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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended January 5, 2003
or,
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-26396
Benihana Inc.
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(Exact name of registrant as specified in its charter)
Delaware 65-0538630
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8685 Northwest 53rd Terrace, Miami, Florida 33166
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 593-0770
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None
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Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock $.10 par value, 3,184,478 shares outstanding at February 10, 2003
Class A Common Stock $.10 par value, 5,595,084 shares outstanding at
February 10, 2003
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
TEN PERIODS ENDED JANUARY 5, 2003
TABLE OF CONTENTS
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PART I - Financial Information
Condensed Consolidated Balance Sheets (unaudited)
at January 5, 2003 and March 31, 2002 1
Condensed Consolidated Statements of Earnings
(unaudited) for the Three and Ten Periods Ended
January 5, 2003 and January 6, 2002 2 - 3
Condensed Consolidated Statement of Stockholders'
Equity (unaudited) for the Ten Periods Ended
January 5, 2003 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the Ten Periods Ended
January 5, 2003 and January 6, 2002 5
Notes to Condensed Consolidated Financial Statements
(unaudited) 6 - 9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10 - 15
PART II - Other Information 16 - 21
BENIHANA INC. AND SUBSIDIARIES
PART I - Financial Information
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share information)
January 5, March 31,
2003 2002
- -------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 2,046 $ 5,062
Receivables 465 990
Inventories 5,475 4,097
Prepaid expenses 3,448 2,530
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Total Current Assets 11,434 12,679
Property and equipment, net 82,222 61,971
Deferred income taxes, net 1,633 1,963
Goodwill, net 27,089 16,478
Other assets 5,326 5,210
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$127,704 $ 98,301
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 20,323 $ 16,921
Current maturity of bank debt 3,000 3,000
Current maturities of obligations
under capital leases 446 668
- -------------------------------------------------------------------------------------------------------
Total Current Liabilities 23,769 20,589
Long-term debt - bank 20,500 3,000
Obligations under capital leases 397 705
Minority interest 664 294
Commitments and contingencies
Stockholders' Equity:
Series A redeemable convertible
preferred stock - $1.00 par value;
authorized - 5,000,000 shares, no shares issued
Common stock - $.10 par value;
convertible into Class A Common, authorized -
12,000,000 shares, issued and outstanding -
3,184,478 and 3,276,179 shares, respectively 318 328
Class A common stock - $.10 par value;
authorized - 20,000,000 shares, issued and outstanding
5,572,084 and 4,151,319 shares, respectively 557 415
Additional paid-in capital 48,254 26,926
Retained earnings 33,388 46,160
Treasury stock - 10,553 and 9,177 shares, respectively,
of Common and Class A stock at cost (143) (116)
- -------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 82,374 73,713
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$127,704 $98,301
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See notes to condensed consolidated financial statements
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands, except per share information)
Three Periods Ended
------------------------------
January 5, January 6,
2003 2002
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Revenues
Restaurant sales $43,521 $39,867
Franchise fees and royalties 301 315
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Total revenues 43,822 40,182
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Costs and Expenses
Cost of food and beverage sales 10,569 9,613
Restaurant operating expenses 25,833 23,365
Restaurant opening costs 89 49
Marketing, general and administrative expenses 3,808 3,262
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Total operating expenses 40,299 36,289
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Income from operations 3,523 3,893
Interest expense, net 145 268
Minority interest 102 47
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Income from operations before income taxes 3,276 3,578
Income tax provision 1,108 1,239
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Net Income $ 2,168 $ 2,339
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Earnings Per Share
Basic earnings per common share $ .25 $ .31
Diluted earnings per common share $ .24 $ .30
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Number of restaurants at end of period 65 60
See notes to condensed consolidated financial statements
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands, except per share information)
Ten Periods Ended
------------------------------
January 5, January 6,
2003 2002
- -----------------------------------------------------------------------------------------------------
Revenues
Restaurant sales $141,920 $127,542
Franchise fees and royalties 1,019 1,061
- -----------------------------------------------------------------------------------------------------
Total revenues 142,939 128,603
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Costs and Expenses
Cost of food and beverage sales 34,882 32,399
Restaurant operating expenses 85,423 75,488
Restaurant opening costs 354 1,090
Marketing, general and administrative expenses 11,983 10,817
Impairment charge 438
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Total operating expenses 132,642 120,232
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Income from operations 10,297 8,371
Interest expense, net 371 857
Minority interest 370 7
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Income from operations before income taxes 9,556 7,507
Income tax provision 3,147 2,339
- -----------------------------------------------------------------------------------------------------
Net Income $ 6,409 $ 5,168
- -----------------------------------------------------------------------------------------------------
Earnings Per Share
Basic earnings per common share $ .74 $ .70
Diluted earnings per common share $ .68 $ .67
- -----------------------------------------------------------------------------------------------------
Number of restaurants at end of period 65 60
See notes to condensed consolidated financial statements
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands, except share information)
Series A
Redeemable
Convertible Class A Additional Total
Preferred Common Common Paid-in Retained Treasury Stockholders'
Stock Stock Stock Capital Earnings Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2002 - $328 $415 $26,926 $46,160 ($116) $73,713
Net income 6,409 6,409
Issuance of 1,141,050 shares 114 19,090 (19,181) (23)
of class A common stock
for stock dividend
Issuance of 9,000 shares 43 43
of common stock
under exercise of options
Issuance of 178,865 shares 18 1,708 1,726
of class A common stock
under exercise of options
Conversion of 100,700 (10) 10
shares of common stock
into 100,700 shares of class
A common stock
Issuance of 150 shares 3 3
of class A common stock
for incentive compensation
Purchase of treasury stock (4) (4)
Tax benefit from stock option exercises 484 484
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 5, 2003 $- $318 $557 $48,254 $33,388 ($143) $82,374
- ------------------------------------------------------------------------------------------------------------------------------------
See notes to condensed consolidated financial statements
BENIHANA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands, except share information)
Ten Periods Ended
---------------------------------
January 5, January 6,
2003 2002
- ----------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 6,409 $ 5,168
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,406 4,352
Minority interest 370 7
Deferred income taxes 330 290
Loss on disposal of assets 74 180
Loss on write-down of impaired assets 438
Issuance of common stock for incentive compensation 3
Change in operating assets and liabilities that provided (used) cash:
Receivables 526 (940)
Inventories (1,234) (11)
Prepaid expenses (847) (1,493)
Other assets (434) (223)
Accounts payable and accrued expenses 1,807 3,583
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,410 11,351
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Investing activities:
Business acquisition, net of cash acquired (11,374)
Expenditures for property and equipment (23,270) (11,517)
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Net cash used in investing activities (34,644) (11,517)
- ----------------------------------------------------------------------------------------------------------------
Financing Activities:
Borrowings under revolving credit facility 31,300 15,000
Proceeds from issuance of common stock, net of offering costs 10,628
Proceeds from issuance of common stock under exercise of stock options 1,769 509
Repayment of long-term debt and obligations under capital leases (14,331) (23,685)
Dividend paid on preferred stock (5)
Purchase of treasury stock (4)
Tax benefit from stock option exercises 484
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 19,218 2,447
- ----------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (3,016) 2,281
Cash and cash equivalents, beginning of year 5,062 935
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Cash and cash equivalents, end of period $ 2,046 $ 3,216
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Supplemental Cash Flow Information:
Cash paid during the ten periods:
Interest $ 364 $ 905
Income taxes 2,208 2,510
- ----------------------------------------------------------------------------------------------------------------
Business Acquisition, Net of Cash Acquired:
Fair value of assets acquired, other than cash $ 2,358
Liabilities assumed (1,595)
Purchase price in excess of the net assets acquired 10,611
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$11,374
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During the ten periods ended January 5, 2003, 100,700 shares of common stock
were converted into 100,700 shares of Class A common stock.
During the ten periods ended January 5, 2003, a stock dividend of 1,141,050
shares Class A common stock was paid.
During the ten periods ended January 6, 2002, 294,737 shares of common stock
were converted into 294,737 shares of Class A common stock and 700 shares of
preferred stock were converted into 105,263 shares of Class A common stock.
See notes to condensed consolidated financial statements.
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEN PERIODS ENDED JANUARY 5, 2003 AND JANUARY 6, 2002
(UNAUDITED)
1. GENERAL
The accompanying condensed consolidated financial statements are unaudited
and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of financial position and results of operations. The results of
operations for the three and ten periods (twelve and forty weeks,
respectively) ended January 5, 2003 and January 6, 2002 are not necessarily
indicative of the results to be expected for the full year. Certain
information and footnotes normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted. These interim financial
statements should be read in conjunction with the consolidated financial
statements and accompanying notes thereto for the year ended March 31, 2002
appearing in the Company's Form 10-K filed with the Securities and Exchange
Commission.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In September 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS
No. 121. The new statement defines detailed criteria for assets being "held
for sale". The Company adopted the provisions of this statement effective
the beginning of the first quarter of fiscal 2003. Additionally, the
statement further defines the reporting of discontinued operations in
financial statements. The adoption of this statement in the first quarter of
fiscal 2003 did not have a material effect on the Company's financial
statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" which rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and an amendment of that Statement,
FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements". It also rescinds FASB Statement No. 44, "Accounting for
Intangible Assets or Motor Carriers", and amends FASB Statement No. 13,
"Accounting for Leases". Finally SFAS No. 145 amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions related to the rescission of FASB Statement No. 4 and its
amendment Statement No. 64 are effective for fiscal years beginning after
May 15, 2002. The Company does not believe the adoption of SFAS No. 145 will
have a significant effect on the Company's financial statements.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This Statement requires
recording costs associated with exit or disposal activities at their fair
values when a liability has been incurred. Under previous guidance, certain
exit costs were accrued upon management's commitment to an exit plan, which
is generally before an actual liability has been incurred. Adoption of this
Statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The Company does not believe the adoption
of SFAS No. 146 will have a significant effect on the Company's financial
statements.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure"-an amendment of FASB
Statement No. 123. SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. SFAS 148 also amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEN PERIODS ENDED JANUARY 5, 2003 AND JANUARY 6, 2002
(UNAUDITED)
3. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
fiscal year presentation.
4. INVENTORIES
Inventories consist of (in thousands):
January 5, March 31,
2003 2002
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Food and beverage $1,674 $1,568
Supplies 3,801 2,529
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$5,475 $4,097
====== ======
5. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income available
to common shareholders by the weighted average number of common shares
outstanding during each period. The diluted earnings per common share
computation includes dilutive common share equivalents issued under the
Company's various stock option plans and dilutive convertible preferred
stock.
The following data shows the amounts (in thousands) used in computing
earnings per share and the effect on income and the weighted average number
of shares of dilutive potential common stock.
Ten Periods Ended
-----------------------------
January 5, January 6,
2003 2002
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Net income $6,409 $5,168
Less preferred dividends - (5)
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Income for computation of basic
earnings per common share 6,409 5,163
Plus preferred dividends - 5
------ --------
Income for computation of diluted
earnings per common share $6,409 $5,168
====== ======
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEN PERIODS ENDED JANUARY 5, 2003 AND JANUARY 6, 2002
(UNAUDITED)
Ten Periods Ended
-----------------------------
January 5, January 6,
2003 2002
---------- ----------
Weighted average number of
common shares used in basic
earnings per share 8,728 7,325
Effect of dilutive securities:
Stock options and warrants 702 322
Convertible preferred stock - 19
------ -------
Weighted average number of
common shares and dilutive
potential common stock used
in diluted earnings per share 9,430 7,666
====== ======
6. RESTAURANT OPERATING EXPENSES
Restaurant operating expenses consist of the following (in thousands):
Three Periods Ended Ten Periods Ended
--------------------------- ---------------------------
January 5, January 6, January 5, January 6,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Labor and related costs $16,300 $14,740 $53,906 $47,346
Restaurant supplies 788 694 2,756 2,505
Credit card discounts 762 685 2,452 2,177
Utilities 900 801 3,262 3,004
Occupancy costs 2,365 2,332 7,811 7,384
Depreciation and amortization 1,771 1,436 5,202 4,120
Other operating expenses 2,947 2,677 10,034 8,952
------- ------- ------- -------
Total restaurant operating expenses $25,833 $23,365 $85,423 $75,488
======= ======= ======= =======
7. stock dividend
On June 7, 2002, the Board of Directors declared a 15% stock dividend in
Class A stock for both the Class A and common shares. The stock dividend
was paid on August 12, 2002 to holders of record July 15, 2002. As a
result, basic and diluted earnings per common share have been adjusted as
if the stock dividend had been in existence for each period presented.
8. MASTER LEASE AGREEMENT
On June 12, 2002, the Company terminated its master lease agreement with
Wachovia Bank, National Association and two other banks. The
aforementioned master lease agreement had enabled financing in new
acquisition and construction. Upon termination, the Company purchased at
cost the three teppanyaki Benihana restaurants previously financed under
the agreement. A portion of the purchase price was provided with
replacement financing under the Company's revolving credit facility.
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEN PERIODS ENDED JANUARY 5, 2003 AND JANUARY 6, 2002
(UNAUDITED)
9. ACQUISITION
On December 3, 2002, the Company acquired RA Sushi Bar Restaurant, a
privately owned Arizona chain currently operating four sushi restaurants.
The four founding principals of RA are expected to remain active in
operating the business, and will continue under contracts in management
roles with the chain following its acquisition for a defined period.
Annual sales of the five-year old company approximates $9 million.
The $11.4 million cash purchase price and approximately $1.2 million debt
assumption was financed from the Company's credit facility with Wachovia
Bank, National Association which was revised to finance the acquisition.
The Company also agreed to pay certain additional amounts contingent upon
sales and earnings performance.
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Our revenues consist of sales of food and beverages at our restaurants and
licensing fees from franchised restaurants. Cost of restaurant food and
beverages sold represents the direct cost of the ingredients for the prepared
food and beverages sold. Restaurant operating expenses consist of direct and
indirect labor, occupancy costs, advertising and other costs that are directly
attributed to each restaurant location. Restaurant opening costs include rent
paid during the development period, as well as labor, training and certain other
pre-opening charges which are expensed as incurred.
Restaurant revenues and expenses are dependent upon a number of factors
including the number of restaurants in operation, restaurant patronage and the
average check amount. Expenses are additionally dependent upon commodity costs,
average wage rates, marketing costs and the costs of interest and administering
restaurant operations.
Revenues increased and net income and earnings per diluted share decreased in
the current three periods when compared to the corresponding period a year ago.
Revenues increased mostly from increases in comparable sales, from new units and
from the four newly acquired RA Sushi restaurants described below. Net income
and earnings per diluted share decreased as a result of higher labor and related
costs. Earnings per diluted share was also impacted by 1.3 million more shares
and equivalents outstanding in the current three periods.
REVENUES
Three and ten periods ended January 5, 2003 compared to January 6, 2002 -- The
amounts of sales and the changes in amount and percentage change in amount of
revenues from the previous fiscal year are shown in the following tables (in
thousands).
Three Periods Ended Ten Periods Ended
---------------------------- ----------------------------
January 5, January 6, January 5, January 6,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net restaurant sales $43,521 $39,867 $141,920 $127,542
Franchise fees and royalties 301 315 1,019 1,061
------- ------- -------- --------
Total Revenues $43,822 $40,182 $142,939 $128,603
======= ======= ======== ========
Three Periods Ended Ten Periods Ended
--------------------------- ----------------------------
January 5, January 6, January 5, January 6,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Amount of change in total
revenues from previous year $ 3,640 $ 2,921 $ 14,336 $ 7,576
Percentage of change from the
previous year 9.1% 7.8% 11.1% 6.3%
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Restaurant revenues increased in both the three (twelve week) and ten (forty
week) periods ended January 5, 2003 compared to the corresponding periods a year
ago. A 4.7% increase in comparable restaurant sales accounted for $1.8 million
of the increase in restaurant revenues for the three periods and a 5.7% increase
in comparable restaurant sales accounted for $7.0 million of the increase in
restaurant revenues for the ten periods when compared to the corresponding
periods a year ago. Restaurant revenues also increased from the opening of newly
opened or acquired restaurants by $1.7 million for the current three periods and
by $8.9 million for the ten periods as compared to the corresponding periods a
year ago. The increases in restaurant sales were offset by restaurants
permanently closed or closed for refurbishment. The effect of the closed units
was $.2 million for the current three periods and $1.6 million for the current
ten periods when compared to the corresponding periods a year ago.
COSTS AND EXPENSES
Three and ten periods ended January 5, 2003 compared to January 6, 2002 -- The
following table reflects the proportion that the various elements of costs and
expenses bore to sales and the changes in amounts and percentage changes in
amounts from the previous year's three and ten periods.
Three Periods Ended Ten Periods Ended
--------------------------- ----------------------------
January 5, January 6, January 5, January 6,
2003 2002 2003 2002
---------- ---------- ---------- ----------
COST AS A PERCENTAGE OF
RESTAURANT SALES:
Cost of food and beverage sales 24.3% 24.1% 24.6% 25.4%
Restaurant operating expenses 59.4% 58.6% 60.2% 59.2%
Restaurant opening costs .2% .1% .2% .9%
Marketing, general and
administrative expenses 8.7% 8.2% 8.4% 8.5%
AMOUNT OF CHANGE FROM
PREVIOUS COMPARABLE PERIOD
(IN THOUSANDS):
Cost of food and beverage sales $ 956 $ 39 $2,483 $ (130)
Restaurant operating expenses $2,468 $2,880 $9,935 $9,161
Restaurant opening costs $ 40 $ (205) $ (736) $ (88)
Marketing, general and
administrative expenses $ 546 $ (114) $1,166 $ 231
PERCENTAGE CHANGE FROM
PREVIOUS COMPARABLE PERIOD:
Cost of food and beverage sales 9.9% .4% 7.7% (.4%)
Restaurant operating expenses 10.6% 14.1% 13.2% 13.8%
Restaurant opening costs 81.6% (80.7%) (67.5%) (7.5%)
Marketing, general and
administrative expenses 16.7% (3.4%) 10.8% 2.2%
The cost of food and beverage sales increased in total dollar amount in the
current three and ten periods and increased slightly when expressed as a
percentage of sales in the current three periods and decreased in the current
ten periods when compared to the corresponding periods in the prior year. Costs
of food and beverage sales, which are generally variable with sales, directly
increased with changes in revenues for the three and ten periods ended January
5, 2003 as compared to the equivalent periods ended January 6, 2002.
Commodities costs, principally shrimp costs, remained stable in the current
three periods and decreased in the earlier part of the current ten periods when
compared to the equivalent periods a year ago.
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Restaurant operating expenses increased in absolute amount in the current three
and ten periods compared to the corresponding periods a year ago. Restaurant
operating expenses when expressed as a percentage of sales increased in the
current three and ten periods compared to the corresponding periods a year ago.
The increase was primarily attributable to an increase in labor and related
costs. The increase in labor during the current three and ten periods related to
lower productivity. Labor and related costs were 37.5% of sales in the current
three periods compared with 39.1% in the preceding three periods and 37.0% in
the comparable three periods a year ago. For the current ten periods, labor and
related costs were 38.0% of sales compared with 37.1% in the comparable
equivalent period a year ago due to lower productivity and higher payroll taxes
and benefits. The increase in payroll taxes was a result of increased labor and
the increase in benefits was a result of an increase in the number and amount of
claims in the Company's self-insured health plan in the earlier part of the
current ten periods when compared to the equivalent period a year ago.
Additionally, higher insurance rates caused an increase in property and casualty
insurance costs in the current three and ten periods compared to the
corresponding periods a year ago. Depreciation and amortization increased in
both the current three and ten periods. The increase was a result of additional
depreciation and amortization costs from new restaurants as well as from
refurbishment to existing units.
Restaurant opening costs increased in the current three periods and decreased in
the current ten periods ended January 5, 2003 compared to the prior year
corresponding periods. The increase in the current three periods is related to
expenses of a teppanyaki restaurant under development in Westbury, New York. The
decrease was attributable to pre-opening expenses in the prior year's ten
periods relating to three Haru restaurants and two Benihana Teppanyaki
restaurants which opened during the prior fiscal year. Restaurant opening costs
associated with opening the two Benihana Teppanyaki restaurants in the current
ten periods were substantially less than the prior year comparable period.
Marketing, general and administrative costs increased in absolute amount and
increased when expressed as a percentage of sales in the current three periods,
but decreased slightly in the current ten periods when expressed as such a
percentage compared to the corresponding periods a year ago. The increase is
mainly attributable to planned advertising expenditures in the current three and
ten periods when compared to the comparable periods a year ago. The decrease in
the current ten periods is immaterial.
Interest expense decreased in the current three and ten periods when compared to
the corresponding periods of the prior year. The decrease in the current three
and ten periods was attributable to a decrease in the interest rates on our
borrowings under our credit facility as well as a decrease in the average
outstanding borrowings in the current ten periods compared to the previous
comparable period.
Our effective income tax rate increased in the ten periods to 32.9% from 31.2%
in the prior year's ten periods. The increase was due to a increase in net
income in the current ten periods coupled with a constant amount of net federal
tax credit for FICA taxes paid on reported tip income in both the current and
prior year ten periods.
OUR FINANCIAL RESOURCES
Cash flow from operations had been the primary source to fund our capital
expenditures before we accelerated the development of new restaurants. Since we
have accelerated our building program, we are relying more upon financing
obtained from financial institutions. We have financed acquisitions principally
through the use of borrowed funds.
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We have borrowings from Wachovia Bank, National Association under a term loan
and we have a revolving line of credit facility, both of which were renegotiated
on December 3, 2002. The renegotiated credit agreement increased the term loan
facility to $16,000,000. The line of credit facility allows us to borrow up to
$15,000,000 through December 31, 2007 and at January 5, 2003, we had $7,500,000
outstanding under the revolving line of credit. We had $16,000,000 outstanding
at the end of January 5, 2003 under the term loan which is payable in quarterly
installments of $750,000 through December 2004 and $833,333 thereafter until the
term loan matures in December 2007. The interest rate at January 5, 2003 of both
the line of credit and the term loan was 2.54%. We have the option to pay
interest at Wachovia's prime rate plus 1%. The interest rate may vary depending
upon the ratio of the sum of earnings before interest, taxes, depreciation and
amortization to our indebtedness. The loan agreements limit our capital
expenditures to certain amounts, require that we maintain certain financial
ratios and profitability amounts and prohibit the payment of cash dividends.
To finance new restaurant development, we had entered into a master lease
agreement with Wachovia Bank, National Association and two other banks. The
master lease agreement enabled financing for up to $25,000,000 in new restaurant
acquisition and construction. Management determined that more favorable rates
were available under our line of credit and accordingly we terminated this
arrangement on June 12, 2002 by borrowing $5,000,000 from the line of credit and
using $8,000,000 in cash to pay off the outstanding facility balance and
acquiring the three restaurant properties financed under the facility.
Since restaurant businesses generally do not have large amounts of inventory and
accounts receivable, there is no need to finance them. As a result, many
restaurant businesses, including our own, operate with negative working capital.
The following table summarizes the sources and uses of cash and cash equivalents
(in thousands):
Ten Periods Ended
-----------------------------
January 5, January 6,
2003 2002
---------- ----------
Cash provided by operations $ 12,410 $ 11,351
Cash (used in) investing activities (34,644) (11,517)
Cash provided by financing activities 19,218 2,447
---------- ---------
Decrease in cash and cash equivalents $ (3,016) $ 2,281
========== =========
Operating Activities
Cash provided by operations increased during the ten periods ended January 5,
2003 compared to equivalent periods in the previous year. The increase resulted
mainly from an increase in net income after adding back depreciation and
amortization charges offset by the change in cash provided by operating assets
and liabilities in the current ten periods when compared to the previous
comparable period.
Investing Activities
Expenditures for property and equipment increased during the ten periods ended
January 5, 2003 by $11,753,000 over the prior comparable period to $23,270,000.
Approximately $13 million of the total expenditures were for the purchase of
property and equipment of three teppanyaki restaurants previously financed under
the master lease agreement which was terminated June 12, 2002.
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
During the current ten periods, the Company purchased RA Sushi Bar Restaurant, a
privately owned Arizona chain currently operating four restaurants for a cash
price of $11.4 million and approximately $1.2 debt assumption. The acquisition
was financed from our existing credit agreement which was renegotiated during
the current ten periods.
Financing Activities
During the current ten periods there were stock options exercises with cash
proceeds to the Company of $1,769,000 as compared to $509,000 in the previous
comparable period a year ago. Our total indebtedness increased by $16,969,000
during the ten periods ended January 5, 2003 as compared to the end of fiscal
2002. We borrowed $11,500,000 under the renegotiated term loan portion of the
credit agreement and $19,800,000 under the revolving line of credit, paid down
$12,300,000 of the revolving line of credit, paid down $1,500,000 of the term
loan and repaid $530,000 of leases that are considered to be capital in nature.
Forward-Looking Statements
This quarterly report contains various "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements represent our expectations
or beliefs concerning future events, including unit growth, future capital
expenditures, and other operating information. A number of factors could, either
individually or in combination, cause actual results to differ materially from
those included in the forward-looking statements, including changes in consumer
dining preferences, fluctuations in commodity prices, availability of qualified
employees, changes in the general economy, industry cyclicality, and in consumer
disposable income, competition within the restaurant industry, availability of
suitable restaurant locations, harsh weather conditions in areas in which we and
our franchisees operate restaurants or plan to build new restaurants, acceptance
of our concepts in new locations, changes in governmental laws and regulations
affecting labor rates, employee benefits, and franchising, ability to complete
new restaurant construction and obtain governmental permits on a reasonably
timely basis and other factors that we cannot presently foresee.
The Impact of Inflation
Inflation has not been a significant factor in our business for the past several
years. We have been able to keep increasing menu prices at a low level by
strictly maintaining cost controls. A possible increase to the minimum wage is
being considered by United States Congress; any such increase will affect us, as
well as most other restaurant businesses. We do not know if or when the increase
will take effect nor have we evaluated whether the increase would be material if
enacted into law.
Market Risks
We are exposed to certain risks of increasing interest rates and commodity
prices. The interest on our indebtedness is largely variable and is benchmarked
to the prime rate in the United States or to the London interbank offering rate.
We may protect ourselves from interest rate increases from time-to-time by
entering into derivative agreements that fix the interest rate at predetermined
levels. We have a policy not to use derivative agreements for trading purposes.
We had a derivative agreement which expired May 1, 2002 without further
obligation by the Company.
We purchase commodities such as chicken, beef, lobster and shrimp for our
restaurants. The prices of these commodities may be volatile depending upon
market conditions. We do not purchase forward commodity contracts because the
changes in prices for them have historically been short-term in nature and, in
our view, the cost of the contracts is in excess of the benefits.
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Seasonality of Our Business
Our business is not highly seasonal although we do have more patrons coming to
our restaurants for special holidays such as Mother's Day, Valentine's Day and
New Year's. Mother's Day falls in our first fiscal quarter of each year, New
Year's in the third quarter and Valentine's Day in the fourth quarter.
Controls and Procedures
The Company's Chief Executive Officer and its Chief Financial Officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and
15d-14(c)) as of a date within 90 days of the filing date of this quarterly
report on Form 10-Q (the "Evaluation Date"), have concluded that as of the
Evaluation Date, the Company's disclosure controls and procedures were adequate
and effective to ensure that material information relating to the Company and
its consolidated subsidiaries would be made known to them by others within those
entities, particularly during the period in which this quarterly report on Form
10-Q was being prepared.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect the Company's disclosure controls and
procedures subsequent to the Evaluation Date, nor any significant deficiencies
or material weaknesses in such disclosure controls and procedures requiring
corrective actions. As a result, no corrective actions were taken.
BENIHANA INC. AND SUBSIDIARIES
PART II - Other Information
Item 1. Legal Proceedings
Reference is hereby made to our Annual Report on Form 10-K for the fiscal year
ended March 31, 2002 and to our Quarterly Report on Form 10-Q for the quarter
ended July 21, 2002 for a description of certain legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K - None
(b)(i) Exhibit 99.1 - Officer's Certification
(b)(ii) Exhibit 99.2 - Officer's Certification
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Benihana Inc.
----------------------------------
(Registrant)
Date February 11, 2003 /s/ Joel A. Schwartz
---------------------- ----------------------------------
Joel A. Schwartz
President and
Chief Executive Officer
CERTIFICATION
I, Joel A. Schwartz, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Benihana Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respect the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Quarterly Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this Quarterly Report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
(c) presented in this Quarterly Report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the Audit
Committee of registrant's Board of Directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Joel A. Schwartz
- -----------------------------
Joel A. Schwartz
President and
Chief Executive Officer
February 11, 2003
CERTIFICATION
I, Michael R. Burris, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Benihana Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respect the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Quarterly Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this Quarterly Report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
(c) presented in this Quarterly Report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the Audit
Committee of registrant's Board of Directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Michael R. Burris
- --------------------------
Michael R. Burris
Chief Financial Officer
February 11, 2003
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Benihana Inc. (the "Company") on
Form 10- Q for the period ended July 21, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Joel A. Schwartz,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Joel A. Schwartz
- ----------------------------
Joel A. Schwartz
President and
Chief Executive Officer
February 11, 2003
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Benihana Inc. (the "Company") on
Form 10-Q for the period ended July 21, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Michael R. Burris,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Michael R. Burris
- ----------------------------
Michael R. Burris
Chief Financial Officer
February 11, 2003