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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 29, 1998
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
Preferred Share Purchase Right
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 May 29, 1998, 3,571,616 shares of Common Stock and 2,517,463 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
$40,680,246.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year ended
March 29, 1998 are incorporated by reference in Parts I and II.
Portions of the Registrant's Proxy Statement for the Annual Meeting to be held
August 27, 1998 are incorporated by reference in Part III.
1
Item 1. General
Benihana Inc. ("the Company") the leading operator of Japanese teppanyaki-style
restaurants in the United States, currently owns and operates 49 restaurants and
franchises twelve others. The Company has achieved 23 consecutive quarters of
comparable quarter sales growth and customer count increases. Management
attributes this success to (i) a well-established brand identity supported by
consistent marketing and promotional activities since the opening of the first
Benihana restaurant in 1964, (ii) growing consumer demand for a dining
experience that features a theme or entertainment component, (iii) the Company's
continued emphasis on quality and customer satisfaction, and (iv) Benihana's
experienced management team.
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 Benihana
of Tokyo, Inc. ("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 $99,062,000 for the
fiscal year ended March 29, 1998, as compared to approximately $84,415,000 for
the prior fiscal year. The pro forma revenues, as if the acquisition of Rudy's
Restaurant Group, Inc. ("Rudy's") were completed as of the beginning of fiscal
years 1998 and 1997 were $111,153,000 and $100,760,000, respectively.
Recent Developments
In December 1997, the Company completed its acquisition of Rudy's Restaurant
Group, Inc., an operator of nine teppanyaki-style restaurants. This acquisition
expanded the Company's geographic presence into Cleveland, Detroit, Minneapolis,
Pittsburgh and also expanded the Company's presence in the Miami, Cincinnati and
Washington, D.C. markets.
On May 18, 1998, Rocky H. Aoki resigned as Chairman of the Board, Chief
Executive Officer and as a Director of the Company. Joel A. Schwartz, who has
been President and a Director since 1982, will discharge the additional duties
of Chief Executive Officer.
Benihana Concept
The Company offers casual upscale dining in a distinctive Japanese atmosphere
enhanced by the unique entertainment provided by the Company's highly-skilled
Benihana chefs who prepare fresh steak, chicken and seafood in traditional
Japanese style at the customer's table. 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,
rice, a vegetable and an entree of steak, seafood, chicken or any 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 $22.32 during the fiscal year ended March
29, 1998. During such fiscal year, beverage sales in both the lounges and dining
rooms accounted for approximately 20% of total restaurant sales. The Company
offers sushi at the teppanyaki grill in all its restaurants and at separate
sushi bars within most restaurants.
An entire teppanyaki table generally seats eight to ten customers. The chef is
assisted in the service of the meal by the waitress or waiter who takes beverage
and food orders. An entire dinner time meal takes approximately one hour and
thirty minutes.
Of the 49 owned Benihana restaurants, 32 are located in free-standing, special
use restaurant buildings, six in shopping centers, and 11 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,
traditional Benihana restaurant units, which are generally one story buildings,
average approximately 8,000 square feet and are constructed on a lot of
approximately 1.25 to 1.50 acres. The shopping center, office building and
hotel-based Benihana restaurants are of similar size, but differ somewhat in
appearance from location to location in order to conform to the existing
buildings. A typical Benihana restaurant has 18 teppanyaki tables. The Benihana
restaurants seat from 86 to 178 customers in the dining rooms and 8 to 120
customers in the bar lounge areas. See "Properties."
2
Restaurant Operations
The Company's restaurants are centrally managed by the Executive Vice
President-Restaurant Operations and are divided among seven geographic regions,
each managed by a regional manager. Food preparation in the restaurants is
supervised by eight regional chefs.
Each Benihana restaurant has a manager and one or more assistant managers
responsible for the operation of the restaurant, including personnel matters,
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, assistant managers
and head chefs. Food products and portion sizes are regularly and systematically
tested for quality and compliance with the Company's standards. Certain seafood
items are purchased under long-term contracts for most of the restaurants under
which a certain quantity is purchased at a specific price. Most of the other
food products are purchased in local markets. Substantially all of the
restaurant operating supplies are purchased centrally and distributed to the
restaurants from the Company's warehouse or one of the 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 table-side 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. Other categories of employees are trained by the manager and
assistant manager at the restaurant itself. Ongoing 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.
Marketing
The Company utilizes television, radio, billboard and print media to promote its
restaurants, strengthen its brand identity and maintain high name recognition.
The advertising programs are tailored to each local market and to print media
focused on the business traveler. The advertising program is designed to
emphasize the inherently fresh aspects of a Benihana meal and the entertainment
value of the food preparation at the table. In fiscal year 1998, the Company
expended $5.5 million on advertising and other marketing, approximately 5.6% of
net sales. The entertainment value of the Benihana method of food preparation
and service is emphasized to distinguish Benihana from other restaurant
concepts.
Franchising
Although the Company has not actively marketed franchises, the Company has, from
time to time, franchised experienced restaurant operators (such as Hilton
Hotels) in markets in which it considers expansion to be of benefit to the
Benihana system. The Company intends to continue this policy as attractive
opportunities arise.
Franchisees bear all direct costs involved in the development, construction and
operation of their restaurants. The Company provides franchisees support for
site selection, prototypical architectural plans, interior and exterior design
and layout, training, marketing and sales techniques and opening assistance. All
franchisees are required to operate their restaurants in accordance with
Benihana standards and specifications including menu offerings, food quality and
preparation.
The current standard franchise agreement provides for payment to the Company of
a non-refundable franchise fee of $30,000 to $50,000 per restaurant and
royalties of 3% to 6% of sales. In fiscal year 1998 revenues from franchising
were $695,000.
The Company presently franchises Benihana restaurants in Las Vegas, Nevada;
Reno, Nevada; Beverly Hills, California; Seattle, Washington; Key West, Florida;
Harrisburg, Pennsylvania; Tracy, California; Modesto, California; Honolulu,
Hawaii; Bogota, Colombia; Little Rock, Arkansas and the Island of Aruba.
3
To comply with the terms of these franchises entered into by the Company in
the United States, the Company is prohibited from opening additional restaurants
within certain areas which the Company's existing franchises have the exclusive
right to open additional Benihana restaurants. In general, such franchise
agreements currently provide for an initial payment to Benihana with respect to
each new restaurant opened by a franchisee and continuing royalty payments to
the Company based upon a percentage of a franchisee's gross sales from each such
restaurant throughout the term of the franchise.
Trade Names and Service Marks
Benihana is Japanese for "red flower". In the United States, the "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 and certain foreign
countries. As a result of its acquisition of Rudy's, the Company also owns
registered trademarks relating to the Samurai and Kyoto concepts.
BOT continues to own the rights to the Benihana name and trademarks outside of
the United States, Central and South America and the Caribbean Islands. The
Company has no financial interest in any restaurant operated by BOT.
Employees
At March 29, 1998, the Company employed 2,274 persons, of which, 2,228 were
restaurant employees and 46 were corporate personnel. 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 relationship with its employees is good.
None of the Company's employees are covered by collective bargaining agreements.
Competition
The casual dining segment of the restaurant industry is expected to remain
intensely competitive with respect to price, service, location, and the type and
quality of food. Each of the Company's restaurants competes directly or
indirectly with locally-owned restaurants as well as regional and national
chains, and several of the Company's significant competitors are larger or more
diversified and have substantially greater resources than the Company. It is
also anticipated that growth in the industry will result in continuing
competition for available restaurant sites as well as continued competition in
attracting and retaining qualified management-level operating personnel. The
Company believes that its competitive position is enhanced by offering quality
food selections at an appropriate price with the unique entertainment provided
by its chefs in an attractive, relaxed atmosphere.
Government 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 failure in obtaining the required licensing or requisite
approvals could result in delays or cancellations in the opening of new
restaurants; termination of the liquor license for any Benihana restaurant would
adversely affect the revenues for the restaurant. While the Company to date has
not experienced any material difficulties in obtaining and maintaining necessary
governmental approvals, the failure to obtain or retain, or a delay in obtaining
food and liquor licenses or any other governmental approvals could have a
material adverse effect on the Company's operating results. 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 franchisee and franchisor.
The Americans with Disabilities Act (the "ADA"), prohibits discrimination on the
basis of disability in public accommodations and employment. The ADA, which
mandates accessibility standards for individuals with physical disabilities,
increases the cost of construction of new restaurants and of remodeling older
restaurants.
4
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 wage rates, and accordingly, increases in any such
minimum wage will increase the Company's labor costs.
Management Information Systems
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.
Properties
Of the 49 restaurants operated by the Company, 43 are leased pursuant to leases
which require either a specific monthly rental or a minimum rent and additional
rent based upon a percentage of gross sales. Generally, these leases are "triple
net" leases which pass increases in property operating expenses, such as real
estate taxes and utilities, through to the Company as tenant. Expiration dates
of these leases, including renewal options, range from May, 1999 to March, 2027.
5
The following table sets forth the location of the restaurants owned by the
Company:
Approximate Seating
Approx. -------------------
Sq. Ft. of Dining Sushi Opening
Benihana Location Building Room Lounge Bar Date
- - ----------------- ---------- ------ ------ ----- -------
CALIFORNIA:
2100 E. Ball Road
Anaheim, CA (1) 8,710 160 67 36 March, 1980
1496 Old Bayshore Hwy.
Burlingame, CA (2) 8,740 160 99 27 February, 1978
17877 Gale Avenue
City of Industry, CA (1) 8,000 144 50 30 November, 1988
1989 Diamond Blvd.
Concord, CA (1) 8,250 144 84 18 February, 1980
2074 Vallco Fashion Pk.
Cupertino, CA (1) 7,937 144 45 8 July, 1980
16226 Ventura Blvd.
Encino, CA (2) 7,790 152 64 October, 1970
14160 Panay Way
Marina Del Rey, CA (1) 4,840 96 66 6 March, 1972
4250 Birch Street
Newport Beach, CA (3) 8,275 144 72 26 March, 1978
5489F Sunrise Blvd.
Citrus Heights
Sacramento, CA (1) 3,798 88 8 5 October, 1995
477 Camino Del Rio So.
San Diego, CA (1) 7,981 144 68 23 May, 1977
1737 Post Street
San Francisco, CA (1) 7,990 140 45 December, 1980
21327 Hawthorne Blvd.
Torrance, CA (1) 7,430 128 63 28 May, 1980
(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 fixed plus a percentage of profits.
6
Approximate Seating
Approx. -------------------
Sq. Ft. of Dining Sushi Opening
Benihana Location Building Room Lounge Bar Date
- - ----------------- ---------- ------ ------ ----- -------
COLORADO:
3295 S. Tamarac Dr.
Denver, CO (1) 7,572 128 82 10 February, 1977
DISTRICT OF COLUMBIA:
3222 M Street, NW
Washington, DC (2) 7,761 136 4 24 May, 1981
FLORIDA:
276 E. Commercial Blvd.
Ft. Lauderdale, FL 8,965 160 70 June, 1970
8727 South Dixie Hwy.
Miami, FL (2) 8,700 122 66 15 March, 1989
(Kendall)
8717 S.W. 136th St.
Miami, FL (1) 8,162 176 42 April, 1981
1665 N.E. 79th St.
Miami Beach, FL 8,938 178 86 42 September, 1973
1751 Hotel Plaza Blvd.
Lake Buena Vista, FL (2) 8,145 128 85 7 October, 1988
(Orlando)
3602 S.E. Ocean Blvd.
Stuart, FL 8,485 160 69 57 February, 1977
GEORGIA:
2143 Peachtree Rd., NE
Atlanta [I], GA (2) 8,244 136 65 16 May, 1974
229 Peachtree St. NE
Atlanta [II], GA (1) 6,372 115 34 11 April, 1981
(1) Lease provides for minimum rent, plus additional rent based upon a
percentage of gross sales.
(2) Lease provides for fixed rent.
7
Approximate Seating
Approx. -------------------
Sq. Ft. of Dining Sushi Opening
Benihana Location Building Room Lounge Bar Date
- - ----------------- ---------- ------ ------ ----- -------
ILLINOIS:
166 East Superior St.
Chicago, IL (1) 7,288 144 9 45 April, 1968
747 E. Butterfield Rd.
Lombard, IL 9,200 168 51 April, 1985
1200 E. Higgins Road
Schaumburg, IL 8,388 160 48 July, 1992
INDIANA:
8830 Keystone Crossing Rd.
Indianapolis, IN (1) 8,460 144 93 February, 1979
KENTUCKY:
1510 Lake Shore Court
Louisville, KY (1) 7,572 128 88 July, 1978
MARYLAND:
7315 Wisconsin Ave.
Bethesda, MD (1) 6,047 128 47 11 October, 1974
MICHIGAN:
18601 Hubbard Dr.
Dearborn, MI (1) 7,500 136 40 46 March, 1977
21150 Haggerty Rd.
Northville, MI (2) 8,000 153 20 11 May, 1989
(Farmington Hills)
1985 W. Big Beaver Rd.
Troy, MI (1) 8,600 128 46 57 February, 1996
(1) Lease provides for minimum rent, plus additional rent based upon a
percentage of gross sales.
(2) Lease provides for fixed rent.
8
Approximate Seating
Approx. -------------------
Sq. Ft. of Dining Sushi Opening
Benihana Location Building Room Lounge Bar Date
- - ----------------- ---------- ------ ------ ----- -------
MINNESOTA:
850 Louisiana Ave. So.
Golden Valley, MN 10,400 192 45 September, 1980
NEW JERSEY:
840 Morris Turnpike
Short Hills, NJ (2) 11,500 144 56 56 October 1976
5255 Marlton Pike
Pennsauken, NJ (1) 7,000 136 93 10 February, 1978
(Cherry Hill)
NEW YORK:
120 East 56th St.
New York, NY (2) 3,859 86 24 May, 1966
47 West 56th St.
New York, NY (1) 7,340 112 59 June, 1973
2105 Northern Blvd.
Munsey Park, NY (1) 8,252 144 88 75 December, 1978
(Manhasset)
OHIO:
50 Tri-County Parkway
Cincinnati, OH (1) 7,669 144 91 June, 1978
126 East 6th St.
Cincinnati, OH (1) 5,800 112 30 August, 1979
23611 Chagrin Blvd.
Beachwood, OH (1) 10,300 188 85 May, 1973
(Cleveland)
OREGON:
9205 S.W. Cascade Ave.
Beaverton, OR (1) 6,077 112 54 34 August, 1986
(1) Lease provides for minimum rent, plus additional rent based upon a
percentage of gross sales.
(2) Lease provides for fixed rent.
9
Approximate Seating
Approx. -------------------
Sq. Ft. of Dining Sushi Opening
Benihana Location Building Room Lounge Bar Date
- - ----------------- ---------- ------ ------ ----- -------
PENNSYLVANIA:
2100 Greentree Rd.
Pittsburgh, PA (1) 8,000 150 84 May, 1971
TENNESSEE:
912 Ridgelake Blvd.
Memphis, TN (1) 8,680 144 78 11 October, 1979
TEXAS:
7775 Banner Dr.
Dallas, TX (2) 8,007 160 115 January, 1976
3848 Oak Lawn Ave.
Dallas, TX (1)
(Turtle Creek) 3,998 96 0 10 June, 1997
1318 Louisiana St.
Houston [I], TX (2) 6,938 128 60 12 May, 1975
9707 Westheimer Rd.
Houston [II], TX (1) 7,669 144 120 10 November, 1977
2579 Town Center Blvd.
Sugar Land, TX (1) 3,800 96 0 17 July, 1997
UTAH:
165 S.W. Temple, Bldg. 1
Salt Lake City, UT (1) 7,530 120 72 10 April, 1977
(1) Lease provides for minimum rent, plus additional rent based upon
a percentage of gross sales.
(2) Lease provides for fixed rent.
10
The Company leases approximately 10,100 square feet of space for its general
administrative offices in Miami at an annual rental of $172,000 and 8,000 square
feet for a warehouse also in Miami at an annual rental of $25,000. The leases
expire May 31, 1999 and October 31, 1998, 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.
11
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 1998 Annual Report to Shareholders.
Item 6. Selected Consolidated Financial Data
The information required by this Item is incorporated herein by reference to
page 7 of the Company's 1998 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 8 through 11 of the Company's 1998 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is incorporated herein by reference to
pages 12 through 26 of the Company's 1998 Annual Report to Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
12
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 August 27, 1998 (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 Certain
Beneficial Owners of Management" on pages 4 through 7 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" commencing on page 14 of the Proxy Statement is incorporated
herein by reference.
13
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 12 through 26 of
the Company's 1998 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 29, 1998 and March 30,
1997.
Consolidated Statements of Income for the fifty-two weeks ended
March 29, 1998, the fifty-two weeks ended March 30, 1997 and
fifty-three weeks ended March 31, 1996.
Consolidated Statements of Stockholders' Equity for the fifty-two
weeks ended March 29, 1998, the fifty-two weeks ended March 30,
1997 and fifty-three weeks ended March 31, 1996.
Consolidated Statements of Cash Flows for the fifty-two weeks
ended March 29, 1998, the fifty-two weeks ended March 30, 1997 and
the fifty-three weeks ended March 31, 1996.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
2. Financial Statement Schedules:
None
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. Incorpo-
rated by reference to Exhibit 3.01 to
the S-4 and to Exhibit 1 on Form 8-A dated February
12, 1997.
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.
4.04 Warrant Agreement dated December 1, 1997 between
Benihana and Douglas M. Rudolph. Incorporated by
reference to Exhibit 4.1 to the Company's current
report on Form 8-K dated December 1, 1997.
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.
14
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 April 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 R. 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. Incorporated
by reference to Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the fiscal year ended
March 31, 1996.
10.13 1996 Class A Stock Option Plan. Incorporated by
reference to Exhibit A to Benihana Inc. Proxy
Statement for its Annual Meeting of Stockholders held
on July 19, 1996,
10.14 Amendment dated December 11, 1997 to Employment
Agreement dated May 15, 1995 between Rocky H. Aoki
and the Company.
10.15 Amendment dated May 18, 1998 to Employment Agreement
dated May 15, 1995 and amended December 11, 1997
between Rocky H. Aoki and the Company.
10.16 Amendment dated December 11, 1997 to Employment
Agreement dated May 15, 1995 between Joel A. Schwartz
and the Company.
10.17 Amendment dated December 11, 1997 to Employment
Agreement dated April 1, 1995 between Taka Yoshimoto
and Benihana Inc.
10.18 Amendment dated December 11, 1997 to Employment
Agreement dated January 1, 1995 between Michael R.
Burris and Benihana Inc.
10.19 1997 Employees Class A Stock Option Plan. Incorp-
orated by reference to Exhibit A of Benihana Inc.'s
Proxy Statement for its Annual Meeting of
Stockholders to be held August 27, 1998.
10.20 Amendments to the Directors' Stock Option Plan.
Incorporated by reference to Exhibit B of Benihana
Inc.'s Proxy Statement for its Annual Meeting of
Stockholders to be held August 27, 1998.
15
13.01 Portions of Annual Report to Stockholders for the
year ended March 29, 1998.
22.01 List of Subsidiaries. Incorporated by reference to
Exhibit No. 22.01 to the S-4.
23.01 Consent of Deloitte & Touche LLP.
23.02 Consent of Deloitte & Touche LLP.
(b) Reports on Form 8-K.
None.
16
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: June 23, 1998 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/ Joel A. Schwartz President and June 23, 1998
- - ------------------------ Director (Principal
Joel A. Schwartz Executive Officer)
/s/ Taka Yoshimoto Exeuctive Vice President - June 23, 1998
- - ------------------------ Restaurant Operations
Taka Yoshimoto and Director
/s/ Norman Bcker Director June 23, 1998
- - ------------------------
Norman Becker
/s/ Robert B. Greenberg Director June 23, 1998
- - ------------------------
Robert B. Greenberg
/s/ John E. Abdo Director June 23, 1998
- - ------------------------
John E. Abdo
/s/ Michael R. Burris Vice President of Finance June 23, 1998
- - ------------------------ and Treasurer
Michael R. Burris (Chief Financial Officer and
Principal Accounting Officer)
/s/ Darwin C. Dornbush Secretary and Director June 23, 1998
- - ------------------------
Darwin C. Dornbush
17
EXHIBIT 13.01 - SELECTED FINANCIAL DATA
Years Ended
-----------
March 29, March 30, March 31, March 26, March 27,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(In thousands, except per share information)
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net restaurant sales $99,062 $84,415 $81,094 $72,772 $69,315
Total revenues 99,757 85,204 81,606 73,264 69,766
Cost of sales 25,894 21,658 21,128 20,744 19,000
Restaurant expenses 58,517 51,246 48,676 44,020 43,354
General and administrative
expenses 5,408 4,217 4,801 4,841 4,167
Interest expense, net 1,076 904 1,226 1,140 1,202
Income before taxes 8,862 7,179 5,775 2,519 1,616
Net income 5,940 4,947 4,410 2,751 2,039
EBITDA 12,938 10,510 9,157 6,027 5,593
Pro forma basic earnings
per common share (1) .96 .81 .73 .42 .30
Pro forma diluted earnings
per common share (1) .93 .77 .70 .41 .30
CONSOLIDATED BALANCE SHEET
DATA:
Total assets $58,157 $40,562 $36,257 $33,722 $34,220
Long-term debt including
current maturities 16,840 6,543 7,495 9,178 7,514
Stockholders' equity 28,223 22,754 17,326 12,205 14,799
Capital expenditures 5,079 2,818 2,156 1,264 782
(1) The pro forma basic and diluted earnings per common share were 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 in the fiscal years ended 1996, 1995 and 1994 as a
result of the acquisition of the BOT Restaurants in fiscal year 1996, which
was accounted for in a manner similar to a pooling of interests, have been
factored in the calculation of pro forma earnings per common share for all
periods that are presented prior to the acquisition.
18
Overview
Benihana Inc. (the "Company") ended fiscal 1998 with its best ever revenues, net
income and earnings per share amounts. Revenues totaled $99,757,000 in fiscal
1998 as compared to $85,204,000 in fiscal 1997 and $81,606,000 in fiscal 1996.
Net income totaled $5,940,000 in fiscal 1998 as compared to $4,947,000 in fiscal
1997 and $4,410,000 in fiscal 1996. Earnings per share for fiscal 1998 reached
$.93 per share as compared to $.77 per share in fiscal 1997 and $.70 per share
in fiscal 1996.
During fiscal 1998, the Company completed the acquisition of Rudy's Restaurant
Group, Inc. ("Rudy's") an operator of nine teppanyaki-style Japanese restaurants
in Florida, Ohio, Michigan, Minnesota, Pennsylvania and Washington, D.C. under
the names Samurai and Kyoto. This acquisition was executed as a part of the
Company's strategy to acquire complementary restaurants in the ethnic Asian
restaurant niche taking advantage of the Benihana brand name recognition and
operating expertise. Additionally, the Company opened two new restaurants in
Dallas, Texas and Sugar Land, Texas.
At March 29, 1998, the Company owned 49 restaurants and franchised another 12
restaurants.
The Company's revenues consist of sales of food and beverages sold in each of
the owned restaurants and franchise fees received from franchisees. 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 also
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 revenues and the changes in amount and percentage change in
amount of revenues from the previous fiscal year are shown in the following
tables (in thousands):
YEAR ENDED MARCH
1998 1997 1996
------- ------- -------
Net restaurant sales $99,062 $84,415 $81,094
Other income 695 789 512
------- ------- -------
Total Revenues $99,757 $85,204 $81,606
======= ======= =======
YEAR ENDED MARCH
1998 1997 1996
------- ------- -------
Amount of change from the previous year $14,553 $ 3,598 $ 8,342
Percentage change from the previous year 17.1% 4.4% 11.4%
Comparable sales per restaurant $ 2,410 $ 2,221 $ 2,138
Percentage growth in comparable sales
per restaurant 8.5% 3.9% 8.7%
Year ended March 29, 1998 compared to March 30, 1997 -- Total restaurant sales
increased $14,647,000 over fiscal 1997. The increase in sales was a result of
the Rudy's acquisition completed on December 1, 1997, the opening of two new
restaurants and an increase in guest counts at units opened for longer than one
year. The nine restaurants acquired from Rudy's represented $5,994,000 of the
increase. The two new restaurants represented $1,475,000 of the increase. Guest
counts at units opened for longer than one year increased by 295,751 guests,
contributing $7,178,000 to the increase. The average check size in 1998 was
$22.32 compared to $22.42 in 1997. The decrease in the average check amount was
a result of an increased proportion of lunch traffic which has significantly
19
lower check averages than dinner check averages. The average dinner check
increased to $24.79 in 1998 compared to $24.73 in 1997. The average lunch check
increased to $13.54 in 1998 compared to $13.38 in 1997.
The Company continues to benefit from a strong economy and from favorable
consumer responses to the Company's concept and to the growing popularity of
sushi products, which is offered at either separate sushi bars or at the
teppanyaki grills in all of the Company's restaurants.
Year ended March 30, 1997 compared to March 31, 1996 -- Total restaurant sales
increased $3,321,000 over fiscal 1996. The increase in sales was achieved in a
52 week year as compared to the previous year which consisted of 53 weeks, which
additional week in fiscal 1996 represented $1,667,000 of revenues. Comparable
unit sales, excluding the additional week in the previous year, increased 5.8%
during fiscal 1997. The increase is attributable to the continued increases in
patronage from the introduction of sushi bars at six restaurants, from physical
improvements made to several restaurant properties and from favorable consumer
trends in the markets in which the Company operates. Continuing favorable
consumer trends in dining at the Company's restaurants include two wage earner
families, consumers seeking entertainment while enjoying the dining experience,
and other favorable demographic influences. Increases in patronage resulted in
increased sales of $4,252,000 offset by a decrease in average check size. The
average check size in 1997 was $22.42 compared to $22.68 in 1996. The reduction
in average check size is a result of increased lunch traffic. Other income
increased as a result of additional licensing fees of $180,000 and increased
royalties of $97,000.
Costs and Expenses
Cost 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
1998 1997 1996
----- ----- -----
COST AS PERCENTAGE OF RESTAURANT SALES:
Cost of restaurant food and beverage sales 26.1% 25.7% 26.1%
Restaurant expenses 59.1% 60.7% 60.0%
General and administrative expenses 5.5% 5.0% 5.9%
AMOUNT OF CHANGE FROM PREVIOUS
YEARS (IN THOUSANDS):
Cost of restaurant food and beverage sales $4,236 $ 530 $ 384
Restaurant expenses $7,271 $2,570 $4,656
General and administrative expenses $1,191 $ (584) $ (40)
Percentages increase(decrease):
Cost of restaurant food and beverage sales 19.6% 2.5% .2%
Restaurant expenses 14.2% 5.3% 10.6%
General and administrative expenses 28.2% (12.2%) (.1%)
Year ended March 29, 1998 compared to March 30, 1997 -- The cost of food and
beverage sales increased in total dollar amount and when expressed as a
percentage of sales. The increase in cost of sales as a result of the
aforementioned increase in customer counts was $3,865,000. Commodity cost
increases, principally higher seafood costs, represented the remaining amount of
the increase in cost of sales.
Restaurant expenses increased in total amount but decreased when expressed as a
percentage of sales. The nine restaurants acquired during the year represented
$3,315,000 of the increase. The aforementioned increase in sales has effected an
increase in absolute amount in those expenses having a direct correlation to
sales such as credit card processing expenses and percentage rent expense. In
addition, advertising and promotional expenses increased due to the Company's
efforts to expand media exposure for its sushi bars. Rudy's spending on
advertising was significantly less than that of the Company. Consequently,
restaurant expenses decreased as a percentage of sales. The Company plans to
increase the amount spent on advertising relating to the Rudy's restaurants, and
accordingly, results of operations may not be indicative of results to be
expected in future periods.
General and administrative expenses increased in total dollar amount when
compared to the comparable periods of the prior year. The increase resulted from
increases in salaries and benefits, miscellaneous expenses and depreciation and
20
amortization. The increase in salaries and benefits resulted from increases
in the base salary of executive officers in accordance with amended and or
new employment agreements and from the hiring of additional personnel. The
increase in miscellaneous expenses reflects a one time expense associated with
the acquisition of Rudy's. The increase in depreciation and amortization
expense resulted from the amortization of goodwill relating to the
acquisition of Rudy's.
Interest expense increased in the current year as a result of additional bank
borrowings of $9,400,000 to acquire Rudy's.
Year ended March 30, 1997 compared to March 31, 1996 -- 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. Restaurant expenses increased in total amount
and as a percentage of sales. Restaurant labor expense and related benefit costs
increased $1,834,000 as a result of the increased sales. Additionally, occupancy
costs increased as a result of higher rent expense from the aforementioned
increased sales.
General and administrative costs decreased in total amount in the current year
resulting from reduced compensation expense. Additionally, certain license fees
were collected that had been written off in the prior year which contributed to
the decrease. General and administrative expenses decreased when expressed as a
percentage of sales due to the increase in sales coupled with the reduction of
general and administrative expenses.
Interest expense decreased by $322,000 during the year. The decrease is
attributable to the decrease in total borrowings outstanding from the prior
year. Additionally, interest income increased by $186,000 as a result of
interest earned.
Income Taxes
The Company's effective tax rate increased to 33.0% in 1998 from 31.1% in 1997
and from 23.6% in 1996. The increase from 1997 to 1998 was a result of state
income tax refunds of $160,000 received in 1997. The increase from 1996 to 1997
was a result of federal tax benefits of net operating loss carry forwards
exhausted in 1996.
Liquidity and Capital Resources
The Company does not require significant amounts of inventory or receivables,
and as is typical of most restaurant companies, the Company does not have to
provide financing for such assets and operates with a minimum amount or deficit
of working capital.
The Company requires capital principally for the development of new restaurants,
acquisition of other restaurant businesses, and the refurbishment of existing
restaurant units. On December 1, 1997, the Company completed the acquisition of
Rudy's for approximately $20,000,000 of cash. In addition, a warrant for 200,000
shares of the Company's Class A Stock was issued at an exercise price of $8.00
per share. The acquisition was financed, in part, with the proceeds of a new
Credit Agreement consisting of a $12,000,000 term loan and a $15,000,000
revolving line of credit. Interest under the Credit Agreement accrues at the
Company's option at either prime rate plus a margin up to 1.0% or at LIBOR plus
a margin of 1.0% to 2.25%. The applicable interest rate margin varies with the
Company's leverage ratio (defined as EBITDA divided by funded indebtedness).
Principal of the term loan is payable at a rate of $1,000,000 in each of the
next two years, $2,000,000 in each of years three and four, and $3,000,000 in
each of years five and six revolving line of credit is payable in 2002. The
proceeds under the credit agreement were also used to retire outstanding
borrowings under a previous loan agreement in the approximate amount of
$5,700,000. The credit agreement restricts the Company from making dividend
payments and purchases of the Company's common equity and limits capital
expenditures to $8,500,000 for fiscal 1998, $8,600,000 for fiscal 1999 and
$8,000,000 annually thereafter plus amounts in excess of certain operating cash
flow targets and amounts of cash provided from offerings of common equity. The
credit agreement also requires the Company to achieve certain ratios of
operating cash flow to debt and other financial benchmarks.
As of March 29, 1998, the Company had available $12,000,000 under the revolver
facility. Management believes that the amount available under the revolver
facility together with internally generated funds from operations provide
sufficient cash resources for anticipated capital improvements as well as
construction and opening of new restaurants.
21
The Company has signed leases for three new restaurants. Estimated remaining
expenditures to complete construction and open these new restaurants are
expected to be $2,300,000. Two of the new restaurants will be operated under the
Company's new sushi concept, Sushi Doraku in Fort Lauderdale, Florida and
Chicago, Illinois. The third restaurant will operate as a traditional Benihana
in Ontario, California. The Fort Lauderdale Sushi Doraku restaurant is estimated
to open in the summer of 1998 and the other two restaurants are projected to
open in the winter of 1998.
During the current year, the Company redeemed $1,000,000 of preferred stock. The
Company is restricted by the new credit agreement as to the aggregate amount of
preferred stock that it can redeem to an amount not to exceed $1,000,000 in each
of the fiscal years ending in 1998 and 1999 only.
Forward-Looking Information
This Annual Report contains certain forward looking statements concerning the
Company. Management believes its expectations which are based upon reasonable
assumptions are reflected in such forward looking statements. However, no
assurance can be or is given that such expectations will prove correct and that
actual results and developments may differ materially. Important factors that
could cause actual results to differ include fluctuation in commodity prices on
which the Company's food costs depend, competition within the restaurant
industry, changes in consumer dining preferences, changes in governmental
regulation, fluctuation in the general economy, harsh weather, competition for
skilled and unskilled restaurant employees, legal claims, and availability of
favorable restaurant locations, and other factors as set forth in the Company's
Form 10-K filed with the Securities Exchange Commission.
Year 2000
The well publicized "Year 2000" issue relates to computer programs that were
written using only two digits rather than four digits to define the applicable
year in date sensitive programs in calculating and processing computerized data.
The Company has reviewed the Year 2000 issue internally and with its software
vendors. The Company believes that the costs and the operational impact
associated with Year 2000 compliance will not be material.
22
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share information)
Year ended March 29, March 30, March 31,
1998 1997 1996
- - -------------------------------------------------------------------------------------------------------------------
Revenues
Net restaurant sales $99,062 $84,415 $81,094
Other income, principally franchise fees and royalties 695 789 512
- - -------------------------------------------------------------------------------------------------------------------
Total revenues 99,757 85,204 81,606
- - -------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Cost of restaurant food and beverage sales 25,894 21,658 21,128
Restaurant expenses 58,517 51,246 48,676
General and administrative expenses 5,408 4,217 4,801
Interest expense 1,076 904 1,226
- - -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 90,895 78,025 75,831
- - -------------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 8,862 7,179 5,775
Income tax provision (Note 11) 2,922 2,232 1,365
- - -------------------------------------------------------------------------------------------------------------------
Net Income $ 5,940 $ 4,947 $ 4,410
- - -------------------------------------------------------------------------------------------------------------------
Earnings Per Share
Basic earnings per common share $ .96 $ .81 $ .73
Diluted earnings per common share $ .93 $ .77 $ .70
- - -------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
23
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
March 29, March 30,
1998 1997
- - -------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,169 $ 7,043
Receivables (net of allowance for doubtful accounts of $0
in 1998 and $27 in 1997, respectively) (Note 10)
Trade 202 218
Other 183 324
- - -------------------------------------------------------------------------------------------------------------------
Total receivables 385 542
Inventories (Notes 4, 10) 3,768 3,148
Prepaid expenses (Note 5) 758 837
- - -------------------------------------------------------------------------------------------------------------------
Total current assets 6,080 11,570
Property and equipment, net (Notes 6, 9, 10) 32,998 25,416
Deferred income taxes, net (Note 11) 3,781 1,487
Goodwill, net (Note 2) 12,663
Other assets (Notes 7, 10) 2,635 2,089
- - -------------------------------------------------------------------------------------------------------------------
$58,157 $40,562
- - -------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses (Note 8) $ 9,323 $ 7,018
Current maturities of long-term debt and
obligations under capital leases (Notes 9, 10) 1,939 1,436
- - -------------------------------------------------------------------------------------------------------------------
Total current liabilities 11,262 8,454
Long-term debt (Note 10) 15,233 5,271
Due to Affiliates, long-term (Note 10) 174 312
Obligations under capital leases (Note 9) 3,265 3,771
Stockholders' Equity (Note 12):
Series A Convertible Preferred stock - $1.00 par value; authorized -
5,000,000 shares, issued and outstanding -
1,000 shares and 2,000 shares, respectively 1 2
Common stock - $.10 par value; convertible into Class A
Common, authorized - 12,000,000 shares, issued and
outstanding - 3,571,116 and 3,557,366 shares, respectively 357 356
Class A Common stock - $.10 par value; authorized -
20,000,000 shares, issued and outstanding -
2,517,463 and 2,516,300 shares, respectively 252 252
Additional paid-in capital 14,600 14,978
Retained earnings 13,129 7,282
Treasury stock - 9,177 shares at cost (116) (116)
- - -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 28,223 22,754
- - -------------------------------------------------------------------------------------------------------------------
$58,157 $40,562
- - -------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
24
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share information)
Retained
Class A Additional Earnings Total
Preferred Common Common Paid-in (Accumulated Treasury Stockholders'
Stock Stock Stock Capital Deficit) Stock Equity
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 26, 1995 $ 2 $ 349 $ 232 $13,337 $(1,715) $ - $12,205
Issuance of 22,700 shares of stock under
exercise of options 3 73 76
Issuance of 450 shares of stock
for incentive compensation 5 5
Tax benefit resulting from difference
between book and tax bases of assets
acquired from BOT 870 870
Dividend on preferred stock (105) (105)
Funds distributed to BOT (135) (135)
Net income 4,410 4,410
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 2 352 232 14,285 2,455 17,326
Issuance of 41,000 shares of stock under
exercise of options 4 178 182
Purchase of 9,177 shares of stock (116) (116)
Dividend on preferred stock (120) (120)
Issuance of 300 shares of stock
for incentive compensation 3 3
Issuance of 200,000 shares under
exercise of warrants 20 512 532
Net income 4,947 4,947
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 30, 1997 2 356 252 14,978 7,282 (116) 22,754
Fair market value of warrant issued in
connection with the acquisition of Rudy's 563 563
Redemption of preferred stock (1) (999) (1,000)
Dividend on preferred stock (93) (93)
Issuance of 14,913 shares of stock
under exercise of options 1 58 59
Net income 5,940 5,940
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 29, 1998 $ 1 $ 357 $ 252 $14,600 $13,129 $ (116) $28,223
- - -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
25
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
March 29, March 30, March 31
1998 1997 1996
- - -------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 5,940 $ 4,947 $ 4,410
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,000 2,427 2,416
Issuance of common stock for incentive compensation 3 5
Deferred income taxes 1,043 90 676
Change in operating assets and liabilities that provided
(used) cash:
Receivables 233 (290) 149
Inventories (264) (1,315) (274)
Prepaid expenses 135 83 377
Other assets (494) (124) 48
Accounts payable and accrued expenses 1,652 479 (412)
- - -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 11,245 6,300 7,395
- - -------------------------------------------------------------------------------------------------------------------
Investing Activities:
Payment for purchase of Rudy's Restaurant Group, Inc.,
net of cash acquired (Note 2) (19,138)
Expenditures for property and equipment (5,079) (2,818) (2,156)
Increase in cash surrender value of life insurance policy ( 1) (35) (30)
- - -------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (24,218) (2,853) (2,186)
- - -------------------------------------------------------------------------------------------------------------------
Financing Activities:
Preferred stock redeemed (1,000)
Dividends paid on preferred stock (93) (120) (105)
Proceeds from issuance of long-term debt 18,000 319
Repayment of long-term debt and obligations under
capital leases (9,867) (1,604) (2,496)
Net cash distributed to BOT (135)
Proceeds from issuance of common stock 59 714 76
Purchase of treasury stock (116)
- - -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 7,099 (1,126) (2,341)
- - -------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (5,874) 2,321 2,868
Cash and cash equivalents, beginning of year 7,043 4,722 1,854
- - -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $1,169 $7,043 $4,722
- - -------------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information
Cash paid during the fiscal year for:
Interest $ 860 $ 733 $ 809
Income taxes $2,804 $2,061 $ 353
Noncash investing and financing activities:
Fair market value of warrant issued $ 563
Non-competition agreement $ 684
Business acquisitions, net of cash acquired (Note 2):
Fair value of assets acquired, other than cash $ 8,888
Liabilities assumed (2,577)
Purchase price in excess of the net assets acquired 12,827
-------
$19,138
=======
See notes to consolidated financial statements
26
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 29, 1998, MARCH 30, 1997 AND MARCH 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Benihana Inc. owns and operates 49 Japanese teppanyaki-style
restaurants and franchises twelve 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 accounts and 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 of each year. The years ended March 29,
1998 and March 30, 1997 consisted of 52 weeks, and the year ended March
31, 1996 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.
Cash and Cash Equivalents - The Company considers all highly liquid
investment instruments purchased with an initial maturity of three
months or less to be cash equivalents.
Inventories - Inventories, which consist principally of restaurant
operating supplies and food and beverage, are stated 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.
Depreciation and Amortization - 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, personal computers, software and
related equipment - 3 years, and leaseholds - lesser of the lease
terms, including renewal options, or useful life). Goodwill is being
amortized on a straight-line basis over a 25 year period, the estimated
benefit period for the business acquired, see Note 2. Accumulated
amortization of goodwill was $164,000 at March 29, 1998.
Accounting for Long-Lived Assets - In accordance with 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," the Company evaluates its net investment in restaurant
properties and goodwill for impairment whenever events or changes in
circumstances indicate that the carrying amounts of an asset may not be
recoverable. During the periods presented, no such impairment was
incurred.
Stock-Based Compensation - Pursuant to the alternative methods
permitted under SFAS No.123, "Accounting for Stock-Based Compensation,"
stock based compensation is determined using the intrinsic value
method prescribed in Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, compensation cost for stock options is
27
measured as the excess, if any, of the quoted market price of the
Company's stock at the date of grant over the amount an employee must
pay to acquire the stock (Note 12).
Earnings Per Share - During fiscal 1998 the Company adopted SFAS No.
128, "Earnings per Share". All prior year earnings per share amounts
have been restated.
Basic earnings per common share is computed by dividing net income
available to common shareholders by the weighted average number of
common shares outstanding during each period. The diluted earnings per
common share computation includes dilutive common share equivalents
issued under the Company's various stock option plans and dilutive
convertible preferred stock.
The computation of basic earnings per common share and diluted earnings
per common share for each year is shown below (in thousands):
March 29, March 30, March 31,
1998 1997 1996
--------- --------- ---------
Income from operations $5,940 $4,947 $4,410
Pro forma adjustments (1) (26)
Less preferred dividends (93) (120) (105)
Less pro forma preferred dividends (1) (15)
------ ------ ------
Income for computation of basic
earnings per common share 5,847 4,827 4,264
Convertible preferred dividends 93 120 120
------ ------ ------
Income for computation of diluted
earnings per common share $5,940 $4,947 $4,384
====== ====== ======
Weighted average number of common
shares used in basic EPS 6,080 5,947 5,821
Effect of dilutive securities:
Stock options and warrants 86 144 182
Convertible preferred shares 233 300 300
------ ------ ------
Weighted average number of common
shares and dilutive potential common
shares used in diluted EPS 6,399 6,391 6,303
====== ====== ======
(1) The amounts of preferred dividends and interest expense that
would have been incurred as a result of the acquisition in fiscal
year 1996 of 17 restaurants and four licensed locations from
Benihana of Tokyo, Inc. have been factored in the calculation of
earnings per share from the beginning of fiscal year 1996.
Reclassifications - Certain prior year amounts have been reclassified
to conform to the fiscal year 1998 presentation.
2. ACQUISITION
The Company's consolidated financial statements and related notes
include the acquisition of Rudy's Restaurant Group, Inc. ("Rudy's") as
of December 1, 1997. Rudy's owns and operates nine teppanyaki-style
Japanese restaurants in Florida, Ohio, Michigan, Minnesota,
Pennsylvania and Washington, D.C. under the names Samurai and Kyoto.
The acquisition price was approximately $20 million inclusive of
transaction costs and certain agreements to former employees of Rudy's.
Additionally, the Company granted a five-year warrant to purchase
200,000 shares of the Company's Class A Common Stock at an exercise
price of $8.00 per share to the chief executive officer of Rudy's. The
acquisition has been accounted for using the
28
purchase method of accounting and the operating results of Rudy's have
been included in the Company's current fiscal year consolidated
statement of operations since the date of acquisition. The excess of
the purchase price over the acquired tangible and intangible net assets
of approximately $13 million has been allocated to goodwill.
The following unaudited pro forma financial information gives effect to
the acquisition as if the acquisition had occurred as of the beginning
of the fiscal years presented. This pro forma financial information
reflects certain adjustments such as: eliminating certain
administrative expenses of Rudy's, amortization of goodwill, interest
expense on additional bank borrowings, and the related income tax
effects (in thousands, except per share information):
March 29, March 30,
1998 1997
(Unaudited) (Unaudited)
----------- -----------
Restaurant sales $111,153 $100,760
Net income $ 6,742 $ 5,582
Basic earnings per common share $ 1.11 $ .92
Diluted earnings per common share $ 1.07 $ .86
These pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had taken place as of the
beginning of the fiscal years presented, nor do they reflect the
purchase price that might have been negotiated at these earlier
periods.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has estimated the fair value of financial instruments that
are included as assets and liabilities in the accompanying balance
sheets. 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 29, 1998 and
March 30, 1997 are as follows (in thousands):
March 29, 1998 March 30, 1997
----------------------- ----------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
Financial assets
Cash and cash equivalents $ 1,169 $ 1,169 $ 7,043 $ 7,043
Receivables $ 628 $ 612 $ 861 $ 833
Cash surrender value of officer's
life insurance $ 306 $ 306 $ 305 $ 305
Financial liabilities
Bank and other indebtedness $16,840 $17,091 $ 6,543 $ 6,791
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 cash equivalents
The carrying value approximates fair value because of the
short-term nature of the instruments.
29
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 29, March 30,
1998 1997
--------- ---------
Food and beverage $ 1,574 $ 1,243
Supplies 2,194 1,905
------- -------
$ 3,768 $ 3,148
======= =======
5. PREPAID EXPENSES
Prepaid expenses consist of (in thousands):
March 29, March 30,
1998 1997
--------- ---------
Prepaid insurance $ 445 $ 547
Prepaid advertising 62 14
Other 251 276
------- -------
$ 758 $ 837
======= =======
6. PROPERTY AND EQUIPMENT
Property and equipment consist of (in thousands):
March 29, March 30,
1998 1997
--------- ---------
Land $ 5,925 $ 4,824
Buildings 10,224 9,566
Leasehold improvements 28,325 22,998
Restaurant furniture, fixtures,
and equipment 16,288 14,075
Restaurant facilities and equipment
under capital leases 7,655 7,655
------- -------
68,417 59,118
Less accumulated depreciation and
amortization (Including accumulated
amortization of restaurant facilities
and equipment under capital leases of
$5,907 and $5,599 in 1998 and 1997,
respectively) 36,657 34,059
------- -------
31,760 25,059
Construction in progress 1,238 357
------- -------
$32,998 $25,416
======= =======
30
7. OTHER ASSETS
Other assets consist of (in thousands):
March 29, March 30,
1998 1997
--------- ---------
Lease acquisition costs $ 429 $ 490
Cash surrender value of officer's
life insurance 306 305
Premium on liquor licenses 923 651
Deferred financing charges 386
Long-term note receivable 158 196
Security deposits 172 162
Pre-opening expenses 84 46
Other 177 239
------- --------
$ 2,635 $ 2,089
======= ========
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 1998, 1997 and 1996.
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.
Deferred financing charges relate to costs associated with a new credit
facility dated December 1, 1997. These costs are being amortized over
the life of the facility. Amortization expense totaled $19,000 for
fiscal year 1998.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of (in thousands):
March 29, March 30,
1998 1997
--------- ---------
Accounts payable $ 3,766 $ 2,351
Accrued salaries 917 687
Accrued property taxes 449 293
Accrued percentage rent 537 296
Accrued incentive compensation 910 866
Taxes, other than income taxes 1,289 973
Other accrued operating expenses 1,455 1,552
------- -------
$ 9,323 $ 7,018
======= =======
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 25 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 the 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
31
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
1999 $ 3,437 $ 894
2000 3,782 893
2001 3,008 893
2002 2,723 893
2003 2,521 784
Thereafter 17,195 768
------- -------
Total minimum lease payments $32,666 5,125
Less amount representing interest 1,354
-------
Total obligations under capital leases 3,771
Less current maturities 506
-------
Long-term obligations under capitalized
leases at March 29, 1998 $ 3,265
=======
Rental expense consists of (in thousands):
March 29, March 30, March 31,
1998 1997 1996
--------- --------- ---------
Minimum rental commitments $3,957 $3,310 $3,162
Rental based on percentage of sales 1,253 1,036 884
------ ------ ------
$5,210 $4,346 $4,046
====== ====== ======
10. LONG-TERM DEBT
Long-term debt consists of (in thousands):
March 29, March 30,
1998 1997
--------- ---------
Notes payable - bank (see below):
Term loan $ 12,000 $ 6,104
Revolving line of credit 3,000
Notes payable - other:
7 1/2% unsecured promissory note payable
in monthly installments of $13 313 439
7% promissory note payable in monthly
installments of $30 670
7% unsecured note obligation payable in
monthly installments of $7 210
Note obligation under terms of non
competition agreement with former shareholder
of Rudy's - discounted at 8%, payable in
monthly installments $17 647
-------- --------
16,840 6,543
Less current portion 1,433 960
-------- --------
$ 15,407 $ 5,583
======== ========
In connection with the acquisition of Rudy's, the Company entered into
a new credit agreement with a bank, consisting of a $12,000,000 term
loan and a $15,000,000 revolving line of credit. Interest under the
credit agreement accrues at the Company's option at either prime rate
plus a margin up to 1.0% or at LIBOR plus a margin of 1.0% to 2.25%. At
March 29, 1998, interest was accrued at 7.63%. The applicable interest
rate margin varies with the Company's leverage ratio
32
(defined as EBITDA divided by funded indebtedness). Principal of the
term loan is payable at a rate of $1,000,000 in each of the next two
years, $2,000,000 in each of years three and four, and $3,000,000 in
each of years five and six and the revolving line of credit is payable
in 2002 and accordingly, is classified as long-term debt on the
consolidated balance sheet, in each case subject to the terms of the
credit agreement. The credit agreement restricts the Company from
making dividend payments and purchases of the Company's common equity
securities and limits the amounts of capital expenditures that the
Company can make annually during the term of the credit agreement. The
credit agreement also requires the Company to achieve certain ratios of
operating cash flow to debt and other financial benchmarks. The credit
agreement is collateral- ized by a security interest in the Company's
assets.
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 notional 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.
Principal maturities of long-term debt obligations at March 29, 1998
are as follows:
Fiscal year ending
1999 $ 1,433
2000 1,735
2001 2,027
2002 5,645
2003 2,250
Thereafter 3,750
-------
Total $16,840
=======
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 29, 1998 March 30, 1997
Assets Liabilities Total Assets Liabilities Total
-------------------------------------------------------------------------------------
Excess book amortization for
for pre-opening costs and
capital leases $ 846 $ - $ 846 $ 899 $ - $ 899
Tax loss carryforwards
principally Rudy's
Restaurant Group, Inc. 2,891 - 2,891 - - -
Accelerated depreciation for
tax purposes - (799) (799) - (708) (708)
Income tax credits 940 - 940 963 - 963
Other 10 - 10 333 - 333
Less - valuation allowance (107) - (107) - - -
-------------------------------------------------------------------------------------
Total asset (liability) $ 4,580 $ (799) $ 3,781 $ 2,195 $ (708) $ 1,487
=====================================================================================
33
The Company's net operating loss carryforwards acquired in the
acquisition of Rudy's total $7,228,000 for ordinary income tax purposes
and $7,541,000 for alternative minimum income tax purposes available to
reduce future taxable income. Certain of the net operating loss
carryforwards are subject to certain so-called "SRLY" rules which limit
their use to offset future income earned by the entity that generated
the loss. All other net operating loss carryforwards are available to
offset income of Rudy's. Furthermore, the net operating loss
carryforwards are subject to the change of control provision of Section
382 that limits the usage of the net operating loss carryforwards to
approximately $1,100,000 per year. The valuation allowance has been
established to reserve for net operating loss carryforwards not
expected to be realized. All net operating loss carryforwards expire as
follows (in thousands):
Fiscal year ending
1999 $ 955
2000 697
2001 196
2004 297
2005 4,613
2006 470
------
$7,228
======
The income tax provision consists of (in thousands):
March 29, March 30, March 31,
1998 1997 1996
----------------------------------------------------------------------------------------------------
Current:
Federal (net of utilization of net operating
loss of $352, $0 and $5,488 in fiscal years
1998, 1997 and 1996, respectively) $1,254 $1,637 $ 320
State 625 505 369
Deferred:
Federal and State 1,043 90 676
---------------------------------------------
Income tax provision $2,922 $2,232 $1,365
=============================================
The income tax provision differed from the amount computed at the
statutory rate as follows (in thousands):
March 29, March 30, March 31,
1998 1997 1996
----------------------------------------------------------------------------------------------------
Federal income tax provision at statutory
rate of 34% $3,013 $2,441 $1,963
Change in valuation allowance (92) (592)
State income taxes, net of federal benefit 413 333 244
Tax credits, net (498) (426) (288)
Other 86 (116) 38
---------------------------------------------
Income tax provision $2,922 $2,232 $1,365
=============================================
Effective income tax rate 33.0% 31.1% 23.6%
=============================================
12. STOCKHOLDERS' EQUITY
Series A Convertible 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. During fiscal year 1998,
the Company redeemed 1,000 shares of Preferred Stock.
34
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.
Stock Options - The Company has various stock option plans, a 1994
Employee Stock Option Plan ("1994 Plan"), a 1996 Class A Stock Option
Plan ("1996 Plan"), a 1997 Class A Stock Option Plan ("1997 Plan") and
a Directors' Stock Option Plan ("Directors' Plan"), under which a
maximum of approximately 1,785,000 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 (for incentive stock options) that own more than 10% of the
combined voting rights of the Company's Common and Class A Common
Stock. Options granted under the 1994 Plan are exercisable on the date
of grant. Options granted under the 1996 Plan and 1997 Plan are
exercisable with respect to 1/3 of the shares granted on the date of
grant, with respect to an additional 1/3 of the shares granted, on the
first anniversary of the date granted, and with respect to the balance
of the shares granted on the second anniversary of the date granted.
Under the Directors' 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. Options granted under the
Directors Plan are exercisable with respect to 1/2 of the shares
granted on the first anniversary of the date of grant and with respect
to the balance of the shares on the second anniversary of the date of
grant.
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.
SFAS No. 123 defines a fair value method of accounting for stock
options and similar equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is
usually the vesting period. Companies are encouraged, but not required,
to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for
such transactions under APB No. 25, but are required to disclose in a
note to the financial statements pro forma net income and earnings per
share as if the Company had applied the new method of accounting. The
Company applies APB No. 25 in accounting for its stock- based
compensation plans. Under APB No. 25, because the exercise price of the
Company's employee stock options approximates the fair value of the
underlying stock on the date of grant, no compensation expense is
recognized. Had compensation cost been determined on the basis of fair
value pursuant to SFAS No. 123, for options granted in fiscal 1998,
1997 and 1996, net income and diluted earnings per share would have
been as follows:
March 29, March 30, March 31,
1998 1997 1996
--------- --------- ---------
Net Income
As reported $5,940 $4,947 $4,410
Pro forma $5,372 $4,870 $4,386
Diluted Earnings Per Share
As reported $.93 $.77 $.70
Pro forma $.84 $.76 $.70
The following weighted average assumptions were used in the option
pricing model: a risk-free interest rate of 5.7% for fiscal year 1998
and 6.8% for 1997 and 1996, respectively; an expected life of four
years, no expected dividend yield and a volatility factor of 34% to 45%
for fiscal years 1998, 1997 and 1996, respectively.
35
Due to the inclusion of only fiscal years 1998, 1997 and 1996 option
grants, the effects of applying SFAS No. 123 in 1998, 1997 and 1996 may
not be representative of the pro forma impact in future years.
The following table summarizes information about fixed-price stock
options outstanding at March 29, 1998:
Options Outstanding Options Exercisable
--------------------------------------- --------------------------
Weighted-
Average Weighted Weighted
Ranges of Remaining Average Average
exercise Contractual Exercise Exercise
Prices Number Life Price Number Price
---------------------------------------------------------------------------------------------------
$ 1 3/8 - $3 1/4 32,000 5.8 $ 2.75 32,000 $ 2.75
6 3/4 - 8 3/8 196,170 8.8 7.70 87,837 7.64
9 3/16 - 10 1/8 124,757 8.3 9.42 82,755 9.43
10 1/4 - 12 1/4 316,500 9.5 12.14 110,083 12.04
---------------- ------- -------
$ 1 3/8 - $12 1/4 669,427 312,675
Transactions under the above plans for the three years ended March 29,
1998 are as follows:
March 29, March 30, March 31,
1998 1997 1996
----------------------------------------------------------------------------------------------------
Balance, beginning of year 222,407 129,900 121,100
Granted 467,750 133,507 31,500
Canceled (3,750)
Expired (2,067)
Exercised (14,913) (41,000) (22,700)
---------------------------------------------
Balance, end of year 669,427 222,407 129,900
=============================================
Weighted average fair value of options
granted during year $ 4.47 $ 3.57 $ 3.79
On March 29, 1998, options for 312,675 of the shares are exercisable at
prices ranging from $1 3/8 to $12 1/4.
There were approximately 1,362,000 shares of common stock reserved at
March 29, 1998, for issuance upon exercise of stock options under all
stock option plans.
Stock Rights - During fiscal year 1997, the Company adopted a
Shareholder Rights Plan and declared a distribution of one Preferred
Share Purchase Right ("Right") for each outstanding share of the
Company's Common Stock and Class A Common Stock as of February 26, 1997
and for each share issued by the Company thereafter. The Rights operate
to create substantial dilution to a potential acquiror who seeks to
make an acquisition, the terms of which the Company's Board of
Directors believes is inadequate or structured in a coercive manner.
Prior to becoming exercisable, the Rights are evidenced by the
certificates representing the Common Stock and Class A Common Stock and
may not be separately traded. The Rights become exercisable on the
tenth day (or such later date as the Board of Directors may determine)
after public announcement that a person or a group (subject to certain
exceptions) has acquired 20% or more of the outstanding Common Stock or
an announcement of a tender offer that would result in beneficial
ownership by a person or a group of 20% or more of the Common Stock.
36
13. INCENTIVE AND DEFERRED COMPENSATION PLANS
The Company has a 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 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. One-third of the amounts awarded are 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 or deferred in a non-qualified deferred
compensation plan. The target rate, which for 1998 and 1997 was 20% and
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
$475,000 and $450,000 for fiscal years 1998 and 1997, respectively.
The Company has an executive retirement plan whereby certain key
employees 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 for their available account balances. Investment earnings are
credited to their accounts.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter ended (in thousands except for per share information)
March 29, 1998
-------------------------------------------------------------------------------------------------
4th 3rd 2nd 1st
REVENUES $26,880 $24,096 $21,192 $27,589
GROSS PROFIT 19,836 17,743 15,725 20,559
NET INCOME 1,598 1,562 1,140 1,640
BASIC EARNINGS
PER SHARE (1) : $ .26 $ .25 $ .18 $ .26
DILUTED EARNINGS
PER SHARE (1) : $ .25 $ .24 $ .18 $ .26
Quarter ended (in thousands except for per share amounts)
March 30, 1997
-------------------------------------------------------------------------------------------------
4th 3rd 2nd 1st
REVENUES $ 20,597 $ 19,826 $ 19,176 $ 25,605
GROSS PROFIT 15,369 14,748 14,343 19,086
NET INCOME 1,401 1,402 841 1,303
BASIC EARNINGS
PER SHARE (1) : $ .23 $ .23 $ .14 $ .22
DILUTED EARNINGS
PER SHARE (1) : $ .22 $ .22 $ .13 $ .20
(1) Amounts have been restated, see Note 1.
37
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 29, 1998 and March 30, 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended March 29, 1998. 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 29, 1998 and March 30, 1997, and the results of their operations and
their cash flows for each of the three years in the period ended March 29, 1998
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
May 8, 1998
38
COMMON STOCK INFORMATION
The Company's Common Stock and Class A Stock are traded on the Nasdaq National
Market System. There were 304 holders of record of the Company's Common Stock
and 408 holders of record of the Class A Common Stock at March 29, 1998.
The table below sets forth high and low bid prices for the Company's Common
Stock and Class A Common Stock, which do not include commissions and mark-ups or
mark-downs for the periods indicated. 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 29, 1998 March 30, 1997
------------------------ ----------------------
COMMON STOCK High Low High Low
1st Quarter 9 3/4 6 3/4 16 1/4 10 1/4
2nd Quarter 13 8 7/8 14 1/8 10
3rd Quarter 15 11 3/8 14 10 7/8
4th Quarter 12 3/4 11 12 7
Fiscal Year Ended
-----------------
March 29, 1998 March 30, 1997
---------------------- ----------------------
CLASS A
COMMON STOCK High Low High Low
1st Quarter 8 5/8 6 1/2 10 8 3/8
2nd Quarter 12 3/8 8 1/8 9 3/8 7 3/4
3rd Quarter 13 11 9 3/16 7 1/2
4th Quarter 12 1/8 10 1/2 8 3/4 6 5/8
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.
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.
39
Exhibit 10.14
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No. 1 dated December 11, 1997 to Employment Agreement dated
May 15, 1995 (the "Agreement") by and between Benihana Inc. and Rocky H. Aoki.
Unless otherwise defined herein, capitalized terms shall have the
respective meanings assigned to them in the Agreement. Effective December 1,
1997, the parties agree that the Agreement shall be amended as follows:
1. Section 1.1 of the Agreement is revised by modifying the first
sentence of that section to read in its entirety, as follows:
1.1 Subject to the terms and provisions of this Agreement, the
Company will continue to employ the Employee in its business and the
Employee will continue to work for the Company as Chairman of the Board
of Directors (being the Chief Executive Officer of the Company) for an
extended term continuing until December 31, 2002.
2. Section 4.1 of the Agreement is revised to read as follows:
4.1 In respect of services to be performed by the Employee
during the Employment Period, the Company agrees to pay the Employee an
annual salary of Five Hundred Thousand Dollars ($500,000) ("Basic
Compensation"), payable in accordance with the Company's customary
payroll practices for executive employees.
3. Subsection 4.4 (ii) of the Agreement is revised to read as follows:
4.4 ...(ii) the exercise price of such option; provided
however, that in no fiscal year of the Company shall the aggregate
purchase price of such options exceed five percent (5%) of the total
stockholders equity (net worth) of the Company as shown on its audited
financial statements for the fiscal year immediately preceding the year
in which such right is exercised...
4. Sections 8.1 and 8.2 of the Agreement are revised to read, as
follows:
8.1 In the event at any time after the Effective Date, a
majority of the Board of Directors is composed of persons who are not
"Continuing Directors", as hereinafter defined, which event is defined
to mean a "Change in Control", Employee shall have the option, to be
exercised by written notice to the Company, to resign as an employee
and terminate this Agreement, effective as of such date specified in
the notice of exercise and immediately upon such termination to receive
payment of a sum equal to the product of (A) the Basic Compensation in
effect on the date of such termination multiplied (B) by the number of
years (both full and partial) remaining in the term hereof had such
termination not occurred. The payment to be made upon the exercise of
the option by the Employee in accordance with the provisions of the
preceding sentence is defined as the "Severance Payment". The Severance
Payment shall be made to Employee not later than twenty (20) days after
the date designated by the Employee as the date upon which Employee's
resignation as an employee and termination of his Employment is to be
effective. The Severance Payment shall constitute liquidated damages
and not a penalty, and Employee shall not be obligated to seek
employment to mitigate his damages; nor shall any compensation the
Employee receives from any party subsequent to such termination be an
offset to the amount of the Severance Payment.
8.2 "Continuing Directors" shall mean (i) the directors of the
Company on January 1, 1998 and (ii) any person who was or is
recommended to (A) succeed a Continuing Director or (B) become a
director as a result of an increase in the size of the Board, in each
case, by a majority of the Continuing Directors then on the Board.
40
Except as modified herein, the Agreement remains in full force and
effect in accordance with its terms without revocation or change.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the date and year first above written.
BENIHANA INC.
By: /s/ Joel A. Schwartz
---------------------------
Joel A. Schwartz, President
/s/ Rocky H. Aoki
---------------------------
Rocky H. Aoki
41
Exhibit 10.15
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
Amendment No. 2 dated May 18 , 1998 to Employment Agreement dated
May 15, 1995 by and between Benihana Inc. and Rocky H. Aoki, as amended by
Amendment No. 1 thereto dated December 11, 1997 (as so amended, the
"Agreement").
Unless otherwise defined herein, capitalized terms shall have the
respective meanings assigned to them in the Agreement. Effective on the date
hereof, the parties agree that the Agreement shall be amended as follows:
1. Section 1.1 of the Agreement is hereby amended to read in its
entirety as follows:
1.1 Subject to the terms and provisions of this Agreement, the
Company will continue to employ the Employee in its business and the
Employee will continue to work for the Company as a consultant for an
extended term continuing until December 31, 2002. "Employment Period"
shall mean the term hereof. Such employment may be terminated by the
Company at any time for "cause", which shall be limited to the
Employee's proven dishonesty with respect to the Company, disloyalty
or the continuing breach of any of the covenants on the Employee's
part herein set forth or as a result of the Employee's gross
negligence or willful act of omission.
2. Section 2 of the Agreement is hereby amended to read as in its
entirety as follows:
2. DUTIES
During the Employment Period, the Employee shall perform such
duties as a consultant as may be, from time to time, reasonably
delegated or assigned to him by the Board of Directors of the Company
consistent with the Employee's abilities.
3. Section 8.1 of the Agreement is hereby amended to read in its
entirety as follows:
8.1 In the event at any time after the Effective Date, a
majority of the Board of Directors is composed of persons who are not
"Continuing Directors", as hereinafter defined, which event is
defined to mean a "Change in Control", Employee shall have the
option, to be exercised by written notice to the Company, to resign
as a consultant and terminate this Agreement, effective as of such date
specified in the notice of exercise and immediately upon such
termination to receive payment of a sum equal to the product of (A)
the Basic Compensation in effect on the date of such termination
multiplied (B) by the number of years (both full and partial)
remaining in the term hereof had such termination not occurred. The
payment to be made upon the exercise of the option by the Employee in
accordance with the provisions of the preceding sentence is defined as
the "Severance Payment". The Severance Payment shall be made to
Employee not later than twenty (20) days after the date designated by
the Employee as the date upon which Employee's resignation as a
consultant and termination of his Employment is to be effective. The
Severance Payment shall constitute liquidated damages and not a
penalty, and Employee shall not be obligated to seek employment to
mitigate his damages; nor shall any compensation the Employee receives
from any party subsequent to such termination be an offset to the
amount of the Severance Payment. Except as modified herein, the
Agreement remains in full force and effect in accordance with its
terms without revocation or change.
42
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 2
as of the date and year first above written.
BENIHANA INC.
By: /s/ Joel A. Schwartz
----------------------------
Joel A. Schwartz, President
/s/ Rocky H. Aoki
----------------------------
Rocky H. Aoki
43
Exhibit 10.16
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No. 1 dated December 11, 1997 to Employment Agreement dated
May 15, 1995 (the "Agreement") by and between Benihana Inc. and Joel A.Schwartz.
Unless otherwise defined herein, capitalized terms shall have the
respective meanings assigned to them in the Agreement. Effective January 1,
1998, the parties agree that the Agreement shall be amended as follows:
1. Section 1.1 of the Agreement is revised by modifying the first
sentence of that section to read in its entirety, as follows:
1.1 Subject to the terms and provisions of this Agreement, the
Company will continue to employ the Employee in its business and the
Employee will continue to work for the Company as President and Chief
Operating Officer for an extended term continuing until December 31,
2002.
2. Section 4.1 of the Agreement is revised to read as follows:
4.1 In respect of services to be performed by the Employee
during the Employment Period, the Company agrees to pay the Employee an
annual salary of Two Hundred Fifty-Five Thousand Dollars ($255,000)
("Basic Compensation"), payable in accordance with the Company's
customary payroll practices for executive employees.
3. The Agreement is revised by adding the following as Section 4.4:
4.4 If during the term hereof Employee owns any options to
purchase securities of the Company which securities are publicly traded
and which options were granted to him in connection with his service as
an employee, officer or director of the Company, the Employee shall
have the right at any time after a "Change in Control", as defined in
Section 17.1 to cause the Company to repurchase such options from him
at a purchase price equal to the difference between (i) the closing
price of the appropriate security of the Company (if traded on the New
York or American Stock Exchange or quoted in the NASDAQ National
Market) or the average between the closing bid and asked prices (if
traded on the over-the-counter market) on the date immediately prior to
the date on which Employee exercises such right and (ii) the exercise
price of such option; provided however, that in no fiscal year of the
Company shall the aggregate purchase price of such options exceed five
percent (5%) of the total stockholders equity (net worth) of the
Company as shown on its audited financial statements for the fiscal
year immediately preceding the year in which such right is exercised.
Such right shall be exercised by Employee giving the Company written
notice thereof and the purchase and sale shall be consummated not more
than ten (10) business days after receipt by the Company of the notice
of exercise.
4. The Agreement is revised by adding the following as Section 17:
17. Change In Control.
17.1. In the event at any time after the Effective
Date, a majority of the Board of Directors is composed of persons who
are not "Continuing Directors", as hereinafter defined, which event is
defined to mean a "Change in Control", Employee shall have the option,
to be exercised by written notice to the Company, to resign as an
employee and terminate this Agreement, effective as of such date
specified in the notice of exercise and immediately upon such
termination to receive payment of a sum equal to the product of (A) the
Basic Compensation in effect on the date of such termination multiplied
(B) by the number of years (both full and partial) remaining in the
term hereof had such termination not occurred. The payment to be made
upon the exercise of the option by the Employee in accordance with the
provisions of the preceding sentence is defined as the "Severance
Payment". The Severance Payment shall be made to Employee not later
than twenty (20) days after the date designated by the Employee as the
date upon which Employee's resignation as an employee and termination
of his Employment is to be
44
effective. The Severance Payment shall constitute liquidated damages
and not a penalty, and Employee shall not be obligated to seek
employment to mitigate his damages; nor shall any compensation the
Employee receives from any party subsequent to such termination be an
offset to the amount of the Severance Payment.
17.2 "Continuing Directors" shall mean (i) the
directors of the Company at the close of business on January 1, 1998,
and (ii) any person who was or is recommended to (A) succeed a
Continuing Director or (B) become a director as a result of an increase
in the size of the Board, in each case, by a majority of the Continuing
Directors then on the Board.
5. The Agreement is revised by adding the following as Section 18:
18. Termination of Employment Without Cause. Upon any
termination of the Employee's employment without cause, the Employee
shall be entitled to receive an amount computed in the same
manner as the Severance Payment not later than 20 days after any
such termination. This payment shall constitute liquidated
damages and not a penalty, and Employee shall not be obligated to
seek employment to mitigate his damages; nor shall any
compensation the Employee receives from any party subsequent to
such termination be an offset to the amount of such payment.
Except as modified herein, the Agreement remains in full force
and effect in accordance with its terms without revocation or change.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the date and year first above written.
BENIHANA INC.
By: /s/ Rocky H. Aoki
--------------------------
Rocky H. Aoki,
Chairman of the Board
/s/ Joel A. Schwartz
--------------------------
Joel A. Schwartz
45
Exhibit 10.17
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No. 1 dated December 11, 1997 to Employment Agreement dated
April 1, 1995 (the "Agreement") by and between Benihana Inc. and Taka Yoshimoto.
Unless otherwise defined herein, capitalized terms shall have the
respective meanings assigned to them in the Agreement. Effective January 1,
1998, the parties agree that the Agreement shall be amended as follows:
1. Section 1 the Agreement is revised to read in its entirety, as
follows:
1. Subject to the terms and provisions of this
Agreement, the Company will continue to employ the Employee for an
extended term continuing until December 31, 2000 (the "Employment
Period").
2. Section 3.1 of the Agreement is revised to read as follows:
3.1 In respect of services to be performed by the Employee
during the Employment Period, the Company agrees to pay the Employee an
annual salary of One Hundred Forty Thousand Dollars ($140,000) ("Basic
Compensation"), payable in accordance with the Company's customary
payroll practices for executive employees.
3. Section 5.1 is amended by eliminating the words "the Company.",
which appear in the second line of the second paragraph of such Section.
Except as modified herein, the Agreement remains in full force and
effect in accordance with its terms without revocation or change.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the date and year first above written.
BENIHANA INC.
By: /s/ Joel A. Schwartz
----------------------------
Joel A. Schwartz, President
----------------------------
/s/ Taka Yoshimoto
Taka Yoshimoto
46
Exhibit 10.18
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No. 1 dated December 11, 1997 to Employment Agreement dated
January 1, 1995 (the "Agreement") by and between Benihana Inc. and Michael
Burris.
Unless otherwise defined herein, capitalized terms shall have the
respective meanings assigned to them in the Agreement. Effective January 1,
1998, the parties agree that the Agreement shall be amended as follows:
1. Section 1 the Agreement is revised to read in its entirety, as
follows:
1. Subject to the terms and provisions of this
Agreement, the Company will continue to employ the Employee for an
extended term continuing until December 31, 2000 (the "Employment
Period").
2. Section 3.1 of the Agreement is revised to read as follows:
3.1 In respect of services to be performed by the Employee
during the Employment Period, the Company agrees to pay the Employee an
annual salary of One Hundred Thirty-Seven Thousand Five Hundred Dollars
($137,500) ("Basic Compensation"), payable in accordance with the
Company's customary payroll practices for executive employees.
3. Sections 3.3 and 3.5 are eliminated.
4. Section 5.1 is amended by eliminating the words, "the Company,"
which appear in the second line of the second paragraph of such Section.
Except as modified herein, the Agreement remains in full force and
effect in accordance with its terms without revocation or change.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the date and year first above written.
BENIHANA INC.
By: /s/ Joel A. Schwartz
-----------------------------
Joel A. Schwartz, President
/s/ Michael Burris
-----------------------------
Michael Burris
47
EXHIBIT 23.01
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration Statement of
Benihana Inc. on Form S-3 of our report dated May 8, 1998 appearing in the
Annual Report on Form 10-K of Benihana Inc. for the year ended March 29, 1998,
and to the reference to us under the heading "Experts" in the Prospectus, which
is a part of this Registration Statement.
Deloitte & Touche LLP
Miami, Florida
June 22, 1998
48
EXHIBIT 23.02
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration Statement of
Benihana Inc. on Form S-8 of our report dated May 8, 1998 appearing in the
Annual Report on Form 10-K of Benihana Inc. for the year ended March 29, 1998.
Deloitte & Touche LLP
Miami, Florida
June 22, 1998
49