10-Q/A 1 form10q-a_71804.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended July 18, 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 the 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, 2,992,979 shares outstanding at August 26, 2004 Class A Common Stock $.10 par value, 6,161,475 shares outstanding at August 26, 2004 EXPLANATORY NOTE ---------------- The Registrant hereby amends its Quarterly Report on Form 10-Q for the quarter ended July 18, 2004 to restate the classification of bank debt included in the consolidated balance sheets at July 18, 2004 and March 28, 2004 from long-term to current as described in Note 6 of the consolidated financial statements included in Item 1 and to make conforming corrections to Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 2 and the discussion of Controls and Procedures included in Item 4. BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FOUR PERIODS ENDED JULY 18, 2004 TABLE OF CONTENTS PAGE PART I - Financial Information Item 1. Financial Statements - unaudited Condensed Consolidated Balance Sheets (unaudited) at July 18, 2004 and March 28, 2004 1 Condensed Consolidated Statements of Earnings (unaudited) for the Four Periods Ended July 18, 2004 and July 20, 2003 2 Condensed Consolidated Statement of Stockholders' Equity (unaudited) for the Four Periods Ended July 18, 2004 3 Condensed Consolidated Statements of Cash Flows (unaudited) for the Four Periods Ended July 18, 2004 and July 20, 2003 4 Notes to Condensed Consolidated Financial Statements (unaudited) 5 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 15 Item 4. Controls and Procedures 15 Signature 16 Certifications 17 - 20 BENIHANA INC. AND SUBSIDIARIES PART I - Financial Information ITEM 1. FINANCIAL STATEMENTS - UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share information) July 18, March 28, 2004 2004 --------------------------------------------------------------------------------------------------------------------------------- Assets (As restated, (As restated, Current Assets: see Note 6) see Note 6) Cash and cash equivalents $ 3.285 $ 2,196 Receivables 816 882 Inventories 6,300 6,147 Prepaid expenses 2,196 2,426 --------------------------------------------------------------------------------------------------------------------------------- Total current assets 12,597 11,651 Property and equipment, net 100,717 98,219 Goodwill, net 27,783 27,783 Other assets 4,903 4,757 --------------------------------------------------------------------------------------------------------------------------------- $146,000 $142,410 --------------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current Liabilities: Accounts payable and accrued expenses $ 22,314 $ 20,730 Current maturity of bank debt 11,500 21,500 Current maturities of obligations under capital leases 203 273 --------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 34,017 42,503 Obligations under capital leases 3 26 Deferred income taxes, net 1,391 1,237 --------------------------------------------------------------------------------------------------------------------------------- Total liabilities 35,411 43,766 Commitments and contingencies (Note 8) Minority interest 1,626 1,414 Series B Mandatory Redeemable Convertible Preferred Stock - $1.00 par value; convertible into Common stock; authorized - 5,000,000 shares; issued and outstanding - 400,000 at July 18, 2004 (Note 7) 9,253 Stockholders' Equity: Common stock - $.10 par value; convertible into Class A Common stock; authorized - 12,000,000 shares; issued and outstanding - 2,992,979 and 3,134,979 shares, respectively 299 313 Class A Common stock - $.10 par value; authorized - 20,000,000 shares; issued and outstanding - 6,161,475 and 5,967,527 shares, respectively 616 597 Additional paid-in capital 51,361 50,772 Retained earnings 47,577 45,691 Treasury stock - 10,828 shares of Common and Class A Common stock at cost (143) (143) --------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 99,710 97,230 --------------------------------------------------------------------------------------------------------------------------------- $146,000 $142,410 --------------------------------------------------------------------------------------------------------------------------------- See notes to condensed consolidated financial statements BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (In thousands, except per share information) Four Periods Ended -------------------------------------------- July 18, July 20, 2004 2003 ----------------------------------------------------------------------------------------------------------------------- Revenues Restaurant sales $64,934 $60,542 Franchise fees and royalties 457 560 ----------------------------------------------------------------------------------------------------------------------- Total revenues 65,391 61,102 ----------------------------------------------------------------------------------------------------------------------- Costs and Expenses Cost of food and beverage sales 17,279 15,571 Restaurant operating expenses 38,283 35,484 Restaurant opening costs 254 243 Marketing, general and administrative expenses 6,331 5,013 ------------------------------------------------------------------------------------------------------------------------ Total operating expenses 62,147 56,311 ------------------------------------------------------------------------------------------------------------------------ Earnings from operations 3,244 4,791 Interest expense, net 114 148 ------------------------------------------------------------------------------------------------------------------------ Earnings from operations before income taxes and minority interest 3,130 4,643 Income tax provision 1,006 1,502 ------------------------------------------------------------------------------------------------------------------------ Earnings before minority interest 2,124 3,141 Minority interest 212 189 ------------------------------------------------------------------------------------------------------------------------ Net Income $ 1,912 $ 2,952 Less: Preferred Stock dividends 26 0 ------------------------------------------------------------------------------------------------------------------------ Net income attributable to common stockholders $ 1,886 $ 2,952 ------------------------------------------------------------------------------------------------------------------------ Earnings Per Share Basic earnings per common share $ .21 $ .34 Diluted earnings per common share $ .20 $ .33 ------------------------------------------------------------------------------------------------------------------------ Number of restaurants at end of period 70 64 See notes to condensed consolidated financial statements BENIHANA INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOUR PERIODS ENDED JULY 18, 2004 (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 28, 2004 $313 $597 $50,772 $45,691 $(143) $97,230 Net income 1,912 1,912 Issuance of 51,598 shares of Class A common stock under exercise of options 5 458 463 Conversion of 142,000 shares of common stock into 142,000 shares of Class A common stock (14) 14 Issuance of 350 shares of Class A common stock for incentive compensation 7 7 Deemed dividends on Series B Preferred Stock (26) (26) Tax benefit from stock options 124 124 ----------------------------------------------------------------------------------------------------------------------------------- Balance, July 18, 2004 $299 $616 $51,361 $47,577 $(143) $99,710 ----------------------------------------------------------------------------------------------------------------------------------- See notes to condensed consolidated financial statements BENIHANA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands, except share information) Four Periods Ended ------------------------------------------- July 18, July 20, 2004 2003 -------------------------------------------------------------------------------------------------------------------- Operating Activities: Net income $ 1,912 $ 2,952 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,844 2,460 Minority interest 212 189 Deferred income taxes 154 132 Issuance of Class A common stock for incentive compensation 7 Loss on disposal of assets 160 40 Change in operating assets and liabilities that provided (used) cash: Receivables 66 (238) Inventories (153) (482) Prepaid expenses 230 714 Other assets (259) 47 Accounts payable and accrued expenses 1,584 550 --------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 6,757 6,364 --------------------------------------------------------------------------------------------------------------------- Investing Activities: Expenditures for property and equipment (5,389) (4,261) --------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (5,389) (4,261) --------------------------------------------------------------------------------------------------------------------- Financing Activities: Borrowings under revolving line of credit 500 2,300 Proceeds from issuance of Series B Preferred Stock, net 9,253 Proceeds from issuance of common stock under exercise of stock options and warrants 463 67 Tax benefit from stock option exercises 124 Repayment of long-term debt and obligations under capital leases (10,593) (5,944) Dividends on Series B Preferred stock (26) --------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (279) (3,577) --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 1,089 (1,474) Cash and cash equivalents, beginning of year 2,196 2,299 --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $3,285 $ 825 --------------------------------------------------------------------------------------------------------------------- Supplemental Cash Flow Information: Cash paid during the four periods: Interest $ 200 $ 220 Income taxes $ 829 $ 189 ----------------------------------------------------------------------------------------------------------------------
During the four periods ended July 18, 2004, 142,000 shares of common stock were converted into 142,000 shares of Class A common stock. During the four periods ended July 20, 2003, 10,000 shares of common stock were converted into 10,000 shares of Class A common stock. See notes to condensed consolidated financial statements. BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUR PERIODS ENDED JULY 18, 2004 AND JULY 20, 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 four periods (sixteen weeks) ended July 18, 2004 and July 20, 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 28, 2004 appearing in Benihana Inc. and Subsidiaries (the "Company") Form 10-K/A 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. 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 FOUR PERIODS ENDED JULY 18, 2004 AND JULY 20, 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 four periods ended:
Four Periods Ended ------------------------------------------ July 18, July 20, 2004 2003 ------------------- ------------------- Net Income (in thousands) As reported $1,912 $2,952 Preferred dividends 26 ------------------- ------------------- Net income attributable to common stockholders 1,886 2,952 Deduct: Total stock-based employee compensation Expense determined under fair value based method for all awards 226 178 ------------------- ------------------- Pro forma $1,660 $2,774 =================== =================== Basic earnings per share As reported $ .21 $ .34 ------------------- ------------------- Pro forma $ .18 $ .32 =================== =================== Diluted earnings per share As reported $ .20 $ .33 ------------------- ------------------- Pro forma $ .17 $ .31 =================== =================== 3. INVENTORIES Inventories consist of (in thousands): July 18, March 28, 2004 2004 ------------------ ------------------ Food and beverage $2,431 $2,090 Supplies 3,869 4,057 ------------------ ------------------ $6,300 $6,147 ================== ================== 4. 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 conversion rights of Series B Preferred Stock. BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUR PERIODS ENDED JULY 18, 2004 AND JULY 20, 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: Four Periods Ended ----------------------------------------------------- July 18, July 20, 2004 2003 --------------------- -------------------- Net income $1,912 $2,952 Less Series B preferred stock dividends (26) 0 --------------------- -------------------- Income for computation of basic earnings per common share 1,886 2,952 Series B preferred stock 26 0 --------------------- -------------------- Income for computation of diluted earnings per common share $1,912 $2,952 ===================== ==================== Four Periods Ended ----------------------------------------------------- July 18, July 20, 2004 2003 --------------------- -------------------- Weighted average number of common shares used in basic earnings per share 9,133 8,781 Effect of dilutive securities: Stock options and warrants 555 240 Series B preferred stock 87 0 --------------------- -------------------- Weighted average number of common shares and dilutive potential common stock used in diluted earnings per share 9,775 9,021 ===================== ==================== During the four periods ended July 18, 2004 and July 20, 2003, stock options and warrants to purchase 1,138,000 and 1,739,000 shares, respectively, of common stock were excluded from the calculation of diluted earnings per share since the effect would be considered antidilutive. 5. RESTAURANT OPERATING EXPENSES Restaurant operating expenses consist of the following (in thousands): Four Periods Ended ------------------------------------------ July 18, July 20, 2004 2003 ------------------- ------------------- Labor and related costs $23,150 $21,766 Restaurant supplies 1,249 1,155 Credit card discounts 1,153 1,073 Utilities 1,558 1,462 Occupancy costs 3,850 3,398 Depreciation and amortization 2,782 2,353 Other operating expenses 4,541 4,277 ------------------- ------------------- Total restaurant operating expenses $38,283 $35,484 =================== ===================
BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUR PERIODS ENDED JULY 18, 2004 AND JULY 20, 2003 (UNAUDITED) 6. LONG-TERM DEBT The Company has 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 July 18, 2004, we had $14,000,000 available for borrowing. We also had a $1,000,000 letter of credit outstanding against such facility in connection with our workers compensation insurance program. At July 18, 2004, we had $11,500,000 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 July 18, 2004 of both the line of credit and the term loan was 2.58%. We have the option to pay interest at Wachovia's prime rate plus 1% or at libor 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 limit the payment of cash dividends. For the quarter ended July 18, 2004, the Company was not in compliance with a Consolidated EBITDA covenant of the Company's credit agreement with Wachovia. The Company received a waiver from Wachovia to cure its non-compliance on August 11, 2004 and has since amended its credit agreement such that the Company expects to be in compliance through the end of the second quarter in fiscal 2006. Subsequent to the issuance of the Company's fiscal year 2004 consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended March 28, 2004 and the fiscal first quarter condensed consolidated financial statements for the four periods ended July 18, 2004, the Company determined that bank debt previously classified in long-term liabilities should have been classified in current liabilities because the waiver of the Consolidated EBITDA covenant contained in the credit agreement was extended only as of each of the respective fiscal periods rather than through a fiscal year from the date of each of the respective periods. The Company's condensed consolidated balance sheets at March 28, 2004 and July 18, 2004 have been restated by $18.5 million and $8.3 million, respectively, from the amounts previously reported to reflect the appropriate classification of the bank debt at March 28, 2004 and July 18, 2004. On November 19, 2004, the Company and Wachovia amended the credit agreement such that the Company believes that it will be in compliance with the covenant through October 30, 2005. 7. RELATED PARTY TRANSACTION John E. Abdo, a director of the Company, is a director and Vice Chairman of the Board of BFC Financial Corporation ("BFC") and is a significant shareholder of BFC. On July 1, 2004, the Company received $10,000,000 net of issuance costs of approximately $747,000, representing the funding of the first tranche of its previously announced sale of $20,000,000 aggregate principal amount of Series B Preferred Stock from BFC. The Company has the option to issue another 400,000 shares of the Series B Preferred Stock from time to time during the two-year period commencing on June 8, 2005. The Series B Preferred Stock is convertible into Common Stock of the Company at a conversion price of $19.00 per share; subject to adjustment, carries a dividend of 5.0% payable in cash or additional Series B Preferred Stock and will vote on an "as if converted" basis together with the Company's Common Stock on all matters put to a vote of the holders of Common Stock. In addition, under certain circumstances, the approval of a majority of the Series B Preferred Stock will be required for certain events outside the ordinary course of business. The holders of the Series B Preferred Stock will be entitled to nominate one director at all times and one additional director in the events that dividends are not paid for two consecutive quarters. BENIHANA INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUR PERIODS ENDED JULY 18, 2004 AND JULY 20, 2003 (UNAUDITED) The Series B Preferred Stock will be available for redemption at its original issue price on July 2, 2014, which date may be extended by the holders of a majority of the then-outstanding shares of Series B Preferred Stock to a date no later than July 2, 2024. At the Company's option, it may pay the redemption in cash or shares of Common Stock valued at then-current market prices. In addition, the Series B. Preferred Stock may be redeemed in cash or common stock at any time beginning three years from the date of issue in the volume-weighted average price of the Common Stock exceeds $38.00 per share for sixty consecutive trading days. 8. 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 July 18, 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. For fiscal 2004 the contingent payment amounted to $652,000. The minimum contingent payment is not yet determinable for fiscal 2005. The Company accounts for the contingent payments as an addition to the purchase price. On July 2, 2004, Benihana of Tokyo, Inc. ("BOT"), which owns approximately 51% of the Company's outstanding Common Stock, commenced a lawsuit in the Court of Chancery of the State of Delaware against the Company, members of the Company's Board of Directors and BFC. The action, which purports to be brought both individually and derivatively on behalf of the Company, seeks temporary and permanent injunctive relief, and unspecified monetary damages and recovery of costs and expenses, in connection with the recent closing of a $20,000,000 sale of a new class of Series B Convertible Preferred Stock ("Series B Preferred Stock") of the Company to BFC, a diversified holding company with operations in banking, real estate and other industries. John E. Abdo, a director of the Company, serves as a Vice Chairman, director, and is a significant shareholder of BFC. Among other relief sought, the action seeks rescission of the sale of preferred stock to BFC. The action alleges that the director defendants breached their fiduciary duties in approving the financing transaction with BFC by diluting the voting power represented by BOT's Common Stock holdings in the Company. The action is currently in the discovery stage. A trial date of November 8, 2004 has been set. All of the defendants to the action have filed motions to dismiss the complaint, which has not been ruled upon by the Court of Chancery of the State of Delaware. The Company and its Board of Directors believe that the BFC financing was and is in the best interests of the Company and all of its shareholders, that there is no merit to the action brought by BOT and intend to vigorously defend and oppose the action. Based on the above discussion, the Company has not recorded a reserve balance for this lawsuit, but anticipates legal costs to be incurred in future periods to defend their position. BENIHANA INC. AND SUBSIDIARIES ITEM 2. 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 7.0% in the current four periods when compared to the corresponding periods a year ago. Net income and earnings per diluted share decreased 35.2% and 39.4%, respectively, in the current four periods when compared to the equivalent periods of the prior year. The current four periods' decreases in net income and earnings per diluted share are attributable primarily to increase in commodity costs and fees relating to planning and architectural design work for the construction and renovation program for the Company's teppanyaki concept. REVENUES Four periods ended July 18, 2004 compared to July 20, 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).
Four Periods Ended ----------------------------------------- July 18, July 20, 2004 2003 ------------------- ------------------- Restaurant sales $64,934 $60,542 Franchise fees and royalties 457 560 ------------------- ------------------- Total revenues $65,391 $61,102 =================== =================== Four Periods Ended ------------------------------------------ July 18, July 20, 2004 2003 ------------------- ------------------- Amount of change in total revenues from previous year $4,289 $3,943 ------------------- ------------------- Percentage of change from the previous year 7.0% 6.9% =================== =================== BENIHANA INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Restaurant revenues increased for the four periods ended July 18, 2004 compared to the corresponding periods a year ago. Restaurant sales increased from newly opened restaurants by $4.1 million for the current four periods as compared to the corresponding periods a year ago. The increase in restaurant sales was attributable to positive comparable sales of $1.6 million in the current four periods when compared to the equivalent periods a year ago. Restaurant sales were also negatively impacted by temporary and permanent restaurant closures of $1.3 million for the current four periods when compared to the equivalent periods a year ago. Comparable restaurant sales growth for restaurants opened longer than one year was 2.7% in the current four periods compared to the equivalent periods a year ago. Comparable sales for the teppanyaki restaurants increased 1.7%, comparable sales for the Haru restaurants increased 5.8%, comparable sales for the RA Sushi restaurants increased 9.9% and for the one Doraku restaurant comparable sales increased 6.1% in the current four periods when compared to the equivalent periods a year ago. COSTS AND EXPENSES Four periods ended July 18, 2004 compared to July 20, 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 four periods. Four Periods Ended ------------------------------------------ July 18, July 20, 2004 2003 ------------------- ------------------- COST AS A PERCENTAGE OF RESTAURANT SALES: Cost of food and beverage sales 26.6% 25.7% Restaurant operating expenses 59.0% 58.6% Restaurant opening costs 0.4% 0.4% Marketing, general and administrative expenses 9.7% 8.3% Four Periods Ended ----------------------------------------- July 18, July 20, 2004 2003 ------------------- ------------------- AMOUNT OF CHANGE FROM PREVIOUS COMPARABLE PERIOD (IN THOUSANDS): Cost of food and beverage sales $1,708 $1,581 Restaurant operating expenses $2,799 $1,732 Restaurant opening costs $ 11 $ 95 Marketing, general and administrative expenses $1,318 $ 217 BENIHANA INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Four Periods Ended ------------------------------------------ July 18, July 20, 2004 2003 ------------------- ------------------- PERCENTAGE CHANGE FROM PREVIOUS COMPARABLE PERIOD: Cost of food and beverage sales 11.0% 11.3% Restaurant operating expenses 7.9% 5.1% Restaurant opening costs 4.5% 64.2% Marketing, general and administrative expenses 26.3% 4.5% The cost of food and beverage sales increased in total dollar amount and when expressed as a percentage of sales in the current four 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 four periods ended July 18, 2004 as compared to the equivalent periods ended July 20, 2003. The increase was also a result of commodities price increases, principally beef and lobster costs, in the current four periods as compared to the equivalent periods in the prior year. Beef costs comprise approximately 40% of our total commodity costs. Average beef costs increased 23.1% in the current four periods compared to the equivalent periods a year ago. Lobster costs which comprise 15% of our total commodity costs increased an average of 4.5% in the current four periods compared to the equivalent periods a year ago. All other commodity cost fluctuations were not significant. Restaurant operating expenses increased in absolute amount and when expressed as a percentage of sales in the current four periods compared to the corresponding periods a year ago. The increase was due to occupancy costs and depreciation and amortization from the newly opened teppanyaki and RA Sushi restaurants and from capital expenditures made to existing restaurants in the current four periods when compared to the equivalent periods. Restaurant opening costs increased slightly in the current four periods ended July 18, 2004 compared to the prior year corresponding periods. Marketing, general and administrative costs increased in absolute amount and when expressed as a percentage of sales in the current four periods when compared to the equivalent periods a year ago. The increase is due to increased labor and related costs and professional fees. The increase in labor and related costs is attributable to additional corporate personnel hired to accommodate the Company's growth plans. The increase in professional fees is attributable to consulting fees relating to planning and architectural design work for the construction and renovation program for the Company's teppanyaki concept and also to professional fees relating to Sarbanes-Oxley Section 404 compliance. Interest expense decreased in the current four periods when compared to the corresponding periods of the prior year. The decrease in the current four periods was attributable to lower average borrowings outstanding in the current year compared to the equivalent periods a year ago. Our effective income tax rate decreased in the four periods to 32.1% from 32.4% in the prior year's four periods. 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. BENIHANA INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 July 18, 2004, we had $14,000,000 available for borrowing. We also had a $1,000,000 letter of credit outstanding against such facility in connection with our workers compensation insurance program. At July 18, 2004, we had $11,500,000 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 July 18, 2004 of both the line of credit and the term loan was 2.58%. 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. For the quarter ended July 18, 2004, the Company was not in compliance with a Consolidated EBITDA covenant of the Company's credit agreement with Wachovia. The Company received a waiver from Wachovia to cure its non-compliance on August 11, 2004, and on November 19, 2004 the Company and Wachovia amended the credit agreement such that the Company expects to be in compliance through October 30, 2005. There can be no assurance that such non-compliance will not occur in future periods or that if it does, the Company's lender will agree to waive any such non-compliance. Subsequent to the issuance of the Company's fiscal year 2004 consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended March 28, 2004 and the fiscal first quarter condensed consolidated financial statements for the four periods ended July 18, 2004, the Company determined that bank debt previously classified in long-term liabilities should have been classified in current liabilities because the waiver of the Consolidated EBITDA covenant contained in the credit agreement was extended only as of each of the respective fiscal periods rather than through a fiscal year from the date of each of the respective periods. The Company's condensed consolidated balance sheets at March 28, 2004 and July 18, 2004 have been restated by $18.5 million and $8.3 million, respectively, from the amounts previously reported to reflect the appropriate classification of the bank debt at March 28, 2004 and July 18, 2004. On November 19, 2004, the Company and Wachovia amended the credit agreement such that the Company believes that it will be in compliance with the covenant through October 30, 2005. 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): Four Periods Ended ----------------------------------------------------- July 18, July 20, 2004 2003 --------------------- -------------------- Cash provided by operations $6,757 $ 6,364 Cash (used in) investing activities (5,389) (4,261) Cash (used in) financing activities (279) (3,577) --------------------- -------------------- Increase (decrease) in cash and cash equivalents $1,089 $ (1,474) ===================== ====================
During the quarter, the Company issued $10,000,000 in principal amount of the Series B Preferred Stock and received net proceeds of $9.3 million from the issuance. The Company has the option to issue an additional $10,000,000 in principal amount of the Series B Preferred Stock from time to time during the two-year period commencing on the first anniversary of the closing of the initial issuance. BENIHANA INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We have announced a major renovation program to approximately 20 of our teppanyaki restaurants which is expected to begin in the third quarter of fiscal 2005. We anticipate that the total cost of these renovations will range from $25 to $30 million over a three-year period. Our other 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 and future issuances of Series B Preferred Stock pursuant to our agreement with BFC Financial Corporation will provide sufficient capital to fund our operations and restaurant expansion for at least the next twelve months. Operating Activities Cash provided by operations increased during the four periods ended July 18, 2004 compared to the equivalent period in the previous year. The increase resulted mainly from the change in cash provided by operating assets and liabilities in the current four periods when compared to the comparable period a year ago offset by a decrease in net income adjusted for depreciation and amortization. Investing Activities Expenditures for property and equipment increased during the four periods ended July 18, 2004 from the prior comparable period. The increase is attributable to increased capital expenditures for new restaurants in the current four periods when compared to the equivalent periods a year ago. Financing Activities On July 1, 2004, the Company issued 400,000 shares of Series B Preferred Stock at $25.00 per share which resulted in net proceeds of $9.3 million. The Company has the option to issue another 400,000 shares of the Series B Preferred Stock from time to time during the two-year period commencing on June 8, 2005. The Series B Preferred Stock is convertible into Common Stock of the Company at a conversion price of $19.00 per share; subject to adjustment, carries a dividend of 5.0% payable in cash or additional Series B Preferred Stock and will vote on an "as if converted" basis together with the Company's Common Stock on all matters put to a vote of the holders of Common Stock. In addition, under certain circumstances, the approval of a majority of the Series B Preferred Stock will be required for certain events outside the ordinary course of business. The holders of the Series B Preferred Stock will be entitled to nominate one director at all times and one additional director in the events that dividends are not paid for two consecutive quarters. The Series B Preferred Stock will be available for redemption at its original issue price on July 2, 2014, which date may be extended by the holders of a majority of the then-outstanding shares of Series B Preferred Stock to a date no later than July 2, 2004. At the Company's option, it may pay the redemption in cash or shares of Common Stock valued at then-current market prices. In addition, the Series B Preferred Stock may be redeemed at any time beginning three years from the date of issue if the volume-weighted average price of the Common Stock exceeds $38.00 per share for sixty consecutive trading days. During the current four periods there were stock option exercises and warrants with cash proceeds to the Company of $463,000 as compared to $67,000 in the previous comparable period a year ago. Our total indebtedness decreased by $10,093,000 during the four periods ended July 18, 2004. We paid down $1,500,000 of the term loan, $8,500,000 of the revolving line of credit and paid $93,000 under leases that are considered to be capital in nature. (See Note 7). BENIHANA INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. ITEM 4. 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, notwithstanding the restatement for the classification of the Company's bank debt from long-term debt to current liabilities, 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 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: December 14, 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: December 14, 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: December 14, 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 July 18, 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 December 14, 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 July 18, 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 December 14, 2004