provide financing for such amounts and operates with a minimum amount of
working capital. The following table presents a summary of the Company's cash
flow for fiscal 1996.
Net cash provided by operating activities $ 7,395
Net cash used in investing activities (2,186)
Net cash used in financing activities (2,341)
-------
$ 2,868
The Company's working capital increased by $3,223,000 for the year ended March
31, 1996 as a result of cash provided by operations and by refinancing bank
indebtedness, which was partially offset by the cash used in acquiring the BOT
Restaurants in the Reorganization.
Capital expenditures increased to $2,156,000 compared to $1,264,000 in fiscal
1995 and $782,000 in fiscal 1994. The new Benihana Grill restaurant near
Sacramento represents approximately $550,000 of the increase. Capital spending
has been accelerated to improve the appearance of the restaurants, to update
restaurant equipment and to build sushi bars in certain restaurants. All capital
improvements were funded from operating cash flow.
The Company financed the aggregate purchase price of the BOT Restaurants
acquired in the Reorganization of $6,150,000 by issuing 76,905 shares of common
stock; 2,000 shares of preferred stock with an aggregate $2,000,000 liquidation
preference; a note payable to BOT in the amount of $650,000; and $3,000,000 in
cash. The cash portion was financed by consolidating BNC's previously existing
bank term loans and increasing the amount borrowed. Although the amount borrowed
under the term loan agreement has increased, periodic principal payment
24
requirements have decreased by approximately $800,000 annually. Principal
payments under the bank loans are approximately $69,000 monthly with a final
payment of approximately $1,870,000 due in May 2002.
Interest under the term loan accrues at either prime plus a margin from .75% to
1.75% or LIBOR plus a margin from 2.25% to 3.25%. The interest rate margin
depends upon the leverage ratio (liabilities divided by tangible net worth). In
fiscal 1996, the Company entered into a seven year interest rate swap agreement
involving the exchange of floating rate interest payment obligations for fixed
rate interest payment obligations. The original notional amount of this interest
rate swap agreement was $8,900,000 and is reduced by approximately $74,000
monthly until May 2002 when the balance under the agreement expires.
The Company has no material commitments for future capital improvements but the
Company expects that it will continue to make expenditures to improve the
appearance and efficiency of its restaurants. The Company presently intends on
opening additional locations during fiscal 1997 when suitable restaurant sites
become available. Management believes that it has sufficient cash resources from
operating cash flows to provide for the construction and opening costs without
utilizing the above additional borrowing availability.
Operating cash flow for the fiscal years ended 1996, 1995 and 1994 was
$7,395,000, $5,840,000 and $2,846,000, respectively. The principal use of this
cash was to repay long term debt and capital lease obligations and expenditures
for property and equipment.
Prior to the Reorganization, operating cash flows or deficits of the individual
restaurant properties acquired from BOT were distributed to or advanced from the
then owner, BOT. Such amounts are reflected in the statements of cash flows as a
"net cash distributed to or advanced from BOT." These distributions will not
recur; however, the Company will be making payments to BOT under the terms of
the preferred stock and promissory note issued to BOT as a part of the
Reorganization.
New Accounting Standards
In October 1995, the Financial Accounting Standards Board (FASB) issued the
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", effective for transactions entered into in fiscal
years beginning after December 15, 1995. As permitted by SFAS No. 123, Benihana
expects to continue to apply its current accounting policy under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and
include the necessary disclosures in its 1997 financial statements. In March
1995, FASB issued SFAS No. 121, "Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to be Disposed Of". In 1996, the Company
adopted SFAS No. 121. The Company has evaluated its net investment in restaurant
properties in relation to the estimated future cash flows expected to be
generated from revenue productive assets to determine if an impairment of value
exists. The Company has determined that no write down was necessary during
fiscal 1996 based upon such evaluation.
25
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
All dollar amounts in thousands, except per share amounts
Year ended: March 31, March 26, March 27,
1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------
Revenues
Net restaurant sales $81,094 $72,772 $69,315
Other income 512 492 451
- - -------------------------------------------------------------------------------------------------------------------
Total revenues 81,606 73,264 69,766
- - -------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Cost of restaurant food and beverage sales 21,128 20,744 19,000
Restaurant expenses (Note 14) 48,676 44,020 43,354
General and administrative expenses 4,801 4,841 4,167
Interest expense 1,226 1,140 1,202
Loss on disposition of a restaurant 427
- - -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 75,831 70,745 68,150
- - -------------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 5,775 2,519 1,616
Income tax provision (benefit) (Note 11) 1,365 (232) (423)
- - -------------------------------------------------------------------------------------------------------------------
Net Income $ 4,410 $ 2,751 $ 2,039
- - -------------------------------------------------------------------------------------------------------------------
Pro Forma Net Income Per Common Share $ .71 $ .42 $ .30
- - -------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
26
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
All dollar amounts in thousands, except per share amounts
March 31, March 26,
1996 1995
- - -------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 4,722 $ 1,854
Receivables (net of allowance for doubtful accounts of $57
in 1996 and $54 in 1995, respectively (Notes 10, 12)
Trade 155 269
Affiliates 91 80
Other 6 52
- - -------------------------------------------------------------------------------------------------------------------
Total receivables 252 401
Inventories (Notes 4, 10) 1,833 1,559
Prepaid expenses (Note 5) 920 1,297
- - -------------------------------------------------------------------------------------------------------------------
Total current assets 7,727 5,111
Property and equipment, net (Notes 6, 9, 10) 24,915 25,071
Due from affiliates, long term (Note 12) 232 265
Deferred income taxes, net (Note 11) 1,577 1,383
Other assets (Note 7) 1,806 1,892
- - -------------------------------------------------------------------------------------------------------------------
$36,257 $33,722
- - -------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses (Note 8) $ 6,539 $ 6,951
Current maturities of long-term debt and
obligations under capital leases (Notes 9, 10) 1,488 1,683
- - -------------------------------------------------------------------------------------------------------------------
Total current liabilities 8,027 8,634
Long-term debt (Note 10) 6,104 8,007
Due to Affiliates - long term (Note 10) 439
Obligations under capital leases (Note 9) 4,361 4,876
Stockholders' Equity (Notes 10, 13):
Preferred stock - $1.00 par value; authorized - 5,000,000
shares, issued and outstanding - 2,000 shares, respectively 2 2
Common stock - $.10 par value; convertible into Class A
Common, authorized - 12,000,000 shares, issued and
outstanding - 3,516,066 and 3,492,916 shares, respectively 352 349
Class A Common stock - $.10 par value; authorized -
20,000,000 shares, issued and outstanding -
2,316,300 shares, respectively 232 232
Additional paid-in capital 14,285 13,337
Retained earnings (accumulated deficit) 2,455 (1,715)
- - -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 17,326 12,205
- - -------------------------------------------------------------------------------------------------------------------
$36,257 $33,722
- - -------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
27
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
All dollar amounts in thousands, except share information
Retained
Class A Additional Earnings
Preferred Common Common Paid-in (Accumulated
Stock Stock Stock Capital Deficit)
- - -------------------------------------------------------------------------------------------------------------------
Balance, March 28, 1993, $ $ 349 $ 232 $17,699 $(5,560)
Issuance of common stock for
incentive compensation 1
Net income 2,039
Funds received from BOT 37
- - -------------------------------------------------------------------------------------------------------------------
Balance, March 27, 1994 2 349 232 17,700 (3,484)
Cash paid and liabilities incurred for the
acquisition of the BOT Restaurants (Note2) (4,363)
Net income 2,751
Funds distributed to BOT (982)
- - -------------------------------------------------------------------------------------------------------------------
Balance, March 26, 1995 2 349 232 13,337 (1,715)
Issuance of 22,700 shares of stock under
exercise of options 3 73
Issuance of 450 shares of common stock
for incentive compensation 5
Tax benefit resulting from difference
between book and tax bases of assets
acquired from BOT (Note 2) 870
Preferred stock dividend (105)
Net income 4,410
Funds distributed to BOT (135)
- - -------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 2 352 232 14,285 2,455
- - -------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
28
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
All dollar amounts in thousands
March 31, March 26, March 27,
1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $4,410 $2,751 $2,039
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,416 2,136 2,352
Issuance of common stock for incentive compensation 5 1 1
Provision for disposition of restaurant 427
Deferred taxes 676 (417) (712)
Change in operating assets and liabilities that provided
(used) cash:
Accounts receivable 149 29 (105)
Inventories (274) (91) 30
Prepaid expenses 377 (7) (189)
Other assets 48 854 257
Accounts payable and accrued expenses (412) 585 (1,254)
- - -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,395 5,840 2,846
- - -------------------------------------------------------------------------------------------------------------------
Investing Activities:
Expenditures for property and equipment (2,156) (1,264) (782)
Proceeds from sale of property and equipment 20
Acquisition of BOT Restaurants (713)
Increase in cash surrender value of life insurance policy (30) (29) (35)
- - -------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (2,186) (2,006) (797)
- - -------------------------------------------------------------------------------------------------------------------
Financing Activities:
Dividends paid on preferred stock (105)
Proceeds from issuance of long-term debt 319 31
Repayment of long-term debt and obligations under capital leases (2,496) (2,454) (2,338)
Net cash (distributed to) received from BOT (135) (982) 37
Proceeds from issuance of common stock 76
- - -------------------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (2,341) (3,436) (2,270)
- - -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,868 398 (221)
Cash and cash equivalents, beginning of year 1,854 1,456 1,677
- - -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $4,722 $1,854 $1,456
- - -------------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information Cash paid during the year for:
Interest $ 809 $ 617 $ 846
Income taxes $ 353 $ 214 $ 260
Noncash Items:
Long-term liabilities of $3,650,000 were incurred in connection with the
agreement to acquire the BOT Restaurants in 1995. See Note 2. Long-term debt
of $325,000 was incurred as part of the agreement to close a restaurant
during the second quarter of 1994.
Capital lease obligations of $315,000 and $140,000 were incurred during 1995
and 1994, respectively, when the Company entered into lease agreements for
new equipment.
See notes to consolidated financial statements.
29
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996, MARCH 26, 1995 AND MARCH 27, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company is a Delaware corporation that owns and operates
38 Japanese teppanyaki-style restaurants and licenses eight others. The
Company has the rights to open, license and develop Benihana
restaurants in the United States, Central and South America and the
Caribbean islands.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires that
management make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Fiscal Year - The Company's fiscal year is a 52/53 week year ending on
the Sunday closest to March 31. During the year ended March 31, 1996,
the Company's fiscal year consisted of 53 weeks.
Principles of Consolidation - The consolidated financial statements
include the accounts of Benihana Inc., and all of its subsidiaries. In
consolidation, significant intercompany accounts and transactions are
eliminated.
Inventories - Inventories, which consist principally of restaurant
operating supplies and food and beverage are priced at the lower of
cost (first-in, first-out method) or market.
Pre-opening Costs - Costs of employee salaries, relocation expenses,
training of chefs, and miscellaneous supplies prior to opening a
restaurant are included as pre-opening costs and are amortized over a
twelve-month period commencing with the opening.
Property and Equipment - The Company's investment in property and
equipment is stated at cost and includes expenditures for new
facilities, additions to existing facilities, and interior design,
capitalized interest and construction costs which relate to property
and equipment. Depreciation and amortization are computed by the
straight-line method over the estimated useful life (buildings - 30
years, restaurant furniture, fixtures and equipment - 8 years, office
equipment - 8 years, and leaseholds - lesser of the lease terms,
including renewal options, or useful life). During 1996 the Company
reduced the lives of personal computers and related equipment from 8 to
3 years. The effect of the change in lives was immaterial.
Pro Forma Net Income Per Common Share - The pro forma net income per
common share was computed by using the weighted average number of
shares and dilutive common stock equivalents (6,003,000 shares in 1996,
and 5,867,000 shares in 1995 and 5,809,000 shares in 1994) of Common
Stock and Class A Common Stock. The amounts of preferred dividends and
interest expense that would have been incurred as a result of the
acquisition of the BOT Restaurants (see Note 2) have been factored in
the calculation of pro forma earnings per common share from the
beginning of each of the fiscal years ended March 31, 1996, March 26,
1995 and March 27, 1994.
Cash and Cash Equivalents - The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to
be cash equivalents.
30
Impairment of Long Lived Assets - In March 1995, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long Lived Assets and for Long Lived Assets to be Disposed Of". In
1996, the Company adopted SFAS 121. The Company has evaluated its net
investment in restaurant properties in relation to the estimated future
cash flows expected to be generated from revenue productive assets to
determine if an impairment of value exists. The Company has determined
that no write down was necessary during fiscal 1996 based upon such
evaluation.
Stock Options - In October 1995, FASB issued SFAS No. 123, "Accounting
for Stock-Based Compensation", effective for transactions entered into
in fiscal years beginning after December 15, 1995. As permitted by SFAS
No. 123 Benihana expects to continue to apply its current accounting
policy under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and include the necessary disclosures in its
1997 financial statements.
2. ACQUISITION
Effective May 15, 1995, the Company became the successor to Benihana
National Corp. (BNC) through the merger (Merger) of BNC and a wholly
owned subsidiary of the Company. Simultaneously with the Merger, the
Company acquired from Benihana of Tokyo, Inc. (BOT), a corporation
privately owned by Rocky H. Aoki, the Company's Chairman of the Board
and founder of the Benihana restaurant chain, all of BOT's Benihana
restaurants (the BOT Restaurants) in the continental United States,
consisting of 17 company-owned and four licensed locations.
The acquisition of the BOT Restaurants has been accounted for in a
manner similar to a pooling of interests since it was acquired from a
company under common control. The Company paid $3,000,000 in cash and
issued 76,905 shares of Common Stock, 2,000 shares of $1.00 par value
Class A Convertible Preferred Stock, and a 7 1/2% promissory note in
the amount of $650,000. Equity securities that were issued to BOT in
exchange for the net assets of the BOT Restaurants were given effect as
of the beginning of the fiscal year ended March 28, 1993. Amounts paid
in cash and liabilities assumed by Benihana Inc. are recorded as of the
effective date of the transaction. During 1996, the income tax effect
of the difference between the tax and book bases of the assets acquired
from BOT was determined. As a result of such determination, an
additional net tax asset of $870,000 was recorded.
In connection with the transfer, BNC was merged into a subsidiary of
Benihana Inc. in a share-for-share exchange effective with a vote of
the BNC shareholders made on May 1, 1995.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," the Company has estimated the fair value of
financial instruments. The estimated fair value has been determined by
the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is required in
interpreting data to develop such estimates. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The use of
different market assumptions could have a material effect on estimated
fair value. The carrying value and estimated fair value of the
financial instruments held by the Company as of March 31, 1996 are as
follows:
31
1996 1995
------------------------- ------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
Financial Assets
Cash and short-term investments $ 4,722 $ 4,722 $ 1,854 $ 1,854
Receivables $ 595 $ 568 $ 783 $ 783
Cash surrender value of officers'
life insurance $ 270 $ 270 $ 240 $ 240
Financial Liabilities
Bank and other indebtedness $ 7,495 $ 7,771 $ 9,178 $ 9,178
The following methods and assumptions were used to estimate the fair
value of the Company's financial instruments for which it was
practicable to estimate that value:
Cash and short-term investments
The carrying value approximates fair value because of the
short-term nature of the instruments.
Receivables
The carrying value approximates the fair value of current
receivables because of the short-term nature of these instruments.
The fair value of long-term receivables was estimated based on
discounted cash flows expected to be received using interest rates
at which similar loans are made to borrowers with similar credit
ratings.
Long term debt
The fair value of outstanding borrowings under its long-term debt
agreement approximates the carrying value since the interest rate
floats subject to market conditions. The value of the interest
rate swap agreement included in the fair value of the debt was
obtained from dealer quotes which represent the estimated amount
the Company would receive or pay to terminate the agreement taking
into consideration current market interest rates.
4. INVENTORIES
Inventories consist of (in thousands):
March 31, March 26,
1996 1995
---------- -----------
Food and beverage $ 565 $ 560
Supplies 1,268 999
---------- ------------
$ 1,833 $ 1,559
========== ===========
5. PREPAID EXPENSES
Prepaid expenses consist of (in thousands):
March 31, March 26,
1996 1995
--------- ----------
Prepaid insurance $ 589 $ 687
Prepaid advertising 35 148
Other 296 462
--------- -----------
$ 920 $ 1,297
========= ===========
32
6. PROPERTY AND EQUIPMENT
Property and equipment consist of (in thousands):
March 31, March 26,
1996 1995
-------- ---------
Land $ 4,824 $ 4,824
Buildings 9,374 9,101
Leasehold improvements 21,254 20,020
Restaurant furniture, fixtures, and equipment 13,209 12,494
Restaurant facilities and equipment under
capital leases 8,198 8,257
-------- ---------
56,859 54,696
Less accumulated depreciation and amortization
(Including accumulated amortization of restaurant
facilities and equipment under capital leases of
$5,493 and $5,070 in 1996 and 1995, respectively) 31,944 29,625
-------- ---------
$ 24,915 $ 25,071
========= =========
7. OTHER ASSETS
Other assets consist of (in thousands):
March 31, March 26,
1996 1995
-------- --------
Lease acquisition costs $ 551 $ 613
Restaurant management fee receivable 48
Cash surrender value of officer's life insurance 270 240
Premium on liquor licenses 651 651
Security deposits 175 214
Other 159 126
-------- ---------
$ 1,806 $ 1,892
======== =========
Included in other assets are lease acquisition costs incurred in
connection with the purchase of one restaurant. Such costs are being
amortized over the life of the lease. Amortization expense was $61,000
each year for 1996, 1995 and 1994.
Liquor licenses are stated at cost which, in the aggregate, is not in
excess of market. Certain of the liquor licenses have unlimited lives
provided that they are renewed annually (as is management's intention)
and, accordingly, the cost of those liquor licenses is not amortized.
33
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of (in thousands):
March 31, March 26,
1996 1995
-------- --------
Accounts payable $ 2,100 $ 2,999
Accrued salaries 363 567
Accrued property taxes 446 354
Accrued incentive compensation 736 260
Taxes, other than income taxes 804 804
Other accrued operating expenses 2,090 1,967
-------- --------
$ 6,539 $ 6,951
======== ========
9. LEASE OBLIGATIONS
The Company conducts its business primarily using leased facilities.
The typical restaurant lease is for a term of between 15 to 25 years
with renewal options ranging from 5 to 20 years. The leases generally
provide for the payment of property taxes, utilities, and various other
use and occupancy costs. Rentals under certain leases are based on a
percentage of sales in excess of a certain minimum level. Certain
leases provide for increases based upon the changes in consumer price
index. The Company is also obligated under various leases for
restaurant equipment and for office space and equipment. Minimum
payments under lease commitments are summarized below for capital and
operating leases. The imputed interest rates used in the calculations
for capital leases vary from 9.75% to 12% and are equivalent to the
rates which would have been incurred to borrow, over a similar term,
the amounts necessary to purchase the leased assets.
The amounts of operating and capital lease obligations are as follows
(in thousands):
Operating Capital
Leases Leases
--------- ---------
Fiscal year ending
1997 $ 2,016 $ 1,047
1998 2,036 1,012
1999 1,851 926
2000 1,787 893
2001 1,394 893
Thereafter 4,411 2,451
-------- --------
Total minimum lease payments $ 13,495 7,222
========
Less amount representing interest 2,325
--------
Total obligations under capital leases 4,897
Less current maturities 536
--------
Long-term obligations under capitalized
leases at March 31, 1996 $ 4,361
========
34
Rental expense consists of (in thousands):
March 31, March 26, March 27,
1996 1995 1994
-------- -------- --------
Minimum rental commitments $ 3,057 $ 2,994 $ 2,900
Rental based on percentage of sales 989 699 640
-------- -------- --------
$ 4,046 $ 3,693 $ 3,540
======== ======== ========
10. LONG-TERM DEBT
Long-term debt consists of (in thousands):
March 31, March 26,
1996 1995
-------- --------
Notes payable - bank:
Term loan $ 6,937 $ 3,795
Working capital term loan 388
Construction term loans 564
-------- --------
6,937 4,747
-------- --------
Notes payable - other
Amount due to BOT for acquisition of
BOT Restaurants (see Note 2). 3,000
7 1/2% Promissory Note due to BOT, payable
in 60 monthly installments of $13 (See Note 2) 558 650
Purchase Money Mortgage Note; bearing interest
at 10% and payable in equal monthly installments
through December 2000. Note is collateralized
by the real estate of a restaurant.
The note was paid in May 1995. 735
Other promissory notes 46
-------- --------
558 4,431
-------- --------
7,495 9,178
Less current portion 952 1,171
-------- --------
$ 6,543 $ 8,007
======== ========
In connection with the acquisition described in Note 2, the Company
consolidated its outstanding bank indebtedness and an additional
$3,300,000 of borrowings into one term loan arrangement (the
Consolidated Loan) on May 15, 1995. The terms of the Consolidated Loan
call for 83 equal monthly principal payments of $69,427 commencing June
1995 and a final payment of $1,868,775 in May 2002. Interest under the
term loan accrues at either prime plus a margin from .75% to 1.75% or
at LIBOR plus a margin from 2.25% to 3.25%. The interest rate margin
depends upon the leverage ratio (liabilities divided by tangible net
worth). During the year ended March 31, 1996, interest was accrued at
LIBOR plus 2.75% (8.23% at March 31, 1996). In fiscal 1996, the Company
entered into a seven year interest rate swap agreement involving the
exchange of floating rate interest payment obligations for fixed rate
payment obligations. The swap agreement was entered into to protect
against significant increases in interest rates on the variable rate
bank indebtedness. Periodic cash payments either received or paid
pursuant to the swap are accrued on a settlement basis as an adjustment
to interest expense. The original national amount of the agreement was
$8,900,000 and is reduced by $74,000 monthly until May 2002 when the
balance of the agreement expires.
35
The Consolidated Loan is collateralized by a mortgage on the Company's
real property and a security interest in the Company's personal
property. The Consolidated Loan agreement limits additional
indebtedness, capital expenditures and the payment of dividends and has
requirements to maintain a minimum amount of tangible net worth,
specific ratio of liabilities to tangible net worth and debt service
coverage, among other restrictive covenants.
In connection with a previous issuance of long-term debt to a bank in
1990, the Company issued a warrant to purchase 200,000 shares of Class
A common stock (which shares have been reserved) at a price of $2.666.
This warrant expires September 30, 1996 and is yet unexercised. The
warrant was sold to one of the members of the Company's board of
directors during fiscal 1996.
11. INCOME TAXES
Deferred tax assets and liabilities reflect the impact of temporary
differences between amounts of assets and liabilities for financial
reporting purposes and the bases of such assets and liabilities as
measured by income tax law. A valuation allowance is recognized to
reduce deferred tax assets to the amounts that are more likely than not
to be realized.
The net deferred tax asset balance consists of (in thousands):
March 31, 1996 March 26, 1995
Assets Liabilities Total Assets Liabilities Total
-----------------------------------------------------------------------------
Excess book amortization for
pre-opening costs and
capital leases $ 935 $ $ 935 $ 353 $ - $ 353
Tax loss carryforwards 99 99 2,488 2,488
Accelerated depreciation for
tax purposes 915 (915) 1,475 (1,475)
Income tax credits 1,324 1,324 543 543
Write down of barter exchange
credits 264 264
Other 134 134
Less - valuation allowance (790) (790)
----------------------------------------------------------------------------
Total asset (liability) $2,492 $ 915 $1,577 $2,858 $ 1,475 $1,383
============================================================================
The income tax provision (benefit) consists of (in thousands):
March 31, March 26, March 27,
1996 1995 1994
---------------------------------------------------------------------------------------------------
Federal:
Current (net of utilization of net
operating loss of $5,485, $1,800 and
$1,450, respectively) $ 320 $ 10 $ 23
Deferred 676 (417) (605)
State:
Current (net of utilization of net
operating loss of $0, $480, $41,
respectively) 369 175 266
Deferred - (107)
------------------------------------------
$ 1,365 $ (232) $ (423)
==========================================
36
The income tax provision (benefit) differed from the amount computed at
the statutory rate as follows (in thousands):
March 31, March 26, March 27,
1996 1995 1994
--------------------------------------------------------------------------------------------------
Federal income tax provision at statutory rate
of 34% $ 1,963 $ 856 $ 550
Change in valuation allowance (592) (510) (967)
State income taxes, net of federal benefit 244 117 156
Alternative minimum tax 10 23
Subchapter S exemption (62) (463) (175)
Tax credits, net (288) (282)
Other 100 40 (10)
-------------------------------------------
Income tax provision (benefit) $ 1,365 $ (232) $ (423)
===========================================
BOT had elected to be treated as a Subchapter S Corporation whereby
earnings, except in certain state jurisdictions, are taxable to the
stockholder. No pro forma effect for federal income taxes has been
recorded related to the earnings of the BOT Restaurants prior to its
acquisition since there were sufficient deferred tax assets available
to offset such taxes.
12. DUE FROM AFFILIATES
The amount due from affiliates includes a promissory note in the
approximate principal amounts of $232,000 and $265,000 at March 31,
1996 and March 26, 1995, respectively, from a restaurant joint venture
which is 50% owned by BOT and 50% by an unrelated third party.
13. STOCKHOLDERS' EQUITY
Common Stock - The Company's Common Stock is convertible to Class A
Common Stock on a one-for-one basis. The Class A Common Stock is
identical to the Common Stock except that it gives the holder one-tenth
(1/10) vote per share, voting together with the Company's Common Stock
as a single class on all matters except the election of directors. For
election of directors, the Class A Common Stockholders vote as a class
to elect 25% of the members of the Board of Directors.
Preferred Stock - The preferred stock has a liquidation preference of
$1,000 per share, carries a cumulative dividend of 6% and entitles the
holder a right to convert into 300,000 shares of the Company's Class A
Common Stock. The Company has the option to redeem the Preferred Stock
commencing January 1997 at $1,000 per share.
Stock Options - The Company has various stock option plans (a 1994
Employee Stock Option Plan and a Directors Stock Option Plan) under
which a maximum of approximately 600,000 shares of the Company's Common
Stock may be issued. Options granted under the plans may not have terms
exceeding ten years, and require an exercise price at market value on
the date of the grant, or at 110% of market value in the case of
optionees that own more than 10% of the combined voting rights of the
Company's Common and Class A Common Stock. Under the director's plan
options to purchase 2,500 shares are automatically granted to each of
the Company's non-employee directors on the date of the Company's
annual meeting.
Additionally, the Company had a 1985 Stock Option Plan that expired on
October 9, 1995. Certain options granted under such plan are still
exercisable on varying dates through 2005.
37
Transactions under the above plans for the three years ended March 26,
1995 are as follows:
March 31, March 26, March 27,
1996 1995 1994
--------------------------------------------------------------------------------------------------
Balance, beginning of year 121,100 72,450 75,750
Granted 31,500 61,000
Canceled (10,000)
Expired (2,350) (3,300)
Exercised (22,700)
------------------------------------------
Balance, end of year 129,900 121,100 72,450
==========================================
On March 31, 1996, options for 129,900 of the shares are exercisable at
prices ranging from $1.375 to $10.25.
There were approximately 600,000 shares of common stock reserved at
March 31, 1996, for issuance upon exercise of stock options under all
stock option plans.
14. RESTAURANT EXPENSES
Restaurant expenses consist of (in thousands):
March 31, March 26, March 27,
1996 1995 1994
--------------------------------------------------------------------------------------------------
Labor costs $26,327 $23,777 $22,456
Advertising 4,407 3,800 3,875
Occupancy costs 3,857 3,501 3,355
Utilities 2,186 2,044 2,042
Depreciation and amortization 2,206 2,064 2,283
Maintenance and repairs 1,003 789 803
Other 8,690 8,045 8,540
------------------------------------------
$48,676 $44,020 $43,354
==========================================
15. INCENTIVE AND DEFERRED COMPENSATION PLANS
In fiscal 1996, the Company adopted the Benihana Incentive Compensation
Plan (Plan) whereby bonus awards are made if the Company attains a
certain targeted return on equity. The purpose of the Plan is to
encourage and enable officers and employees and align interests of
Benihana employees with those of its shareholders. One-third of the
amounts awarded is immediately made available to the employee and the
remaining two-thirds is available ratably over the succeeding two
years. Amounts allocated under the plan may be taken in cash, deferred
in a non-qualified deferred compensation plan or be used to purchase
the Company's Common Stock at 85% of its market value. The target rate,
which for 1996 was 15%, is approved annually based upon a review of the
return of other publicly traded restaurant businesses by the
Compensation Committee of the Board of Directors. The amount of the
awards is capped at 50% of the eligible salary of the employee (salary
less 40% of the FICA salary base). Under the Plan, the Company accrued
$503,000 during the year ended March 31, 1996.
In fiscal 1996, the Company adopted the Benihana Executive Retirement
Plan whereby certain key executives may elect to defer up to 20% of
their salary and 100% of their bonus until retirement or age 55,
whichever is later, or due to disability or death. Employees may select
from various investment options from their available account balances.
Investment earnings are credited to their accounts.
38
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
March 31, 1996
-------------------------------------------------------------------------------------------------
Quarter ended (in thousands) 4th 3rd 2nd 1st
REVENUES $ 21,267 $18,969 $17,699 $23,671
GROSS PROFIT 16,035 14,180 13,038 17,225
NET INCOME 1,301 1,309 689 1,111
PRO FORMA NET INCOME
PER COMMON SHARE $ .21 $ .21 $ .11 $ .18
March 26, 1995
-------------------------------------------------------------------------------------------------
Quarter ended (in thousands) 4th 3rd 2nd 1st
REVENUES $ 17,780 $ 17,166 $ 16,494 $ 21,824
GROSS PROFIT 12,879 12,323 11,760 15,558
NET INCOME 884 899 358 610
PRO FORMA NET INCOME
PER COMMON SHARE $ .14 $ .14 $ .05 $ .09
39
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Benihana Inc:
We have audited the accompanying consolidated balance sheets of Benihana Inc.
and subsidiaries (the Company) as of March 31, 1996 and March 26, 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended March 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Benihana Inc. and subsidiaries as
of March 31, 1996 and March 26, 1995, and the results of their operations and
their cash flows for each of the three years in the period ended March 31, 1996
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
May 3, 1996
40
COMMON STOCK INFORMATION
The Company's Common Stock and Class A Stock are traded in the Nasdaq National
Market System. There were 351 holders of record of the Company's Common Stock
and 527 holders of record of the Class A Common Stock at March 31, 1996.
The table below sets forth high and low sales prices for the Company's Common
Stock, which do not include commissions and mark-ups or mark-downs for the
periods indicated. Prices shown for the Company's Class A Stock represent high
and low bid prices in the Nasdaq National Market System except that the Class A
Common Stock was based on the Small Capitalization Market System since March 6,
1995. Such bid prices reflect inter-dealer prices without retail mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions.
Fiscal Year Ended
-----------------
March 31, 1996 March 26, 1995
-------------- --------------
COMMON STOCK High Low High Low
---- --- ---- ---
1st Quarter 8 3/4 7 3 7/8 2 5/8
2nd Quarter 10 3/8 8 3/8 4 3/4 3
3rd Quarter 10 3/4 9 7/8 6 3/4 4 1/2
4th Quarter 11 3/4 10 3/8 7 1/4 6 1/2
Fiscal Year Ended
-----------------
CLASS A March 31, 1996 March 26, 1995
-------------- --------------
COMMON STOCK High Low High Low
---- --- ---- ---
1st Quarter 5 1/2 4 1 3/4 1 1/8
2nd Quarter 7 5 1/8 2 7/16 1 3/16
3rd Quarter 8 3/8 6 3/8 4 2 3/16
4th Quarter 9 1/8 8 1/8 4 1/8 3 11/32
The Class A Common Stock is identical to the Common Stock except that it gives
the holder one-tenth (1/10) vote per share, voting together with the Company's
Common Stock as a single class on all matters except the election of directors.
For election of directors, the Class A Common shareholders vote as a class to
elect 25% of the members of the Board of Directors.
The Company has not declared or paid a cash dividend since its organization and
has no present intention of paying any such dividend in the foreseeable future.
The Company intends to retain all available cash for the operation and expansion
of its business. In addition, the Company's present loan agreement restricts the
payment of dividends.
41
EXHIBIT - 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Benihana Inc. on Form S-8 of our report dated May 3, 1996 appearing in the
Annual Report on Form 10-K of Benihana Inc. for the year ended March 31, 1996.
Deloitte & Touche LLP
Miami, Florida
May 21, 1996