-----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, Owy76hiDrIp0ALbRcOBTm0Vbj5dm5mAPpvtXZXzRlOYmP3sOoGdlTDPOml6mDyR2 zPruapS90msIzaaXhmgK/g== 0000935226-04-000012.txt : 20040213 0000935226-04-000012.hdr.sgml : 20040213 20040213165844 ACCESSION NUMBER: 0000935226-04-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040104 FILED AS OF DATE: 20040213 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: 04600064 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-09.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 January 4, 2004 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 check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) 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, 3,171,979 shares outstanding at February 13, 2004 Class A Common Stock $.10 par value, 5,892,959 shares outstanding at February 13, 2004 BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND TEN PERIODS ENDED JANUARY 4, 2004 TABLE OF CONTENTS PAGE PART I - Financial Information Condensed Consolidated Balance Sheets (unaudited) at January 4, 2004 and March 30, 2003 1 Condensed Consolidated Statements of Earnings (unaudited) for the Three and Ten Periods Ended January 4, 2004 and January 5, 2003 2 - 3 Condensed Consolidated Statement of Stockholders' Equity (unaudited) for the Ten Periods Ended January 4, 2004 4 Condensed Consolidated Statements of Cash Flows (unaudited) for the Ten Periods Ended January 4, 2004 and January 5, 2003 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 Item 6. Exhibits and Reports on Form 8-K 16 Signature 17 Certifications 18 - 21 BENIHANA INC. AND SUBSIDIARIES PART I - Financial Information CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share and per share information)
January 4, March 30, 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------------- Assets Current Assets: Cash and cash equivalents $ 2,271 $ 2,299 Receivables 1,022 626 Inventories 6,295 5,328 Prepaid expenses 2,762 2,236 - ---------------------------------------------------------------------------------------------------------------------------------- Total current assets 12,350 10,489 Property and equipment, net 94,622 84,482 Deferred income taxes, net 392 1,172 Goodwill, net 27,131 27,131 Other assets 4,734 5,207 - ---------------------------------------------------------------------------------------------------------------------------------- $139,229 $128,481 - ---------------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current Liabilities: Accounts payable and accrued expenses $ 21,661 $ 19,407 Current maturity of bank debt 3,000 3,000 Current maturities of obligations under capital leases 275 373 - ---------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 24,936 22,780 Long-term debt - bank 19,000 19,000 Obligations under capital leases 96 299 Minority interest 1,250 771 Commitments and contingencies Stockholders' Equity: Common stock - $.10 par value; convertible into Class A Common stock; authorized - 12,000,000 shares; issued and outstanding - 3,171,979 and 3,184,479 shares, respectively 317 318 Class A Common stock - $.10 par value; authorized - 20,000,000 shares; issued and outstanding - 5,892,959 and 5,595,084 shares, respectively 590 560 Additional paid-in capital 50,407 48,444 Retained earnings 42,776 36,452 Treasury stock - 10,828 shares of Common and Class A Common stock at cost (143) (143) - ---------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 93,947 85,631 - ---------------------------------------------------------------------------------------------------------------------------------- $139,229 $128,481 - ----------------------------------------------------------------------------------------------------------------------------------
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 4, January 5, 2004 2003 - ------------------------------------------------------------------------------------------------------ Revenues Restaurant sales $46,607 $43,521 Franchise fees and royalties 365 301 - ------------------------------------------------------------------------------------------------------ Total revenues 46,972 43,822 - ------------------------------------------------------------------------------------------------------ Costs and Expenses Cost of food and beverage sales 12,096 10,569 Restaurant operating expenses 27,237 25,833 Restaurant opening costs 720 89 Marketing, general and administrative expenses 3,789 3,808 - ------------------------------------------------------------------------------------------------------ Total operating expenses 43,842 40,299 - ------------------------------------------------------------------------------------------------------ Income from operations 3,130 3,523 Interest expense, net 91 145 Minority interest 141 102 - ------------------------------------------------------------------------------------------------------ Income from operations before income taxes 2,898 3,276 Income tax provision 988 1,108 - ------------------------------------------------------------------------------------------------------ Net Income $ 1,910 $ 2,168 - ------------------------------------------------------------------------------------------------------ Earnings Per Share Basic earnings per common share $ .21 $ .25 Diluted earnings per common share $ .21 $ .24 - ------------------------------------------------------------------------------------------------------ Number of restaurants at end of period 68 65
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 4, January 5, 2004 2003 - ----------------------------------------------------------------------------------------------------- Revenues Restaurant sales $151,074 $141,920 Franchise fees and royalties 1,235 1,019 - ----------------------------------------------------------------------------------------------------- Total revenues 152,309 142,939 - ----------------------------------------------------------------------------------------------------- Costs and Expenses Cost of food and beverage sales 38,899 34,882 Restaurant operating expenses 89,024 85,423 Restaurant opening costs 1,552 354 Marketing, general and administrative expenses 12,500 11,983 - ----------------------------------------------------------------------------------------------------- Total operating expenses 141,975 132,642 - ----------------------------------------------------------------------------------------------------- Income from operations 10,334 10,297 Interest expense, net 324 371 Minority interest 479 370 - ----------------------------------------------------------------------------------------------------- Income from operations before income taxes 9,531 9,556 Income tax provision 3,207 3,147 - ----------------------------------------------------------------------------------------------------- Net Income $ 6,324 $ 6,409 - ----------------------------------------------------------------------------------------------------- Earnings Per Share Basic earnings per common share $ .72 $ .74 Diluted earnings per common share $ .70 $ .68 - ----------------------------------------------------------------------------------------------------- Number of restaurants at end of period 68 65
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 Common Common Paid-in Retained Treasury Stockholders' Stock Stock Capital Earnings Stock Equity - ----------------------------------------------------------------------------------------------------------------------------------- Balance, March 30, 2003 $318 $560 $48,444 $36,452 $(143) $85,631 Net income 6,324 6,324 Issuance of 12,000 shares of common stock under exercise of options 2 61 63 Issuance of 66,375 shares of Class A common stock under exercise of options 6 378 384 Conversion of 30,000 shares of common stock into 30,000 shares of Class A common stock (3) 3 Issuance of 207,000 shares under exercise of warrants 21 1,422 1,443 Tax benefit from stock options 102 102 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, January 4, 2004 $317 $590 $50,407 $42,776 $(143) $93,947 - -----------------------------------------------------------------------------------------------------------------------------------
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 4, January 5, 2004 2003 - -------------------------------------------------------------------------------------------------------------- Operating Activities: Net income $ 6,324 $ 6,409 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,436 5,406 Minority interest 479 370 Deferred income taxes 780 330 Loss on disposal of assets 124 74 Issuance of common stock for incentive compensation 3 Change in operating assets and liabilities that provided (used) cash: Receivables (396) 526 Inventories (967) (1,234) Prepaid expenses (526) (847) Other assets 80 (434) Accounts payable and accrued expenses 2,254 1,807 - -------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 14,588 12,410 - -------------------------------------------------------------------------------------------------------------- Investing Activities: - -------------------------------------------------------------------------------------------------------------- Business acquisition, net of cash acquired (11,374) Expenditures for property and equipment (16,307) (23,270) - -------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (16,307) (34,644) - -------------------------------------------------------------------------------------------------------------- Financing Activities: Borrowings under revolving line of credit 13,400 31,300 Proceeds from issuance of common stock under exercise of stock options and warrants 1,890 1,769 Repayment of long-term debt and obligations under capital leases (13,701) (14,331) Purchase of treasury stock (4) Tax benefit from stock option exercises 102 484 - -------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 1,691 19,218 - -------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (28) (3,016) Cash and cash equivalents, beginning of year 2,299 5,062 - -------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 2,271 $ 2,046 - -------------------------------------------------------------------------------------------------------------- Supplemental Cash Flow Information: Cash paid during the ten periods: Interest $ 432 $ 364 Income taxes $ 1,400 $ 2,208 - -------------------------------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------------- $11,374 - --------------------------------------------------------------------------------------------------------------
During the ten periods ended January 4, 2004, 30,000 shares of common stock were converted into 30,000 shares of Class A common stock. 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 of Class A common stock was paid. See notes to condensed consolidated financial statements. BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE AND TEN PERIODS ENDED JANUARY 4, 2004 AND JANUARY 5, 2003 (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) ended January 4, 2004 and January 5, 2003 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 30, 2003 appearing in Benihana Inc. and Subsidiaries (the "Company") Form 10-K filed with the Securities and Exchange Commission. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain prior period amounts have been reclassified to conform to the current period presentation. The Company has a 52/53-week fiscal year and divides the year into 13 periods of four weeks. The Company's first fiscal quarter consists of 16 weeks, and the remaining three quarters are 12 weeks each, except in the event of a 53-week year with the final quarter composed of 13 weeks. Because of the differences in length of these accounting periods, results of operations between the first quarter and the later quarters of a fiscal year are not comparable. 2. RECENT ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities". This Interpretation clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 requires an enterprise to consolidate a variable interest entity if that enterprise will absorb a majority of the entity's expected losses, is entitled to receive a majority of the entity's expected residual returns, or both. FIN 46 also requires disclosures about unconsolidated variable interest entities in which an enterprise holds a significant variable interest. FIN 46 is currently effective for variable interest entities created or entered into after January 31, 2003. This statement did not have any impact on the Company's consolidated financial statements. In December 2003, the FASB revised FIN 46 which changed the effective date to the first reporting period ending after March 15, 2004 for variable interest entities in which an enterprise holds a variable interest. 3. STOCK-BASED COMPENSATION The Company accounts for stock options issued to employees under the intrinsic value method of accounting for stock-based compensation. The Company generally recognizes no compensation expense with respect to such awards because stock options are granted at the fair market value of the underlying shares on the date of the grant. BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE AND TEN PERIODS ENDED JANUARY 4, 2004 AND JANUARY 5, 2003 (UNAUDITED) Had the Company accounted for its stock-based awards under the fair value method, the table below shows the pro forma effect on net income and earnings per share for the three and ten periods ended:
Three Periods Ended Ten Periods Ended --------------------------- ------------------------------ January 4, January 5, January 4, January 5, 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Net Income As reported $1,910 $2,168 $6,324 $6,409 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards 129 164 426 465 ------- ------- ------- ------- Pro forma $1,781 $2,004 $5,898 $5,944 ======= ======= ======= ======= Basic earnings per share As reported $ .21 $ .25 $ .72 $ .74 ------- ------- ------- ------- Pro forma $ .20 $ .23 $ .67 $ .68 ======== ======= ======= ======= Diluted earnings per share As reported $ .21 $ .24 $ .70 $ .68 ------- ------- ------- ------- Pro forma $ .19 $ .22 $ .65 $ .63 ======= ======= ======= =======
4. INVENTORIES Inventories consist of (in thousands): January 4, March 30, 2004 2003 ---------- --------- Food and beverage $2,148 $1,612 Supplies 4,147 3,716 ---------- --------- $6,295 $5,328 ========== ========== 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. BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE AND TEN PERIODS ENDED JANUARY 4, 2004 AND JANUARY 5, 2003 (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. Ten Periods Ended ------------------------- January 4, January 5, 2004 2003 ---------- ----------- Net income for computation of basic and diluted earnings per common share $6,324 $6,409 ========== ========== Ten Periods Ended ------------------------- January 4, January 5, 2004 2003 ---------- ---------- Weighted average number of common shares used in basic earnings per share 8,829 8,728 Effect of dilutive securities: Stock options and warrants 269 702 ---------- ---------- Weighted average number of common shares and dilutive potential common stock used in diluted earnings per share 9,098 9,430 ========== ========== 6. RESTAURANT OPERATING EXPENSES Restaurant operating expenses consist of the following (in thousands):
Three Periods Ended Ten Periods Ended ----------------------------- ------------------------------ January 4, January 5, January 4, January 5, 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Labor and related costs $16,629 $16,300 $54,323 $53,906 Restaurant supplies 931 788 2,961 2,756 Credit card discounts 801 762 2,615 2,452 Utilities 1,003 900 3,683 3,262 Occupancy costs 2,785 2,365 8,720 7,811 Depreciation and amortization 1,943 1,771 6,171 5,202 Other operating expenses 3,145 2,947 10,551 10,034 --------- ---------- --------- ---------- Total restaurant operating expenses $27,237 $25,833 $89,024 $85,423 ========= ========== ========= ==========
BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE AND TEN PERIODS ENDED JANUARY 4, 2004 AND JANUARY 5, 2003 (UNAUDITED) 7. COMMITMENTS AND CONTINGENCIES In December 1999, the Company completed the acquisition of 80% of the equity of Haru Holding Corp. ("Haru"). The acquisition was accounted for using the purchase method of accounting. Pursuant to the purchase agreement, at any time during the period of July 1, 2005 through September 30, 2005, the holders of the balance of Haru's equity (the "Minority Stockholders") have a one-time option to sell their shares to the Company. In the event that the Minority Stockholders do not exercise their right to sell their shares, then the Company has a one-time option to purchase the shares of the Minority Stockholders between the period of October 1, 2005 and December 31, 2005. The price for both the put and call options will be determined based on a defined cash flow measure for the acquired business. As of January 4, 2004, the price for both the put and call options at the purchase dates is not determinable as a number of unknown future factors could, either individually or in combination, cause material changes in the value of the put and call options. In connection with our acquisition of RA Sushi in 2002, we agreed to pay a base purchase price that consisted of $11.4 million along with the assumption of approximately $1.2 million of debt and other costs of $0.5 million. The purchase price also included additional contingent purchase price consideration to the sellers of the restaurants. The additional payments are generally contingent upon the achievement of stipulated levels of operating earnings and revenues by the acquired restaurants over a three year period commencing with the end of fiscal 2004, and are not contingent on the continued employment of the sellers of the restaurants. The minimum contingent payment levels will likely be met in the fourth quarter and it is likely that the Company will pay a maximum of $500,000 of contingent purchase price for the fiscal 2004. The Company will account for the contingent payments as an addition to the purchase price. 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 7.2% in the current three periods and increased 6.6% in the current ten periods, when compared to the corresponding periods a year ago. Net income and earnings per diluted share decreased in the current three and ten periods when compared to the equivalent periods of the prior year. Both the current three and ten periods' decreases in net income and earnings per diluted share are attributable to increased restaurant opening costs and commodity costs while partially offset by an improved relationship of fixed costs to sales. Net income and earnings per fully diluted share were positively affected in both the three and ten periods by an improved relationship of labor costs to sales when compared to the equivalent periods of a year ago. REVENUES Three and ten periods ended January 4, 2004 compared to January 5, 2003 -- 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 4, January 5, January 4, January 5, 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Restaurant sales $46,607 $43,521 $151,074 $141,920 Franchise fees and royalties 365 301 1,235 1,019 -------- -------- --------- --------- Total revenues $46,972 $43,822 $152,309 $142,939 ======== ========= ========= ========= Three Periods Ended Ten Periods Ended ------------------------------- ------------------------------- January 4, January 5, January 4, January 5, 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Amount of change in total revenues from previous year $3,150 $3,640 $9,370 $14,336 ---------- ---------- --------- ---------- Percentage of change from the previous year 7.2% 9.1% 6.6% 11.1% ========== ========== ========= ==========
BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Restaurant revenues increased in the three and ten periods ended January 4, 2004 compared to the corresponding periods a year ago. Restaurant sales increased from acquired and newly opened restaurants by $3.8 million for the current three periods and by $11.1 million for the current ten periods as compared to the corresponding periods a year ago. The increase in restaurant sales was contributed to by positive comparable sales of 0.2%, an increase of $0.1 million in the current three periods and offset by a decrease in comparable sales of 0.6%, a decrease of $0.8 million in the current ten periods when compared to the equivalent periods a year ago. Restaurant sales were also negatively impacted by temporary and permanent restaurant closures of $0.8 million for the current three periods and $1.1 million for the current ten periods when compared to the equivalent periods a year ago. The acquired RA Sushi restaurants sales are included for the tenth period only in comparable sales as they were acquired in December of fiscal 2003. COSTS AND EXPENSES Three and ten periods ended January 4, 2004 compared to January 5, 2003 -- The following table reflects the proportion that the various elements of costs and expenses bore to restaurant 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 4, January 5, January 4, January 5, 2004 2003 2004 2003 ---------- ---------- ---------- ---------- COST AS A PERCENTAGE OF RESTAURANT SALES: Cost of food and beverage sales 26.0% 24.3% 25.7% 24.6% Restaurant operating expenses 58.4% 59.4% 58.9% 60.2% Restaurant opening costs 1.5% 0.2% 1.0% 0.2% Marketing, general and administrative expenses 8.1% 8.7% 8.3% 8.4% Three Periods Ended Ten Periods Ended ------------------------------- -------------------------------- January 4, January 5, January 4, January 5, 2004 2003 2004 2003 ---------- ---------- ---------- ---------- AMOUNT OF CHANGE FROM PREVIOUS COMPARABLE PERIOD (IN THOUSANDS): Cost of food and beverage sales $1,527 $ 956 $4,017 $2,483 Restaurant operating expenses $1,404 $2,468 $3,601 $9,935 Restaurant opening costs $ 631 $ 40 $1,198 $ (736) Marketing, general and administrative expenses $ (19) $ 546 $ 517 $1,166
BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Periods Ended Ten Periods Ended -------------------------------- -------------------------------- January 4, January 5, January 4, January 5, 2004 2003 2004 2003 ---------- ---------- ---------- ---------- PERCENTAGE CHANGE FROM PREVIOUS COMPARABLE PERIOD: Cost of food and beverage sales 14.4% 9.9% 11.5% 7.7% Restaurant operating expenses 5.4% 10.6% 4.2% 13.2% Restaurant opening costs 709.0% 81.6% 338.4% (67.5%) Marketing, general and administrative expenses (0.5%) 16.7% 4.3% 10.8%
The cost of food and beverage sales increased in total dollar amount and when expressed as a percentage of sales in the current three and 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 4, 2004 as compared to the equivalent periods ended January 5, 2003. The increase was also a result of commodities price increases, principally beef and lobster costs, in the current three and ten periods as compared to the equivalent periods in the prior year. Restaurant operating expenses increased in absolute amount in the current three and ten periods, but decreased when expressed as a percentage of sales compared to the corresponding periods a year ago. The increase in absolute amount was due to the acquisition of the four RA Sushi restaurants and the newly opened teppanyaki and RA Sushi restaurants in the current three and ten periods when compared to the equivalent periods. The decrease when expressed as a percentage of sales is due to lower labor and related costs in the current year's three and ten periods when compared to the prior year's three and ten periods. Labor costs and related costs improved as a result of increased labor productivity and a reduction of overtime wages in the current three and ten periods and from lower health insurance costs as a result of a decrease in the total dollar amount of health insurance claims coupled with increased employee contributions to health insurance costs. Restaurant opening costs increased in the current three and ten periods ended January 4, 2004 compared to the prior year corresponding periods. The increase is a result of the growth in restaurant development activity compared to the equivalent periods a year ago. The increase in store opening costs relates to opening expenses of eight restaurants opened or under development in the current ten periods compared to two restaurants in the equivalent periods a year ago. Marketing, general and administrative costs decreased in absolute amount in the current three periods and increased in the current ten periods when compared to the equivalent periods a year ago. Marketing, general and administrative costs decreased when expressed as a percentage of sales in the current three periods and ten periods when compared to the equivalent periods a year ago. The decrease in absolute amount in the current three periods is mainly attributable to decreased advertising expenditures and the increase in the current ten periods is due to increased salaries and benefits from additional management personnel who were hired by the Company in connection with the acquisition of the RA Sushi concept. 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 average interest rate in the equivalent periods a year ago. Our effective income tax rate increased in the ten periods to 33.6% from 32.9% in the prior year's ten periods. The effective tax rate increased due to additional state taxes associated with RA Sushi that was acquired in period ten of the prior year. BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OUR FINANCIAL RESOURCES Cash flow from operations has historically been the primary source to fund our capital expenditures. 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. We have borrowings from Wachovia Bank, National Association ("Wachovia") under a term loan as well as a revolving line of credit facility. The line of credit facility allows us to borrow up to $15,000,000 through December 31, 2007 and at January 4, 2004, we had $9,000,000 outstanding under the revolving line of credit. We also had a $1,000,000 letter of credit outstanding against such facility in connection with our workers compensation insurance program. At January 4, 2004, we had $13,000,000 outstanding 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 4, 2004 of both the line of credit and the term loan was 2.2%. 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. 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 4, January 5, 2004 2003 ---------- ---------- Cash provided by operations $ 14,588 $ 12,410 Cash (used in) investing activities (16,307) (34,644) Cash provided by financing activities 1,691 19,218 --------- ---------- Decrease in cash and cash equivalents $ (28) $(3,016) ========= ========== Our future capital requirements depend on numerous factors, including market acceptance of our products, the timing and rate of expansion of our business, acquisitions, and other factors. We have experienced increases in our expenditures consistent with growth in our operations and we anticipate that our expenditures will continue to increase in the foreseeable future. We believe that our cash from operations and the funds available under our term loan and line of credit will provide sufficient capital to fund our operations and restaurant expansion for at lease the next twelve months. Operating Activities Cash provided by operations increased during the ten periods ended January 4, 2004 compared to the equivalent period in the previous year. The increase resulted mainly from net income adjusted for depreciation and amortization, the change in deferred income taxes and by the change in cash provided by operating assets and liabilities in the current ten periods when compared to the previous comparable period. BENIHANA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The increase in accounts receivable from March 30, 2003 is attributable to a lease incentive owed to us by a new landlord. The increase in inventory from March 30, 2003 is due to new restaurant openings. Investing Activities Expenditures for property and equipment decreased during the ten periods ended January 4, 2004 from the prior comparable period. The decrease is attributable to expenditures of approximately $13 million made in the prior year ten periods for the purchase of property and equipment of three teppanyaki restaurants previously financed under a master lease agreement which was terminated June 12, 2002. The decrease is also attributable to the $11.3 million acquisition of RA Sushi in the prior year ten periods. The decreases are offset by increased construction expenditures over the prior year for new restaurants. Financing Activities During the current ten periods there were stock option exercises and warrants with cash proceeds to the Company of $1,890,000 as compared to $1,769,000 in the previous comparable period a year ago. Our total indebtedness decreased by $301,000 during the ten periods ended January 4, 2004 as compared to the end of fiscal 2003. We had net borrowings of $3,000,000 from the revolving line of credit, paid down $3,000,000 of the term loan and paid $301,000 under 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 have no derivative agreements as of January 4, 2004. 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 The Company has a 52/53-week fiscal year and divides the year into 13 periods of four weeks. The Company's first fiscal quarter consists of 16 weeks, and the remaining three quarters are 12 weeks each, except in the event of a 53-week year with the final quarter composed of 13 weeks. Because of the differences in length of these accounting periods, results of operations between the first quarter and the later quarters of a fiscal year are not comparable. 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 As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company's internal control over financial reporting during the Company's most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. BENIHANA INC. AND SUBSIDIARIES PART II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) On November 11, 2003 the Company filed a report Form 8-K covering its earnings press release for the fiscal quarter ended October 12, 2003. (b)(i) Exhibit 31.1 - Chief Executive Officer's certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (b)(ii) Exhibit 31.2 - Chief Financial Officer's certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (b)(iii) Exhibit 32.1 - Chief Executive Officer's certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b)(iv) Exhibit 32.2 - Chief Financial Officer's certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 SIGNATURE 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 13, 2004 /s/ Joel A. Schwartz ---------------------- --------------------- Joel A. Schwartz President and Chief Executive Officer and Director Exhibit 31.1 CERTIFICATION I, Joel A. Schwartz, President and Chief Executive Officer and Director, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Benihana Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 13, 2004 /s/ Joel A. Schwartz --------------------- Joel A. Schwartz President and Chief Executive Officer and Director Exhibit 31.2 CERTIFICATION I, Michael R. Burris, Senior Vice President - Finance and Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Benihana, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 13, 2004 /s/ Michael R. Burris ---------------------- Michael R. Burris Senior Vice President- Finance and Chief Financial Officer Exhibit 32.1 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 January 4, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joel A. Schwartz, President and Chief Executive Officer and Director 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 and Director February 13, 2004 Exhibit 32.2 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 January 4, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael R. Burris, Senior Vice President - Finance and 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 Senior Vice President - Finance and Chief Financial Officer February 13, 2004 -----END PRIVACY-ENHANCED MESSAGE-----