-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RX9/AV6i0Ot65gD7gZr3hnWjQtX6TT+6nvAoswcouW2uGjl0D470I3mLObUw/66w LUL+eJBmGMwJa2zFbcruwg== 0000935226-01-500009.txt : 20010830 0000935226-01-500009.hdr.sgml : 20010830 ACCESSION NUMBER: 0000935226-01-500009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010722 FILED AS OF DATE: 20010829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BENIHANA INC CENTRAL INDEX KEY: 0000935226 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 650538630 STATE OF INCORPORATION: DE FISCAL YEAR END: 0328 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26396 FILM NUMBER: 1726283 BUSINESS ADDRESS: STREET 1: 8685 NW 53RD TERRACE CITY: MIAMI STATE: FL ZIP: 33166 BUSINESS PHONE: 3055930770 MAIL ADDRESS: STREET 1: 8685 NW 53RD TERRACE CITY: MIAMI STATE: FL ZIP: 33166 10-Q 1 form10q.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended July 22, 2001 or, [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-26396 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 --------------- None -------------------------------------------------------------------- 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, 3,280,202 shares outstanding at August 27, 2001 Class A Common Stock $.10 par value, 3,005,380 shares outstanding at August 27, 2001 BENIHANA INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE FOUR PERIODS ENDED JULY 22, 2001 TABLE OF CONTENTS PAGE PART I - Financial Information Condensed Consolidated Balance Sheets (unaudited) at July 22, 2001 and April 1, 2001 1 Condensed Consolidated Statements of Earnings (unaudited) for the Four Periods Ended July 22, 2001 and July 16, 2000 2 Condensed Consolidated Statement of Stockholders' Equity (unaudited) for the Four Periods Ended July 22, 2001 3 Condensed Consolidated Statements of Cash Flows (unaudited) for the Four Periods Ended July 22, 2001 and July 16, 2000 4 Notes to Condensed Consolidated Financial Statements (unaudited) 5 - 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 11 PART II - Other Information 12 BENIHANA INC. AND SUBSIDIARIES PART 1 - Financial Information CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share and per share information) July 22, April 1, 2001 2001 - -------------------------------------------------------------------------------- Assets Current assets: Cash and equivalents $ 895 $ 935 Receivables 815 734 Inventories 4,157 4,149 Prepaid expenses 1,174 1,122 - -------------------------------------------------------------------------------- Total Current Assets 7,041 6,940 Property and equipment, net 57,451 54,104 Deferred income taxes, net 2,886 2,973 Goodwill, net 16,478 16,478 Other assets 5,291 5,434 - -------------------------------------------------------------------------------- $89,147 $85,929 - -------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $15,744 $16,332 Current maturity of bank debt 2,250 2,000 Current maturities of other long-term debt 82 145 Current maturities of obligations under capital leases 683 702 - -------------------------------------------------------------------------------- Total Current Liabilities 18,759 19,179 Long-term debt - bank 13,750 12,500 Obligations under capital leases 1,174 1,371 Minority Interest 187 194 Commitments and Contingencies Stockholders' Equity: Series A redeemable convertible preferred stock - $1.00 par value; authorized - 5,000,000 shares, issued and outstanding 0 and 700 shares 1 Common stock - $.10 par value; convertible into Class A Common, authorized - 12,000,000 shares, issued and outstanding - 3,289,379 and 3,579,116 shares, respectively 329 358 Class A common stock - $.10 par value; authorized - 20,000,000 shares, issued and outstanding 3,004,380 shares and 2,589,713 shares, respectively 300 259 Additional paid-in capital 14,986 14,847 Retained earnings 39,778 37,336 Treasury stock - 9,177 shares of Common stock at cost (116) (116) - -------------------------------------------------------------------------------- Total Stockholders' Equity 55,277 52,685 - -------------------------------------------------------------------------------- $89,147 $85,929 - -------------------------------------------------------------------------------- See notes to condensed consolidated financial statements BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (In thousands, except per share information) Four Periods Ended -------------------------- July 22, July 16, 2001 2000 - -------------------------------------------------------------------------------- Revenues Restaurant sales $50,466 $46,718 Franchise fees and royalties 469 351 - -------------------------------------------------------------------------------- Total Revenues 50,935 47,069 - -------------------------------------------------------------------------------- Costs and Expenses Cost of food and beverage sales 13,226 13,062 Restaurant operating expenses 28,711 25,434 Restaurant opening costs 687 595 General, selling and administrative expenses 4,351 3,961 - -------------------------------------------------------------------------------- Total Operating Expenses 46,975 43,052 - -------------------------------------------------------------------------------- Income from operations 3,960 4,017 Interest expense, net 339 462 Minority interest (7) 26 Income from operations before income taxes 3,628 3,529 Income tax provision 1,181 1,094 - -------------------------------------------------------------------------------- Net Income $ 2,447 $ 2,435 - -------------------------------------------------------------------------------- Earnings Per Share Basic earnings per common share $ .39 $ .39 Diluted earnings per common share $ .38 $ .37 - -------------------------------------------------------------------------------- See notes to condensed consolidated financial statements BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands, except share information)
Class A Additional Total Preferred Common Common Paid-in Retained Treasury Stockholders' Stock Stock Stock Capital Earnings Stock Equity - ---------------------------------------------------------------------------------------------------------------------------------- Balance, April 1, 2001 $1 $358 $259 $14,847 $37,336 ($116) $52,685 Net income 2,447 2,447 Dividend on preferred stock (5) (5) Issuance of 19,667 shares 2 148 150 of class A common stock under exercise of options Conversion of 700 shares (1) 10 (9) of preferred stock into 105,267 shares of class A common stock Conversion of 294,737 (29) 29 shares of common stock into 294,737 shares of class A common stock - ---------------------------------------------------------------------------------------------------------------------------------- Balance, July 22, 2001 $0 $329 $300 $14,986 $39,778 ($116) $55,277 - ----------------------------------------------------------------------------------------------------------------------------------
See notes to condensed consolidated financial statements BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Four Periods Ended ---------------------- July 22, July 16, 2001 2000 - -------------------------------------------------------------------------------- Operating Activities: Net income $2,447 $2,435 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,537 1,471 Minority interest (7) 26 Deferred income taxes 87 116 Loss on disposal of assets 140 63 Change in operating assets and liabilities that provided (used) cash: Accounts receivable (81) 75 Inventories (8) 48 Prepaid expenses (52) 50 Other assets 5 (191) Accounts payable and accrued expenses (588) 278 - -------------------------------------------------------------------------------- Net cash provided by operating activities 3,480 4,371 - -------------------------------------------------------------------------------- Investing activities: Expenditures for property and equipment (4,886) (4,592) - -------------------------------------------------------------------------------- Net cash used in investing activities (4,886) (4,592) - -------------------------------------------------------------------------------- Financing Activities: Borrowings under revolving credit facility 6,500 2,000 Proceeds from issuance of common stock 150 64 Repayment of long-term debt and obligations under capital leases (5,279) (1,026) Dividend paid on preferred stock (5) (14) - -------------------------------------------------------------------------------- Net cash provided by financing activities 1,366 1,024 - -------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (40) 803 Cash and cash equivalents, beginning of year 935 1,165 - -------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 895 $1,968 - -------------------------------------------------------------------------------- Supplemental Cash Flow Information: Cash paid during the four periods: Interest $ 302 $ 414 Income taxes 980 1,031 - -------------------------------------------------------------------------------- See notes to condensed consolidated financial statements. On May 15, 2001, 700 shares of preferred stock were converted into 105,263 shares of Class A common stock. On June 1, 2001, 294,737 shares of common stock were converted into 294,737 shares of Class A common stock. BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUR PERIODS ENDED JULY 22, 2001 AND JULY 16, 2000 (UNAUDITED) 1. GENERAL The accompanying condensed consolidated financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments at July 22, 2001 and July 16, 2000) which are, in the opinion of management, necessary for a fair presentation of financial position and results of operations. The results of operations for the four periods (sixteen weeks) ended July 22, 2001 and July 16, 2000 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 April 1, 2001 appearing in the Company's Form 10-K filed with the United States Securities and Exchange Commission. The Company's fiscal year is a 52/53-week year. 2. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives will be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The adoption of this statement in the current quarter of fiscal 2002 did not have a material effect on the financial statements. In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. Recorded goodwill and intangibles will be evaluated against this new criteria and may result in certain intangibles being subsumed into goodwill, or alternatively, amounts initially recorded as goodwill may be separately identified and recognized apart from goodwill. SFAS No. 142 requires the use of a nonamortization approach to account for purchased goodwill and certain intangibles. Under a nonamortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead will be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is determined to be more than its fair value. The Company early adopted the provisions of SFAS No. 142 (the beginning of the four periods ended July 22, 2001). These standards only permit prospective application of the new accounting; accordingly adoption of these standards will not affect previously reported financial information. The principal effect of implementing SFAS No. 142 was the cessation of the amortization of goodwill in the current four periods; however, impairment reviews may result in future write-downs. Goodwill amortization in the previous comparable four periods amounted to $276,000 or $.04 per diluted share. BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUR PERIODS ENDED JULY 22, 2001 AND JULY 16, 2000 (UNAUDITED) (In thousands except for earnings per share amounts) Four Periods Ended ---------------------- July 22, July 16, 2001 2000 -------- -------- Reported net income $2,447 $2,435 Add back: Goodwill amortization 276 ------ ------- Adjusted net income $2,447 $2,711 ------ ------- Basic earnings per share: Reported net income $ .39 $ .39 Goodwill amortization .04 ------ ------- Adjusted net income $ .39 $ .43 ------ ------- Diluted earnings per share: Reported net income $ .38 $ .37 Goodwill amortization .04 ------ ------- Adjusted net income $ .38 $ .41 ------ ------- 3. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current fiscal year presentation. 4. INVENTORIES Inventories consist of (in thousands): July 22, April 1, 2001 2001 -------- -------- Food and beverage $1,491 $1,634 Supplies 2,666 2,515 ------- ------- $4,157 $4,149 ------- ------- 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. BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUR PERIODS ENDED JULY 22, 2001 AND JULY 16, 2000 (UNAUDITED) The following data shows the amounts (in thousands) used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock. Four Periods Ended ----------------------- July 22, July 16, 2001 2000 -------- -------- Net income $2,447 $2,435 Less preferred dividends (5) (14) Income for computation of basic ------- ------- earnings per common share 2,442 2,421 Plus preferred dividends 5 14 ------- ------- Income for computation of diluted earnings per common share $2,447 $2,435 ------- ------- Four Periods Ended ----------------------- July 22, July 16, 2001 2000 -------- -------- Weighted average number of common shares used in basic earnings per share 6,248 6,164 Effect of dilutive securities: Stock options 235 376 Convertible preferred stock 40 105 ------- ------- Weighted average number of common shares and dilutive potential common stock used in diluted earnings per share 6,523 6,645 ------- ------- 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 and restaurant patronage. Revenues are also dependent on 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. Our revenues, net income and diluted earnings per share increased in the current four periods when compared to the equivalent periods in the prior year. The increase was achieved despite continued increased restaurant opening costs, principally attributable to the recently opened Broadway (Times Square, New York City) Haru restaurant and the two Haru restaurants under construction in New York City, one of the nation's highest cost real estate development markets. Restaurant opening costs related to these Haru units include rent paid during the development period, a factor not typically incurred in other markets, as well as other usual pre-opening type expenses. The increase in earnings compared to the prior year's four periods was also affected by the adoption of the provisions of SFAS No. 142, relating to the elimination of amortization of goodwill. In the corresponding four periods of the prior year, goodwill charges amounted to $276,000, equal to $.04 per diluted share compared to none in the current four periods as a result of the adoption of the new accounting standard. REVENUES 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. Four Periods Ended -------------------------- July 22, July 16, 2001 2000 -------- -------- Net restaurant sales $50,466 $46,718 Franchise fees and royalties 469 351 ------- -------- Total Revenues $50,935 $47,069 ------- -------- Four Periods Ended ------------------------- July 22, July 16, 2001 2000 -------- -------- Amount of change in total revenues from previous year $ 3,866 $ 7,388 Percentage of change from the previous year 8.2% 18.6% BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Four periods ended July 22, 2001 compared to July 16, 2000 -- Restaurant revenues continued to increase in the four periods ended July 22, 2001 as compared to the equivalent periods ended July 16, 2000. The increase in revenues is attributable to increased customer traffic of 5.3% over the prior comparable period. The average check size also increased to $23.26 from $22.78 in the prior equivalent period. Also contributing to the increase was the opening, during the current four periods, of a new Benihana teppanyaki restaurant and a new Haru restaurant which accounted for $240,000 and $382,000 of the increase, respectively. Franchise revenues also increased in the current four periods as compared to the prior comparable periods as a result of increased franchisee sales. COSTS AND EXPENSES Costs of food and beverage sales, which are generally variable with sales, directly increased with changes in revenues for the four periods ended July 22, 2001 as compared to the equivalent periods ended July 16, 2000. 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 four periods. Four Periods Ended ------------------------ July 22, July 16, 2001 2000 -------- -------- COST AS A PERCENTAGE OF RESTAURANT SALES: Cost of food and beverage sales 26.2% 28.0% Restaurant operating expenses 56.9% 54.4% Restaurant opening costs 1.4% 1.3% General, selling and administrative expenses 8.6% 8.5% AMOUNT OF CHANGE FROM PREVIOUS YEAR (IN THOUSANDS): Cost of food and beverage sales $ 164 $2,400 Restaurant operating expenses $3,277 $3,828 Restaurant opening costs $ 92 $ 560 General, selling and administrative expenses $ 390 $ 444 PERCENTAGE CHANGE FROM PREVIOUS YEAR: Cost of food and beverage sales 1.3% 22.5% Restaurant operating expenses 12.9% 17.7% Restaurant opening costs 15.5% 1600.0% General, selling and administrative expenses 9.8% 12.6% BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Four periods ended July 22, 2001 compared to July 16, 2000 -- The cost of food and beverage sales increased in dollar amount in the current four periods compared to equivalent periods in the prior year because of increased traffic. The cost of food and beverage sales decreased sharply, as a percentage of sales, in the current four periods. The decrease in the current four periods, in the percentage of cost of food to sales resulted from lower commodities costs, principally shrimp costs in the current four periods compared to the prior year equivalent periods. Restaurant operating expenses increased in dollar amount and when expressed as a percentage of sales in the current four periods. The increase in absolute dollar amount is mostly attributable to the aforementioned increase in sales. The increase is also attributable to sharply higher power costs in California, where 14 of our restaurants are located. Restaurant opening costs increased in the current four periods from the prior year equivalent periods. The increase is attributable to pre-opening expenses relating to a Haru restaurant and a Benihana restaurant opened during the current four periods and the two Haru restaurants under development in New York City. Restaurant opening costs are expected to fluctuate depending on the market and upon the number of new restaurant properties under development. General, selling and administrative costs increased in total dollar amount and also increased slightly when expressed as a percentage of sales in the current four periods when compared to the prior equivalent periods. The increase is largely attributable to increased legal fees in the current four periods that relate to the cost to defend an action described in our Annual Report on Form 10-K for the 2001 fiscal year. Interest costs decreased in the current four periods when compared to the comparable period of the prior year. The decrease in the current four periods is attributable to a decrease in the borrowing interest rate we paid our lender in the current four periods compared to the previous comparable four periods. The Company's effective income tax rate increased in the four periods to 32.6% from 31.0% in the prior year's four 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. We have accelerated our building program, and we are relying more upon financing obtained from financial institutions. We financed acquisitions principally through the use of borrowed funds. We have borrowings from First Union National Bank under both a term-loan and a line of credit. The line of credit allows us to borrow up to $15,000,000 through March 31, 2004, and at July 22, 2001, we had outstanding borrowings of $8,500,000. We had $7,500,000 outstanding at July 22, 2001 under the term- loan which is payable in quarterly installments of $500,000 through the end of fiscal year 2002 and $750,000 quarterly from then until the term-loan matures in March 2004. The interest rate of both the line of credit and the term-loan is 1.0% more than the London interbank offering rate. We have the option to pay interest at First Union'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 dividends. BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS To finance our new restaurant development, we entered into a master lease agreement with First Union National Bank and two other banks. The master lease agreement enables construction up to a total of $25,000,000 in new restaurant construction and may include the cost of land. Funding under the master lease agreement is made through a grantor trust as construction progresses and when the restaurant is completed, the grantor trust leases the restaurant property to us. At July 22, 2001, there was $18,600,000 available for new restaurant development. The initial term of the lease agreement is five years and expires in fiscal 2005. The lease arrangement may be extended with the consent of all parties to the lease and if the agreement is not extended, we have the right to purchase the property or pay 90% of any possible decline in the fair market value of the property to the grantor trust. The lease arrangement has certain covenants similar to those of the term-loan and line of credit agreements. 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 deficiencies in working capital. The following table summarizes the sources and uses of cash (in thousands): Four Periods Ended ------------------------ July 22, July 16, 2001 2000 -------- -------- Cash provided by operations $3,480 $4,371 Cash used in investing activities (4,886) (4,592) Cash provided by financing activities 1,366 1,024 ------- ------- (Decrease) increase in cash $ (40) $ 803 ------- ------- Operating Activities Cash provided by operations decreased during the current four periods ended July 22, 2001 compared to equivalent periods in the previous year. The decrease resulted from the use of cash to paydown accounts payable and accrued expenses. Investing Activities Expenditures for property and equipment increased by $294,000 over the prior comparable period to $4,886,000. The major part of that amount was expended for the construction of new restaurants. Financing Activities Our total indebtedness is $1,221,000 higher than at the end of fiscal 2001. We had net new borrowings under the line of credit of $2,000,000, paid down $500,000 of the term-loan, repaid $216,000 of leases that are considered to be capital in nature and repaid $63,000 of other indebtedness. 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 do we know whether the increase would be material if enacted into law. BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 at July 22, 2001. We had a derivative agreement in the notional amount of $3,485,000 at July 22, 2001 against floating rate indebtedness of $16,000,000. The fair value of the derivative agreement, which expires on March 31, 2002, was not material to the financial statements as of July 22, 2001 and April 1, 2001. We purchase commodities such as chicken, beef, lobster and shrimp for our restaurants. The prices of these commodities may be volatile depending upon market conditions. We do not purchase forward commodity contracts because the changes in prices for them have historically been short-term in nature and, in our view, the cost of the contracts is in excess of the benefits. Seasonality of Our Business Our business is not highly seasonal although we do have more diners coming to our restaurants for special holidays such as Mother's Day, Valentine's Day and New Year's. Mother's Day falls in our first fiscal quarter of each year, New Year's in the third quarter and Valentine's Day in the fourth quarter. BENIHANA INC. AND SUBSIDIARIES PART II - Other Information Item 1. Legal Proceedings Reference is hereby made to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 1, 2001 for a description of certain legal proceedings. On our about April 13, 2001, two separate Charges of Discrimination were filed with the New York District office of the United Stated Equal Employment Opportunity Commission against Benihana National Corp. and Mr. Taka Yoshimoto. One of the charges was filed by Yu Qiong Yu, a current employee of the Registrant at its Benihana restaurant located at 2105 Northern Boulevard, Munsey Park, New York 11030 (the "Munsey Restaurant") (the "Yu Charge") and the other was filed by Gloria Jeng, a former employee of the Munsey Restaurant (the "Jeng Charge"). The EEOC Charge Numbers for the Qiong Charge and the Jeng Charge are 160A11526 and 160A11527, respectively. Both of the charges allege race, sex, national origin and retaliation discrimination in connection with their employment at the Munsey Restaurant, and in the case of Jeng, her discharge from employment at the Munsey Restaurant. On or about June 7, 2001, the Registrant submitted Position Statements in response to the two separate Charges. (Though the Charges named Benihana National Corp. as a respondent, the correct corporate respondent is the Registrant and therefore the Position Statements were submitted on behalf of the Registrant and Taka Yoshimoto, the Registrant's Executive Vice President/Director of Operations). Should the EEOC decide that there is reasonable cause to believe that discrimination occurred, the parties will be invited to enter into conciliation discussions. If the conciliation efforts fail, the EEOC will decide whether it will pursue litigation against the Registrant. Should the EEOC prevail on any such action(s), the Court may issue an injunction against the Registrant, award compensatory and/or punitive damages, reasonable attorneys' fees and costs, and in the case of Jeng, reinstatement. While the Registrant believes that the Charges have no merit and it intends to vigorously defend the matters, the matters are in their preliminary stages and there can be no assurance that the Registrant will not be required to pay a material amount in the conciliation or other disposition of the matters. Item 6. Exhibits and Reports on Form 8-K (a) Reports on Form 8-K - None 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 August 29, 2001 /s/ Joel A. Schwartz --------------------- --------------------------- Joel A. Schwartz President /s/ Michael R. Burris --------------------------- Michael R. Burris Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----