10-Q 1 form10q-05.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 October 13, 2002 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, 3,223,479 shares outstanding at November 15, 2002 Class A Common Stock $.10 par value, 5,528,084 shares outstanding at November 15, 2002 BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SEVEN PERIODS ENDED OCTOBER 13, 2002 TABLE OF CONTENTS -------------------------------- PAGE PART I - Financial Information Condensed Consolidated Balance Sheets (unaudited) at October 13, 2002 and March 31, 2002 1 Condensed Consolidated Statements of Earnings (unaudited) for the Three and Seven Periods Ended October 13, 2002 and October 14, 2001 2 - 3 Condensed Consolidated Statement of Stockholders' Equity (unaudited) for the Seven Periods Ended October 13, 2002 4 Condensed Consolidated Statements of Cash Flows (unaudited) for the Seven Periods Ended October 13, 2002 and October 14, 2001 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)
October 13, March 31, 2002 2002 --------------------------------------------------------------------------------------------------- Assets Current assets: Cash and equivalents $ 1,822 $ 5,062 Receivables 407 990 Inventories 4,655 4,097 Prepaid expenses 2,198 2,530 --------------------------------------------------------------------------------------------------- Total Current Assets 9,082 12,679 Property and equipment, net 79,766 61,971 Deferred income taxes, net 1,732 1,963 Goodwill, net 16,478 16,478 Other assets 5,222 5,210 --------------------------------------------------------------------------------------------------- $112,280 $98,301 --------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $ 17,554 $16,921 Current maturity of bank debt 3,000 3,000 Current maturities of obligations under capital leases 557 668 --------------------------------------------------------------------------------------------------- Total Current Liabilities 21,111 20,589 Long-term debt - bank 10,000 3,000 Obligations under capital leases 439 705 Minority Interest 563 294 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 - 3,238,476 and 3,276,179 shares, respectively 324 328 Class A common stock - $.10 par value; authorized - 20,000,000 shares, issued and outstanding 5,511,589 and 4,151,319 shares, respectively 551 415 Additional paid-in capital 48,214 26,926 Retained earnings 31,221 46,160 Treasury stock - 10,553 and 9,177 shares, respectively, of Common and Class A stock at cost (143) (116) --------------------------------------------------------------------------------------------------- Total Stockholders' Equity 80,167 73,713 --------------------------------------------------------------------------------------------------- $112,280 $98,301 ---------------------------------------------------------------------------------------------------
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 ---------------------------- October 13, October 14, 2002 2001 -------------------------------------------------------------------------------- Revenues Restaurant sales $41,676 $37,209 Franchise fees and royalties 282 277 -------------------------------------------------------------------------------- Total Revenues 41,958 37,486 -------------------------------------------------------------------------------- Costs and Expenses Cost of food and beverage sales 10,323 9,560 Restaurant operating expenses 25,837 23,412 Restaurant opening costs 116 354 Marketing, general and administrative expenses 3,381 3,204 Impairment charge - 438 -------------------------------------------------------------------------------- Total Operating Expenses 39,657 36,968 -------------------------------------------------------------------------------- Income from operations 2,301 518 Interest expense, net 108 250 Minority interest 111 (33) -------------------------------------------------------------------------------- Income from operations before income taxes 2,082 301 Income tax provision (benefit) 630 (81) -------------------------------------------------------------------------------- Net Income $ 1,452 $ 382 -------------------------------------------------------------------------------- Earnings Per Share Basic earnings per common share $ .17 $ .05 Diluted earnings per common share $ .16 $ .05 -------------------------------------------------------------------------------- Number of restaurants at end of period 61 60 See notes to condensed consolidated financial statements BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (In thousands, except per share information) Seven Periods Ended ---------------------------- October 13, October 14, 2002 2001 -------------------------------------------------------------------------------- Revenues Restaurant sales $98,399 $87,675 Franchise fees and royalties 718 746 -------------------------------------------------------------------------------- Total Revenues 99,117 88,421 -------------------------------------------------------------------------------- Costs and Expenses Cost of food and beverage sales 24,313 22,786 Restaurant operating expenses 59,589 52,123 Restaurant opening costs 264 1,041 Marketing, general and administrative expenses 8,177 7,555 Impairment charge - 438 -------------------------------------------------------------------------------- Total Operating Expenses 92,343 83,943 -------------------------------------------------------------------------------- Income from operations 6,774 4,478 Interest expense, net 225 589 Minority interest 268 (40) -------------------------------------------------------------------------------- Income from operations before income taxes 6,281 3,929 Income tax provision 2,039 1,100 -------------------------------------------------------------------------------- Net Income $ 4,242 $ 2,829 -------------------------------------------------------------------------------- Earnings Per Share Basic earnings per common share $ .49 $ .39 Diluted earnings per common share $ .45 $ .37 -------------------------------------------------------------------------------- Number of restaurants at end of period 61 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 4,242 4,242 Issuance of 1,141,050 shares 114 19,090 (19,181) (23) of class A common stock for stock dividend Issuance of 4,000 shares 13 13 of common stock under exercise of options Issuance of 177,370 shares 18 1,698 1,716 of class A common stock under exercise of options Conversion of 41,700 (4) 4 shares of common stock into 41,700 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, October 13, 2002 $0 $324 $551 $48,214 $31,221 ($143) $80,167 -----------------------------------------------------------------------------------------------------------------------------------
See notes to condensed consolidated financial statements BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Seven Periods Ended ---------------------------- October 13, October 14, 2002 2001 -------------------------------------------------------------------------------------------------- Operating Activities: Net income $ 4,242 $ 2,829 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,563 2,845 Minority interest 268 (40) Deferred income taxes 231 174 Loss on disposal of assets 74 158 Loss on write-down of impaired assets 3 438 Issuance of common stock for incentive compensation Change in operating assets and liabilities that provided (used) cash: Receivables 584 (333) Inventories (557) (345) Prepaid expenses 332 (1,505) Other assets (231) (229) Accounts payable and accrued expenses 633 513 --------------------------------------------------------------------------------------------------- Net cash provided by operating activities 9,142 4,505 --------------------------------------------------------------------------------------------------- Investing activities: Expenditures for property and equipment (21,214) (8,669) --------------------------------------------------------------------------------------------------- Net cash used in investing activities (21,214) (8,669) --------------------------------------------------------------------------------------------------- Financing Activities: Borrowings under revolving credit facility 15,000 11,500 Proceeds from issuance of common stock under exercise of stock options 1,729 164 Repayment of long-term debt and obligations under capital leases (8,377) (7,990) Dividend paid on preferred stock (5) Purchase of treasury stock (4) Tax benefit from stock option exercises 484 --------------------------------------------------------------------------------------------------- Net cash provided by financing activities 8,832 3,669 --------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (3,240) (495) Cash and cash equivalents, beginning of year 5,062 935 --------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 1,822 $ 440 --------------------------------------------------------------------------------------------------- Supplemental Cash Flow Information: Cash paid during the seven periods: Interest $ 254 $ 547 Income taxes 1,051 2,187 ---------------------------------------------------------------------------------------------------
During the current seven periods ended October 13, 2002, 41,700 shares of common stock were converted into 41,700 shares of Class A common stock. During the prior year seven periods, 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 SEVEN PERIODS ENDED OCTOBER 13, 2002 AND OCTOBER 14, 2001 (UNAUDITED) 1. GENERAL The accompanying condensed consolidated financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments at October 13, 2002 and October 14, 2001) 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 seven periods (twelve and twenty-eight weeks, respectively) ended October 13, 2002 and October 14, 2001 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 June 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, required 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, as amended, in the first quarter of fiscal 2002 did not have a material effect on the Company's financial statements. In July 2001, the FASB 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. For potential future acquisitions, recorded goodwill and intangibles will be evaluated against these new criteria and may result in certain intangibles being recorded as goodwill, or alternatively, amounts previously 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 periodically reviewed for impairment and written down and charged to results of operations only in the periods in which, and to the extent, the recorded value of goodwill and certain intangibles is determined to be more than their then fair value. The Company adopted the provisions of SFAS No. 142 effective the beginning of the first quarter of fiscal 2002. These standards only permit prospective application of the new accounting; accordingly adoption of these standards will not affect previously reported financial information. The Company reviewed goodwill for possible impairment at the beginning of the first and fourth quarter of fiscal 2002 and determined that there was no impairment. 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. BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEVEN PERIODS ENDED OCTOBER 13, 2002 AND OCTOBER 14, 2001 (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): October 13, March 31, 2002 2002 ----------- --------- Food and beverage $1,502 $1,568 Supplies 3,153 2,529 ------ ------- $4,655 $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. Seven Periods Ended ---------------------------- October 13, October 14, 2002 2001 ----------- ----------- Net income $4,242 $2,829 Less preferred dividends - (5) ------ ------- Income for computation of basic earnings per common share 4,242 2,824 Plus preferred dividends - 5 ----- ------ Income for computation of diluted earnings per common share $4,242 $2,829 ====== ====== BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEVEN PERIODS ENDED OCTOBER 13, 2002 AND OCTOBER 14, 2001 (UNAUDITED) Seven Periods Ended --------------------------- October 13, October 14, 2002 2001 ----------- ----------- Weighted average number of common shares used in basic earnings per share 8,716 7,208 Effect of dilutive securities: Stock options and warrants 736 310 Convertible preferred stock - 27 ----- ------ Weighted average number of common shares and dilutive potential common stock used in diluted earnings per share 9,452 7,545 ======= ======= 6. RESTAURANT OPERATING EXPENSES Restaurant operating expenses consist of the following (in thousands):
Three Periods Ended Seven Periods Ended ----------------------------- ---------------------------- October 13, October 14, October 13, October 14, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Labor and related costs $16,306 $14,674 $37,606 $32,606 Restaurant supplies 902 858 1,968 1,811 Credit card discounts 721 640 1,690 1,492 Utilities 1,096 1,030 2,363 2,203 Occupancy costs 2,255 2,269 5,447 5,052 Depreciation and amortization 1,510 1,238 3,431 2,684 Other operating expenses 3,047 2,703 7,084 6,275 ------- ------- ------- ------- Total restaurant operating expenses $25,837 $23,412 $59,589 $52,123 ======= ======= ======= =======
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 SEVEN PERIODS ENDED OCTOBER 13, 2002 AND OCTOBER 14, 2001 (UNAUDITED) 9. SUBSEQUENT EVENT On November 12, 2002, the Company signed an agreement to acquire RA Sushi Bar Restaurant, a privately owned Arizona chain currently operating four restaurants. The four founding principals of RA are all active in operating the business, and will continue under contracts in their present management roles with the chain following its acquisition. Annual sales of the five-year-old company approximates $9 million. The $11 million purchase price and approximately $1.2 million debt assumption at closing will be financed from the Company's credit facility with Wachovia Bank, National Association currently being revised to finance this 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, net income and earnings per diluted share increased in the current three and seven periods ended October 13, 2002 as compared to the corresponding periods a year ago. For the current three periods revenues increased 11.9%, net income increased 280.1% and earnings per diluted share increased 220.0% compared to the corresponding period a year ago, during which operations were adversely impacted by the immediate aftermath of the events of September 11th. The increase in net income was tempered by higher labor costs in both the three and current seven periods as compared to the corresponding periods a year ago. The increase in labor costs was attributable to reduced restaurant labor productivity and to the increase in minimum wages in California. REVENUES Three and seven periods ended October 13, 2002 compared to October 14, 2001 -- 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.
Three Periods Ended Seven Periods Ended ----------------------------- ---------------------------- October 13, October 14, October 13, October 14, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Net restaurant sales $41,676 $37,209 $98,399 $87,675 Franchise fees and royalties 282 277 718 746 ------- ------- ------- ------- Total Revenues $41,958 $37,486 $99,117 $88,421 ======= ======= ======= ======= Three Periods Ended Seven Periods Ended ----------------------------- ---------------------------- October 13, October 14, October 13, October 14, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Amount of change in total revenues from previous year $4,472 $ 789 $10,696 $ 4,655 Percentage of change from the previous year 11.9% 2.2% 12.1% 5.6%
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 seven (twenty-eight week) periods ended October 13, 2002 compared to the corresponding periods a year ago. A 7.5% increase in comparable restaurant sales accounted for $2.7 million for the three periods and a 6.1% increase in comparable restaurant sales accounted for $5.1 million for the seven periods when compared to the corresponding periods a year ago. Restaurant revenues also increased from the opening of new restaurants by $2.0 million for the current three periods and by $7.1 million for the seven 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 $.4 million for the current three periods and $1.4 million for the current seven periods when compared to the corresponding periods a year ago. COSTS AND EXPENSES Three and seven periods ended October 13, 2002 compared to October 14, 2001 -- 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 seven periods.
Three Periods Ended Seven Periods Ended ----------------------------- ----------------------------- October 13, October 14, October 13, October 14, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- COST AS A PERCENTAGE OF RESTAURANT SALES: Cost of food and beverage sales 24.8% 25.7% 24.7% 26.0% Restaurant operating expenses 62.0% 62.9% 60.6% 59.5% Restaurant opening costs .3% 1.0% .3% 1.2% Marketing, general and administrative expenses 8.1% 8.6% 8.3% 8.6% AMOUNT OF CHANGE FROM PREVIOUS COMPARABLE PERIOD (IN THOUSANDS): Cost of food and beverage sales $ 763 $ (333) $1,527 $ (169) Restaurant operating expenses $2,425 $3,004 $7,466 $6,281 Restaurant opening costs $ (238) $ 25 $ (777) $ 117 Marketing, general and administrative expenses $ 177 $ (45) $ 622 $ 345 PERCENTAGE CHANGE FROM PREVIOUS COMPARABLE PERIOD: Cost of food and beverage sales 8.0% (3.4%) 6.7% (.7%) Restaurant operating expenses 10.4% 14.7% 14.3% 13.7% Restaurant opening costs (67.2%) 7.6% (74.6%) 12.7% Marketing, general and administrative expenses 5.5% (1.4%) 8.2% 4.8%
The cost of food and beverage sales increased in total dollar amount in the current three and seven periods and decreased when expressed as a percentage of sales 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 seven periods ended October 13, 2002 as compared to the equivalent periods ended October 14, 2001. The decrease in the percentage of cost of food and beverage to sales resulted from lower commodities costs, principally shrimp costs, in the current three and seven periods compared to the prior year equivalent periods. 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 seven periods compared to the corresponding periods a year ago. Restaurant operating expenses when expressed as a percentage of sales decreased in the current three periods and increased in the current seven 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 seven periods related to lower productivity and also a legislated minimum wage increase in California. The decrease when expressed as a percentage of sales for the three periods was a result of comparing the current three periods with the prior year's three periods affected by the events of September 11th. Payroll taxes and benefits also increased in the current three and seven periods due to an increase in accruals for health insurance claims based on recent claims experience as well as an increase in the number and amount of claims in the Company's self-insured health plan in the current seven periods compared to the prior year seven periods. Additionally, higher insurance rates caused an increase in property and casualty insurance costs in the current three and seven periods compared to the corresponding periods a year ago. Depreciation and amortization increased in both the current three and seven 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 decreased in the current three and seven periods ended October 13, 2002 compared to the prior year corresponding periods. The decrease was attributable to pre-opening expenses in the prior year's three and seven 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 fiscal year were substantially less than the prior year comparable period. Marketing, general and administrative costs increased in absolute amount, but decreased when expressed as a percentage of sales in the current three and seven periods compared to the corresponding periods a year ago. The increase is mainly attributable to planned advertising expenditures in the current three and seven periods when compared to the comparable periods a year ago. However, during the current three periods, planned advertising was reduced. In accordance with APB 28 "Interim Financial Reporting", the amount previously expensed for the cancelled advertising programs was adjusted. Interest expense decreased in the current three and seven periods when compared to the corresponding periods of the prior year. The decrease in the current three and seven 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 three and seven periods compared to the previous comparable periods. Our effective income tax rate increased in the seven periods to 32.5% from 28.0% in the prior year's seven periods. The increase was due to a increase in net income in the current seven 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 seven 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. The line of credit allows us to borrow up to $15,000,000 through March 31, 2004 and at October 13, 2002, we had $8,500,000 outstanding under the revolving line of credit. We had $4,500,000 outstanding at the end of October 13, 2002 under the term loan which is payable in quarterly installments of $750,000 until the term loan matures in March 2004. The interest rate at October 13, 2002 of both the line of credit and the term loan was 2.77%. 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. We have renegotiated an increase in the amount available under the above referenced term loan and revolving line of credit facility to a total of $31,000,000 with Wachovia Bank, National Association and expect to have a signed agreement in December. 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 restaurants 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): Seven Periods Ended ---------------------------- October 13, October 14, 2002 2001 ----------- ----------- Cash provided by operations $ 9,142 $ 4,505 Cash (used in) investing activities (21,214) (8,669) Cash provided by financing activities 8,832 3,669 --------- -------- Decrease in cash and cash equivalents $ (3,240) $ (495) ========= ======== Operating Activities Cash provided by operations increased during the seven periods ended October 13, 2002 compared to equivalent periods in the previous year. The increase resulted mainly from an increase in net income and from the change in cash provided by operating assets and liabilities in the current seven periods when compared to the previous comparable period. BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Investing Activities Expenditures for property and equipment increased during the seven periods ended October 13, 2002 by $12,545,000 over the prior comparable period to $21,214,000. 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. Financing Activities During the current seven periods there were stock options exercises with cash proceeds to the Company of $1,729,000 as compared to $164,000 in the previous comparable period a year ago. Our total indebtedness increased by $5,163,000 during the seven periods ended October 13, 2002 as compared to the end of fiscal 2002. We borrowed $15,000,000 under the revolving line of credit, paid down $6,500,000 of the revolving line of credit, paid down $1,500,000 of the term loan and repaid $377,000 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. BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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 4. Results of Vote of Security Holders (a) We held our annual meeting of stockholders on August 22, 2002. (b) The following directors were elected at the meeting: Taka Yoshimoto and Max Pine Other directors whose term of office continue after the meeting are set forth below: Joel A. Schwartz, Kevin Y. Aoki, Darwin C. Dornbush, John E. Abdo and Norman Becker (c) At the annual meeting, holders of our Common Stock voted to elect one Class I director for a term of three years and holders of our Class A Common Stock voted to elect a Class I Director for a term of one year. In addition, holders of our Common Stock and Class A Common Stock, voting together as a single class, voted for the ratification of Deloitte & Touche LLP to serve as our independent certified public accountants for the fiscal year ending March 30, 2003. At the meeting, the following votes for and against, as well as the number of abstentions and broker non-votes were recorded for each matter as set for the below:
WITHHOLD NON- MATTER FOR AGAINST ABSTAIN AUTHORITY VOTES ----------------------------------------------------------------------------------------------------- Election of Directors: Class I Taka Yoshimoto 3,136,803 7,545 Class I Max Pine 3,722,564 5,300 Ratification of Independent Public Accountants: 3,515,422 1,563 150
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 November 18, 2002 /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 date 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 November 18, 2002 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 date 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 November 18, 2002 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 November 18, 2002 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 November 18, 2002