SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 30, 1997
or,
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-12644
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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.10 per share
Class A Common Stock, par value $.10 per share
Preferred Share Purchase Right
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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of May 16, 1997, 3,557,366 shares of Common Stock and 2,516,300 shares of
Class A Common Stock were outstanding, and the aggregate market value of the
common equity of Benihana Inc. held by non-affiliates was approximately
$31,728,170.
DOCUMENTS INCORPORATED BY REFERENCE
Portion of the Registrant's Annual Report to Stockholders for the year ended
March 30, 1997 are incorporated by reference in Parts I and II.
Portion of the Registrant's Proxy Statement for the Annual Meeting to be held
July 31, 1997 are incorporated by reference in Part III.
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Item 1. Business
Benihana Inc. (The "Company") owns and operates 38 Benihana and Benihana Grill
dinnerhouse restaurants and licenses twelve others.
Organization
Effective May 15, 1995, the Company became the successor to Benihana National
Corp. ("BNC") through the merger (the"Merger") of BNC and a wholly owned
subsidiary of the Company. Simultaneously with the Merger, the Company acquired
from Benihana of Tokyo, Inc. ("BOT"), a corporation privately owned by Rocky H.
Aoki, the Company's Chairman of the Board and founder of the Benihana restaurant
chain, all of BOT's Benihana restaurants (the "BOT Restaurants") in the
continental United States, consisting of 17 company-owned and 5 licensed
locations. The Merger and asset acquisition (collectively, the "Reorganization")
were accounted for in a manner similar to a pooling of interests. References to
the " Company" in this report include BNC, the Company's predecessor.
BNC had been organized in 1982 by BOT in connection with BNC's initial public
offering.
General
The Company has the right to own, develop or license Benihana and Benihana Grill
restaurants in the United States (subject to certain rights granted to BOT with
respect to the State of Hawaii) Central and South America and the Caribbean
Islands.
A description of the Company-owned and licensed restaurants is set forth below
under "Properties".
Sales by the Company's owned restaurants were approximately $84,415,000 for the
fiscal year ended March 30, 1997, as compared to approximately $81,094,000 for
the prior fiscal year.
Benihana Format and Menu
The Benihana restaurants feature the teppanyaki style of Japanese cooking in
which the food is prepared by a Benihana chef on a grill which forms a part of
the table at which it is served. The Benihana restaurants feature a distinctly
Japanese design creating an authentic atmosphere for its guests. Most of the
Company's Benihana restaurants are open for both lunch and dinner. The
restaurants have a limited menu offering a full course meal consisting of an
appetizer, soup, salad, tea, and an entree of steak, seafood, chicken or a
combination of them. Specific menu items may be different in the various
restaurants depending upon the local geographic market. The servings are all
portion controlled to provide consistency in quantities served to each customer.
Alcoholic beverages, including specialty mixed drinks, wines, beers and soft
drinks are available. The average check size per person was $22.42 during the
year ended 1997. During the fiscal year ended March 30, 1997, beverage sales in
both the lounges and dining rooms accounted for approximately 20% of total
restaurant sales. The Company offers sushi both at the teppanyaki grill and at
separate sushi bar areas within most restaurants.
Generally, an entire teppanyaki table is filled at one time. The chef is
assisted in the service of the meal by the waitress or waiter who takes beverage
and food orders. An entire dinnertime meal takes approximately one hour and
thirty minutes.
In October 1995, the Company opened its first Benihana Grill restaurant. The
Benihana Grill is a smaller version of the typical Benihana restaurant that is
suitable for smaller markets and for strip shopping centers. The Company
believes that the Benihana Grill provides greater potential for unit growth
because the costs to design, construct and open the Benihana Grill is
approximately one-third of the cost of a standard sized Benihana restaurant.
Of the 38 owned Benihana and Benihana Grill restaurants, 27 are located in free
standing, special use restaurant buildings, three in shopping centers, and eight
in office or hotel building complexes. The free standing restaurants were built
to the Company's specifications as to size, style and interior and exterior
decor. The other locations were adapted to the Benihana interior decor. The free
standing units, which are generally one story buildings, average approximately
8,000 square feet and are constructed on a lot of approximately 1.25 to 1.50
acres with parking for 100 to 125 cars. The shopping center, office building and
hotel based Benihana restaurants are of similar size, but differ somewhat in
appearance from location to location in order to conform to the existing
buildings. The designs for the Benihana Grill calls for between 3,500 and 4,000
square feet and 10 and 12 teppanyaki tables. A typical Benihana restaurant has
eighteen teppanyaki tables. The Benihana restaurants seat from 86 to 178 persons
in the dining rooms (at the teppanyaki tables which seat six to ten customers)
and 8 to 120 persons in the bar lounge areas.
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Operations and Control of Benihana Restaurants
The Benihana and Benihana Grill restaurants are centrally managed by the
Executive Vice President - Restaurant Operations. The restaurants are divided
among five geographic regions, each managed by a regional manager.
Each Benihana restaurant has a manager and one or more assistant managers
responsible for the operation of the restaurant, including personnel matters,
local inventory purchasing, maintenance of quality control standards,
cleanliness and service.
The Company uses various incentive compensation plans pursuant to which key
restaurant personnel share in the results of operations at both a local and
company-wide level.
Specific strict guidelines as documented in restaurant operations manuals are
followed to assure consistently high quality in customer service and food
quality from location to location. Operating specifications are used for quality
of ingredients, preparation of food, maintenance of premises and employee
conduct and are incorporated in manuals used by the managers and assistant
managers. Food products and portion sizes are regularly and systematically
tested for quality and compliance with the Company's standards. Certain seafood
items are purchased under long-term contracts for most of the restaurants under
which a certain quantity is purchased at a specific price. Most of the other
food products are purchased in local markets. Substantially all of the
restaurant operating supplies are purchased centrally and distributed to the
restaurants from the Company's warehouse or one of two bonded warehouses.
The chefs are trained in the Teppanyaki style of cooking and customer service in
training programs lasting from eight to twelve weeks. A portion of the training
is spent working in a Benihana restaurant under the direct supervision of an
experienced head chef. The program includes lectures on the Company's method of
restaurant operations and training in both table side and kitchen food
preparation as applied in Benihana restaurants. Manager training is similar
except that the manager trainee is given in-depth exposure to each position in
the restaurant, from busboy to maitre'd to manager. Other categories of
employees are trained by the manager and assistant manager at the restaurant
itself. Ongoing continuing education programs and seminars are provided to
restaurant managers and chefs to improve restaurant quality and implement
changes in operating policy or menu items.
The Company provides restaurant managers with centralized financial and
management control systems through use of data processing information systems
and prescribed reporting procedures.
Each restaurant forwards sales reports, vendor invoices, payroll and other
operational data to the home office on a weekly and four week period basis. The
Company utilizes this information to centrally monitor sales, product, labor and
other costs and to prepare periodic financial and management reports. The
Company believes that its centralized accounting, payroll and human resources,
cash management and information systems improve its ability to control and
manage its operations efficiently.
Marketing
The Company utilizes television, radio, billboard and print media to promote the
restaurants. The advertising programs are tailored to each local market and
television advertising is concentrated around certain specific dates to increase
efficiency. The advertising program is designed to emphasize the inherently
fresh and healthful aspects of a Benihana meal and the entertainment value of
the food preparation at the table. The entertainment value of the chef preparing
the meal is emphasized to distinguish the Benihana style of food preparation
from all other restaurant concepts.
Licensing
The Company offers licenses in markets where it considers expansion to be of
benefit to the Benihana system.
Licensees bear all direct costs involved in the development, construction and
operation of their restaurants. The Company provides licensees support for site
selection, prototypical architectural plans, interior and exterior design and
layout, training, marketing and sales techniques and opening assistance. All
licensees are required to operate their restaurants in accordance with Benihana
standards and specifications including menu offerings, food quality and
preparation.
The current standard licensing agreements provide for payment to the Company of
a non-refundable license fee of $30,000 to $50,000 per restaurant and royalties
of 3% to 6% of sales.
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The Company presently licenses Benihana restaurants in Las Vegas, Nevada; Reno,
Nevada; Beverly Hills, California; Seattle, Washington; Key West, Florida;
Harrisburg; Pennsylvania; Tracy, California; Modesto, California; Honolulu,
Hawaii; Bogota, Colombia; Little Rock, Arkansas and the Island of Aruba. To
comply with the terms of these licenses entered into by the Company in the
United States, the Company is prohibited from opening additional restaurants
within certain areas (the "Licensee Zones") in which the Company's existing
licensees have the exclusive right to open additional Benihana restaurants. In
general, such license agreements currently provide for an initial payment to
Benihana with respect to each new restaurant opened by a licensee (although in
certain cases, no license fee is required) and continuing royalty payments to
the licensor based upon a percentage of a licensee's gross sales from each such
restaurant throughout the term of the license.
In connection with the Reorganization, BOT was granted an exclusive license to
own and operate Benihana restaurants in the State of Hawaii, including the
restaurant currently operated by BOT in Honolulu. BOT's license for Hawaii is
royalty free with respect to all restaurants in Hawaii beneficially owned by Mr.
Aoki.
BOT continues to own the rights to the Benihana name and trademarks outside of
the United States, Central and South America and the islands of the Caribbean
Sea. Except for certain obligations accrued in favor of the Company with respect
to managerial services that may from time-to-time be provided by the Company,
the Company has no financial interest in any restaurant operated by BOT.
Restaurant Expansion
The Company intends to open additional owned and licensed Benihana and Benihana
Grill restaurants as specific opportunities arise and as permitted by the
Company's financial resources. In evaluating prospective restaurant sites, the
Company analyzes demographics (including income levels, family characteristics
and other factors), local economic conditions, visibility and accessibility of
the site, rate of growth, complementary businesses, traffic patterns and
proximity to major thoroughfares and places of public concentration, such as
shopping malls and offices. Management estimates the cost of building and
equipping a restaurant to range between $650,000 and $750,000 for a Benihana
Grill and $1,800,000 and $2,000,000 for standard Benihana restaurant depending
on size and location. Such costs do not include the acquisition of land as the
Company generally leases the real property underlying restaurant premises,
although purchases of real property may be effected if favorable opportunities
arise.
The development, construction and opening of any new restaurant is subject to a
number of uncertainties, principal among which are (I) locating and competing
for appropriate restaurant sites, (ii) obtaining leases at acceptable terms for
such sites, (iii) obtaining necessary construction financing upon acceptable
terms should internal cash resources be insufficient (iv) hiring and training
sufficient supervisory and operating personnel, and (v) receiving liquor and
food restaurant operating licenses, requisite zoning, environmental, health and
similar regulatory approvals. Additionally, unforseen construction or other
delays could postpone the restaurant's opening. Some of these elements are
dependent upon circumstances over which the Company does not have control and,
accordingly, there can be no assurance as to the time period for the Company's
anticipated development of additional restaurants.
Trade Names and Service Marks
Benihana is Japanese for "red flower". In the United States "Benihana" and
"Benihana of Tokyo" names and "flower" logo, which Management believes to be of
material importance to the Company's business, are owned by the Company and are
registered in the United States Patent and Trademark Office ("Patent Office")
and certain foreign countries.
Employees
At March 30, 1997, the Company employed 1,823 persons, of which 1,777 were
restaurant employees and 46 were corporate personnel. Certain of the Company's
corporate employees perform administrative services for BOT for which the
Company is reimbursed. Most employees, except restaurant management and
corporate management personnel, are paid on an hourly basis. The Company also
employs some restaurant personnel on a part-time basis to provide the services
necessary during the peak periods of restaurant operations. The Company believes
its relations with its employees is good.
Competition
The restaurant business is highly competitive. The Company's restaurants compete
directly and indirectly with a large number of national and regional restaurant
operations, as well as with locally-owned restaurants of various types.
Competition is based upon a number of factors including food quality, location,
personnel, attractiveness of
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facilities, name recognition and price points of menu offerings. There are
several other companies engaged in restaurant operations or franchising programs
which have substantially greater financial resources and a significantly higher
total sales volume than that of the Company. The restaurant industry is affected
by, among other factors, general economic conditions, changing consumer tastes,
concerns over health and spending habits. The Company believes that its
competitive position is enhanced by offering a quality food product at an
appropriate price with the unique entertainment provided by the chefs in an
attractive, relaxed atmosphere.
Regulation
Each of the Company's restaurants is subject to licensing and regulation by the
health, sanitation, safety standards, fire department and the alcoholic beverage
control authorities in the state or municipality where it is located.
Difficulties or failures in obtaining the required licensing or requisite
approvals could result in delays or cancellations in the opening of new
restaurants. Federal and state environmental regulations have not had a material
effect on the Company's operations, but more stringent and varied requirements
of local governmental bodies with respect to zoning, land use and environmental
factors could delay construction of new restaurants.
The Company is also subject to federal and state regulations regarding franchise
offering and sales. Such laws impose registration and disclosure requirements on
franchisors in the offer and sale of franchises, or impose substantive standards
on the relationship between licensee and licensor.
The Americans with Disabilities Act, (the "Act") prohibits discrimination on the
basis of disability in public accommodations and employment. The Act, which
mandates accessibility standards for individuals with physical disabilities
increases the cost of construction of new restaurants and of remodeling older
restaurants.
The Company is also subject to the Fair Labor Standards Act which governs such
matters as minimum wages, overtime and other working conditions. A significant
portion of the Company's food service personnel are paid at rates related to
federal or state minimum wages rates, and accordingly, increases in any such
minimum wage will increase the Company's labor costs.
Seasonality
The Company's sales are not significantly affected by season.
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Item 2. Properties
Of the Company's 38-owned Benihana restaurants, 33 restaurant properties are
leased pursuant to leases which require either a specific monthly rental amount,
or a minimum rent and contingent additional rent based upon a percentage of
gross sales. Leases for the free standing units require the Company to pay for
real estate taxes, insurance and all repairs. Leases for the office building,
shopping center and hotel locations typically require an increase in rent based
on an index (such as the consumer price index) or increases in the landlord's
cost.
The following table sets forth certain information concerning the Company's
restaurants:
<TABLE>
<CAPTION>
Renewal Options
Approximate Seating ----------------
Approx. ---------------------------- Expiration Date Years
Sq. Ft. of Dining Sushi Date Exclusive of No. Of of Each
Benihana Location Building Room Lounge Bar Opened Options Options Options
- ----------------- --------- ------ ------ ----- ------ --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
2100 E. Ball Rd. 8,710 160 67 36 03/17/80 03/31/05 3 5
Anaheim, CA (1)
2143 Peachtree Road 8,244 136 65 16 05/10/74 12/31/02 0 0
Atlanta [I], GA (2)
229 Peachtree St. NE 6,372 115 34 11 04/26/81 12/31/01 0 0
Atlanta [II], GA (1)
9205 S.W. Cascade 6,077 112 54 34 08/07/86 08/07/06 0 0
Beaverton, OR (1)
7315 Wisconsin Ave. 6,047 128 47 10/25/74 07/31/00 1 5
Bethesda, MD (1)
1496 Old Bayshore Hwy 8,740 160 99 27 02/28/78 01/31/03 4 5
Burlingame, CA (1)
5255 Marlton Pike 7,000 136 93 10 02/14/78 11/30/02 2 5
Pennsauken, NJ (1)
(Cherry Hill)
166 E. Superior Street 7,288 163 85 04/06/68 02/28/13 0 0
Chicago, IL (1)
50 Tri-County Pkwy 7,669 144 91 06/03/78 06/30/03 2 5
Cincinnati, OH (1)
17877 Gale Avenue 8,000 144 50 30 11/14/88 11/30/03 4 5
City of Industry, CA (1)
1989 Diamond Blvd. 8,250 144 84 18 02/12/80 02/28/05 4 5
Concord, CA (1)
(1) Lease provides for minimum rent, plus additional rent based upon a
percentage of gross sales.
(2) Lease provides for fixed rent.
</TABLE>
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<TABLE>
<CAPTION>
Renewal Options
Approximate Seating -----------------
Approx. ---------------------------- Expiration Date Years
Sq. Ft. of Dining Sushi Date Exclusive of No. Of of Each
Benihana Location Building Room Lounge Bar Opened Options Options Option
- ----------------- --------- ---- ------ ------ ------ --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
2074 Vallco Fashion Pk 7,937 144 45 8 07/15/80 06/30/05 0 0
Cupertino, CA (1)
12700 Park Central Pl 8,007 160 115 01/15/76 07/31/10 1 5
Dallas, TX (2)
3295 S. Tamarac Drive 7,572 128 82 10 02/17/77 12/31/01 1 5
Denver, CO (1)
16226 Ventura Blvd. 7,790 152 64 10/06/70 03/31/00 0 0
Encino, CA (2)
276 E. Commercial Blvd. 8,965 160 70 06/05/70 N/A Owned N/A
Lauderdale-by-the-Sea,
FL
1318 Louisiana St. 6,938 128 60 12 05/09/75 05/31/99 0 0
Houston [I], TX (2)
9707 Westheimer Rd. 7,669 144 120 10 11/11/77 11/30/02 2 5
Houston [II], TX (1)
8830 Keystone Crossing 8,460 144 93 02/08/79 02/29/04 2 5
Indianapolis, IN (1)
8727 So. Dixie Hwy. 8,700 122 66 15 03/24/89 12/31/03 0 0
Miami, FL (2)
(Kendall)
747 E. Butterfield Rd. 9,200 168 51 04/13/85 N/A Owned N/A
Lombard, IL
1510 Lake Shore Court 7,572 128 88 07/20/78 07/31/03 2 5
Louisville, KY (1)
2105 Northern Blvd. 8,252 144 88 75 12/15/78 08/31/03 2 10
Munsey Park, NY (1)
(Manhasset)
(1) Lease provides for minimum rent, plus additional rent based upon a
percentage of gross sales.
(2) Lease provides for fixed rent.
</TABLE>
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<TABLE>
<CAPTION>
Renewal Options
Approximate Seating ------------------
Approx. ---------------------------- Expiration Date Years
Sq. Ft. of Dining Sushi Date Exclusive of No. Of of Each
Benihana Location Building Room Lounge Bar Opened Options Options Option
- ----------------- ---------- ------ ------ ----- -------- --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
14160 Panay Way 4,840 96 66 6 03/24/72 05/14/01 0 0
Marina Del Rey, CA (1)
912 Ridgelake Blvd. 8,680 144 78 11 10/16/79 10/31/04 2 5
Memphis, TN (1)
1665 NE 79 Street 8,938 178 86 42 09/27/73 N/A Owned N/A
Miami Beach, FL
120 East 56 Street 3,859 86 24 05/15/66 12/31/04 0 0
New York, NY (2)
47 West 56 Street 7,340 112 59 06/16/73 03/31/98 0 0
New York, NY (1)
4250 Birch Street 8,275 144 72 26 03/14/78 03/31/02 5 5
Newport Beach, CA (4)
1751 Hotel Park Blvd. 8,145 128 85 7 10/19/88 10/18/98 2 5
Lake Buena Vista, FL
(Orlando) (3)
5489 E. Sunrise Blvd. 3,798 88 8 5 10/12/95 08/31/05 0 0
Citrus Heights, CA
(Sacramento)(1)
165 SW Temple Bldg. 1 7,530 120 72 10 04/14/77 03/31/06 2 5
Salt Lake City, UT (1)
477 Camino Del Rio So. 7,981 144 68 23 05/10/77 10/31/01 2 5
San Diego, CA (1)
1737 Post Street 7,990 140 45 12/15/80 12/31/00 0 0
San Francisco, CA (1)
1200 E. Higgins Road 8,388 160 48 07/26/92 N/A Owned N/A
Schaumburg, IL
840 Morris Turnpike 11,500 144 56 56 10/31/76 03/31/01 0 0
Short Hills, NJ (2)
3602 SE Ocean Blvd. 8,485 160 69 57 02/01/77 N/ Owned N/A
Stuart, FL
21327 Hawthorne Blvd. 7,430 128 63 28 05/09/80 05/31/05 2 5
Torrance, CA (1)
(1) Lease provides for minimum rent, plus additional rent based upon a
percentage of gross sales.
(2) Lease provides for fixed rent.
(3) Rent is based on a percentage of sales.
(4) Rent is fixed plus a percentage of profits.
</TABLE>
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The Company leases approximately 10,100 square feet of space for its general
administrative offices in Miami at an annual rental of $169,757 and 8,000 square
feet for a warehouse also in Miami at an annual rental of $24,335. The leases
expires May 31, 1999 and October 31, 1997, respectively.
Item 3. Legal Proceedings
There are no material legal proceedings to which the Company or any of its
subsidiaries is a party other than ordinary litigation incidental to the conduct
of the Company's business.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter.
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PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to
page 27 of the Company's 1997 Annual Report to Shareholders.
Item 6. Selected Consolidated Financial Data
The information required by this Item is incorporated herein by reference to
page 1 of the Company's 1997 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this Item is incorporated herein by reference to
pages 7 through 10 of the Company's 1997 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is incorporated herein by reference to
pages 11 through 24 of the Company's 1997 Annual Report to Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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PART III
Item 10. Directors and Executive Officers of the Company
Directors. The information appearing under the caption "Election of Directors"
on pages 2 through 4 of the Company's Proxy Statement for its Annual Meeting of
Stockholders to be held on July 31, 1997 (the "Proxy Statement") is incorporated
herein by reference.
Item 11. Executive Compensation
The information appearing under the caption "Executive Compensation" commencing
on page 7 of the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing under the caption "Security Ownership of Management"
on pages 4 through 7 of the Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information appearing under the captions "Certain Relationships and Related
Transactions" commencing on page 11 of the Proxy Statement is incorporated
herein by reference.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements:
The following consolidated financial statements of the Company and
its subsidiaries, which are set forth on pages 11 through 24 of
the Company's 1997 Annual Report to Shareholders included herein
as Exhibit 13, are incorporated herein by reference as part of
this report.
Consolidated Balance Sheets as of March 30, 1997 and March 31,
1996.
Consolidated Statements of Income for the fifty-two weeks ended
March 30, 1997, the fifty-three weeks ended March 31, 1996 and
fifty-two weeks ended March 26, 1995.
Consolidated Statements of Stockholders' Equity for the fifty-two
weeks ended March 30, 1997, the fifty-three weeks ended March
31, 1996 and fifty-two weeks ended March 26, 1995.
Consolidated Statements of Cash Flows for the fifty-two weeks
ended March 30, 1997, the fifty-three weeks ended March 31, 1996
and the fifty-two weeks ended March 26 1995.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
2. Financial Statement Schedules:
None.
Supplemental Exhibit of Calculation of Earnings Per Share.
3. Exhibits:
2.01 Amended and Restated Agreement and Plan of
Reorganization, dated as of December 29, 1994 and
amended as of March 17, 1995 among BNC, BOT, the
Company and BNC Merger Corp. Incorporated by
reference to Exhibit 2.01 to the Company's
Registration Statement on Form S-4, Registration No.
33-88295, made effective March 23, 1995 (the "S-4").
3.01 Certificate of Incorporation of the Company.
Incorporated by reference to Exhibit 3.01 to
the S-4 and to Exhibit 1 on Form 8-A dated
February 12, 1997.
3.02 By-Laws of the Company. Incorporated by reference to
Exhibit 3.02 to the S-4.
4.01 Certificate of Designation of Rights, Preferences and
Terms for the Series A Convertible Preferred Stock of
the Company. Incorporated by reference to Exhibit
4.01 to the Company's Current Report on Form 8-K
dated May 15, 1995.
4.02 Form of Certificate representing shares of the
Company's Common Stock. Incorporated by reference to
Exhibit 4.02 to the S-4.
4.03 Form of Certificate representing shares of the
Company's Class A Common Stock. Incorporated by
reference to Exhibit 4.03 to the S-4.
10.01 License Agreement, dated as of May 15, 1995 between
BNC and BOT Inc. Incorporated by reference to
Exhibit 10.01 to the S-4.
10.02 7 1/2% unsecured Promissory Note dated May 15, 1995
delivered by the Company to BOT as part of the
consideration for the Transfer. Incorporated by
reference to Exhibit 10.02 to the S-4.
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10.03 Employment Agreement dated May 15, 1995 between Rocky
H. Aoki and the Company. Incorporated by reference
to Exhibit 10.03 to the S-4.
10.04 Employment Agreement dated May 15, 1995 between Joel
A. Schwartz and the Company. Incorporated by
reference to Exhibit 10.04 to the S-4.
10.05 Promissory Note made by BOT in favor of BNC dated
September, 1992. Incorporated by reference to
Exhibit No. 10.13 to BNC's Annual Report on Form
10-K for the fiscal year ended March 28, 1993.
10.06 BNC's 1985 Employee's Stock Option Plan. Incorporated
by reference to Appendix II to BNC Proxy Statement
for its Annual Meeting of Stockholders held on
December 11, 1985. Incorporated by reference to
Exhibit 10.06 to the S-4.
10.07 1994 Employees' Stock Option Plan Incorporated by
reference to Exhibit 10.07 to the S-4.
10.08 Directors Stock Option Plan. Incorporated by
reference to Exhibit 10.08 to the S-4.
10.09 Employment Agreement dated January 1, 1995 between
Taka Yoshimoto and BNC. Incorporated by reference
to Exhibit 10.09 to the S-4.
10.10 Employment Agreement dated January 1, 1995 between
Michael Burris and the Company. Incorporated by
reference to Exhibit 10.10 to the S-4.
10.11 Second Amended and Restated Credit Agreement,
dated as of May 1, 1995, among BNC, its Subsidiaries
named as co-makers, its Subsidiaries named as
guarantors, the Company, First Union National Bank
of Florida, the successor in interest to the Federal
Deposit Insurance Corporation, as receiver of
Southeast Bank, N.A., and First Union National Bank
of Florida, as Agent for the Lenders. Incorporated
by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the fiscal year ended
March 26, 1995.
10.12 Benihana Incentive Compensation Plan. Incorporated
by reference to Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the fiscal year ended March
31, 1996.
10.13 1996 Class A Stock Option Plan. Incorporated by
reference to Exhibit A to Benihana Inc. Proxy
Statement for its Annual Meeting of Stockholders
held on July 19, 1996.
11.01 Supplemental Schedule - Calculation of Earnings Per
Share.
13.01 Portions of Annual Report to Stockholders for the
year ended March 30, 1997.
22.01 List of Subsidiaries. Incorporated by reference
to Exhibit No. 22.01 to the S-4.
23.01 Consent of Deloitte & Touche LLP.
23.02 Consent of Deloitte & Touche LLP.
(b) Reports on Form 8-K.
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: May 23, 1997 BENIHANA INC.
By: /s/ Joel A. Schwartz
Joel A. Schwartz, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on the date indicated above by the following persons on behalf
of the registrant and in the capacities indicated.
Signature Title Date
/s/ Rocky H. Aoki Chairman of the May 23, 1997
- ----------------------- Board and Director
Rocky H. Aoki (Principal Executive Officer)
/s/ Joel A. Schwartz President and May 23, 1997
- ----------------------- Director (Principal
Joel A. Schwartz Executive Officer)
/s/ Taka Yoshimoto Executive Vice President - May 23, 1997
- ----------------------- Restaurant Operations
Taka Yoshimoto and Director
/s/ Irwin K. Chapman Director May 23, 1997
- -----------------------
Irwin K. Chapman
/s/ Robert B. Greenberg Director May 23, 1997
- -----------------------
Robert B. Greenberg
/s/ John E. Abdo Director May 23, 1997
- -----------------------
John E. Abdo
/s/ Michael R. Burris Treasurer and Vice May 23, 1997
- ----------------------- President of Finance
Michael R. Burris (Chief Financial Officer and
Principal Accounting Officer)
/s/ Darwin C. Dornbush Secretary and Director May 23, 1997
- -----------------------
Darwin C. Dornbush
14
<PAGE>
<TABLE>
EXHIBIT 11.01
BENIHANA INC.
CALCULATION OF PRIMARY EARNINGS PER SHARE
<CAPTION>
YEAR ENDED
----------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average number of
shares outstanding 6,017,281 5,821,191 5,732,151
Common Stock issued to BOT in
connection with the reorganization 76,905
Dilutive effect of warrants
outstanding 118,629 24,732
Dilutive effect of stock options
outstanding used in calculation
of earnings per share 52,041 62,884 32,679
---------- ---------- ----------
6,069,322 6,002,704 5,866,467
========== ========== ==========
Net income $4,947,000 $4,410,000 $2,751,000
Pro forma effect of dividend on
Preferred Stock issued in
connection with the reorganization (120,000) (120,000) (120,000)
Pro forma interest on debt incurred to
finance acquisition of BOT
restaurants (36,250) (261,000)
Pro forma interest on debt issued to
BOT to finance acquisition of BOT
restaurants (6,806) 49,000)
Income tax effect on interest on
acquisition debt indebtedness 17,222 124,000
---------- ---------- ----------
Pro Forma Net Income $4,827,000 $4,264,166 $2,445,000
========== ========== ==========
Primary Earnings Per Share $.80 $.71 $.42
==== ==== ====
CALCULATION OF FULLY DILUTED EARNINGS PER SHARE
YEAR ENDED
----------
1997 1996 1995
---------- ---------- ----------
Weighted average number of
shares outstanding 6,017,281 5,821,191 5,732,151
Convertible Preferred Stock 300,000 300,000
Common Stock issued to BOT in
connection with the rorganization 76,905
Dilutive effect of warrants
outstanding 118,629 24,732
Dilutive effect of stock options
outstanding used in calculation of
earnings per share 52,041 62,884 32,679
---------- ---------- ----------
6,369,322 6,002,704 5,866,467
========== ========== ==========
Net Income $4,947,000 $4,410,000 $2,751,000
========== ========== ==========
Fully Diluted Earnings Per Share $.78 $.70 $.42
==== ==== ====
</TABLE>
15
<PAGE>
EXHIBIT 13.01 - SELECTED FINANCIAL DATA
The following table sets forth selected financial data with respect to the
Company. This table should be read in conjunction with the consolidated
financial statements, including the notes thereto, which are included elsewhere
in this annual report. The table reflects the number of restaurants in operation
during all or part of the indicated years. The fiscal year ended March 31, 1996
consists of 53 weeks and all other fiscal years presented consist of 52 weeks.
The financial data in the following table is qualified in its entirety by, and
should be read in conjunction with the consolidated financial statements and
notes thereto and "Management's Discussion and Analyses of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
Years Ended
March 30, March 31, March 26, March 27, March 28,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(All dollar amounts in thousands, except per share amounts)
INCOME STATEMENT DATA
NET RESTAURANT SALES $84,415 $81,094 $72,772 $69,315 $64,939
OTHER INCOME 789 512 492 451 459
COST OF SALES AND
RESTAURANT EXPENSES 72,904 69,804 64,764 62,354 59,423
GENERAL AND ADMINISTATIVE
EXPENSES 4,217 4,801 4,841 4,167 3,943
INTEREST EXPENSE, NET 904 1,226 1,140 1,202 1,284
PROVISION FOR CLOSED UNITS 427
INCOME BEFORE TAXES 7,179 5,775 2,519 1,616 748
INCOME TAX PROVISION
(BENEFIT) 2,232 1,365 (232) (423) (80)
NET INCOME 4,947 4,410 2,751 2,039 828
PRO FORMA NET INCOME
AVAILABLE FOR COMMON
SHAREHOLDERS 4,827 4,264 2,445 1,733 522
PRO FORMA NET INCOME
PER COMMON SHARE (1):
PRIMARY $.80 $.71 $.42 $.30 $.09
FULLY DILUTED $.78 $.70 $.42 $.30 $.09
BALANCE SHEET DATA (Unaudited)
CURRENT ASSETS $11,570 $ 7,727 $ 5,111 $ 4,644 $ 4,607
TOTAL ASSETS $40,562 $36,257 $33,722 $34,220 $35,187
LONG-TERM DEBT
AND OBLIGATIONS
UNDER CAPITAL LEASES $ 9,354 $10,904 $12,883 $10,657 $12,697
CURRENT LIABILITIES $ 8,454 $ 8,027 $ 8,634 $ 8,764 $ 9,768
STOCKHOLDERS' EQUITY $22,754 $17,326 $12,205 $14,799 $12,722
</TABLE>
(1) The pro forma net income per common share was computed using the weighted
average shares and common stock equivalents outstanding in each year. The
amounts of preferred dividends and interest expense that would have been
incurred in the fiscal years ended 1995, 1994 and 1993 as a result of the
acquisition of the BOT Restaurants have been factored in the calculation of pro
forma net income per common share for all periods that are presented prior to
the acquisition. (See Note 2 to the consolidated financial statements).
16
<PAGE>
Overview
The Company continued to achieve earnings gains during 1997. Income before
income taxes increased 24.3% to $7,179,000 in 1997 as compared to $5,775,000 in
1996 and $2,519,000 in 1995. After tax income increased 12.2% to $4,947,000 in
1997 as compared to $4,410,000 in 1996 and $2,751,000 in 1995. Net income as a
percentage of sales was 5.9%, 5.4% and 3.8% in fiscal 1997, 1996 and 1995,
respectively.
At March 30, 1997 there were 38 owned and twelve licensed Benihana restaurants.
Four licensed restaurants opened in Little Rock, Arkansas; Reno, Nevada; the
island of Aruba and Bogota, Colombia during fiscal 1997.
The Company's financial statements and the discussion and data presented below
reflect the 1995 Reorganization pursuant to which the Company acquired 17
restaurants, four license agreements and the U.S. trademarks of Benihana of
Tokyo, Inc. (BOT) and pursuant to which the Company became the successor of
Benihana National Corp. (BNC) through the merger of BNC and a wholly owned
subsidiary of the Company. The Reorganization was accounted for in a manner
similar to that of a pooling of interests. Under the pooling of interests
method, assets, liabilities and equity are carried over based upon their
historical book values and operating results are included for each of the entire
fiscal years presented. Additionally, pro forma effect to per share earnings was
given for all periods prior to the Reorganization to the incremental amounts of
interest on additional indebtedness and dividends on the preferred stock that
was issued to effect the Reorganization.
The Company's revenues consist of sales of food and beverages sold in each of
the owned restaurants and licensing fees received from licensees. Cost of
restaurant food and beverage sold represents the direct cost of the ingredients
for the prepared food and beverages sold. Restaurant expenses consist of direct
and indirect labor, occupancy costs, advertising and other costs that are
directly attributed to each restaurant location.
Restaurant revenues and expenses are dependent upon a number of factors
including the number of restaurants in operation and restaurant patronage.
Revenues are also dependent on the average check amount and expenses are also
dependent upon the costs of food and beverages sold, average wage rates,
marketing costs and the costs of interest and administering restaurant
operations.
Revenues
The amounts of revenues 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):
<TABLE>
<CAPTION>
YEAR ENDED MARCH
---------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net restaurant sales $84,415 $81,094 $72,772
Other income 789 512 492
------- ------- -------
Total Revenues $85,204 $81,606 $73,264
======= ======= =======
YEAR ENDED MARCH
---------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Amount of change from the previous year $ 3,598 $ 8,342 $ 3,498
Percentage change from the previous year 4.4% 11.4% 5.0%
Comparable sales per restaurant $ 2,263 $ 2,138 $ 1,966
Percentage growth in comparable sales
per restaurant 5.8% 8.7% 7.1%
</TABLE>
17
<PAGE>
Year ended March 30, 1997 compared to March 31, 1996 -- Total restaurant sales
increased $3,321,000 over fiscal 1996. The increase in sales was achieved in a
52 week year as compared to the previous year which consisted of 53 weeks, which
additional week in fiscal 1996 represented $1,667,000 of revenues. Comparable
unit sales, excluding the additional week in the previous year, increased 5.8%
during fiscal 1997. The increase is attributable to the continued increases in
patronage from the introduction of sushi at six restaurants, from physical
improvements made to several restaurant properties and from favorable consumer
trends in the market in which the Company operates. Continuing favorable
consumer trends in dining at the Company's restaurants include two wage earner
families, consumers seeking entertainment while enjoying the dining experience,
and other favorable demographic influences. Increases in patronage resulted in
increased sales of $4,252,000 offset by a decrease in average check size. The
average check size in 1997 was $22.42 compared to $22.68 in 1996. The reduction
in average check size is a result of increased lunch traffic. Other income
increased as a result of additional licensing fees of $180,000 and increased
royalties of $97,000.
Year ended March 31, 1996 compared to March 26, 1995 -- Total restaurant sales
increased $8,322,000 over fiscal 1995. Fiscal 1996 consisted of 53 weeks and
fiscal 1995 consisted of 52 weeks. The additional week represented $1,667,000 of
the increase. Comparable unit sales excluding the additional week, increased
7.7% during the year from fiscal 1995. Comparable unit sales increased as a
result of a number of factors: sushi was introduced at seven restaurants during
the year which resulted in $610,000 of incremental sales, restaurants have
increased their hours of operation to offer weekend lunch as well as offering
Sunday brunch, and a program to improve upon the physical attractiveness of the
restaurants was accelerated during the year. One additional restaurant, the
Benihana Grill near Sacramento, California, opened in October 1995 and
represents $450,000 of the increase in sales. Menu price increases had little
impact on the increase in revenues as weighted average increases were less than
1 1/2%.
Costs and Expenses
Costs of restaurant sales, which are generally variable with sales, directly
increased with changes in revenues for each of the fiscal years. The following
table reflects the proportion that the various elements of costs and expenses
bore to sales and the changes in amounts and percentage changes in amounts from
the previous fiscal year.
<TABLE>
<CAPTION>
YEAR ENDED MARCH
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
COST AS PERCENTAGE OF RESTAURANT SALES:
Cost of restaurant food and beverage sales 25.7% 26.1% 28.5%
Restaurant expenses 60.7% 60.0% 60.5%
General and administrative expenses 5.0% 5.9% 6.7%
AMOUNT OF CHANGE FROM PREVIOUS
YEARS (IN THOUSANDS):
Cost of restaurant food and beverage sales $ 530 $ 384 $1,744
Restaurant expenses $2,570 $4,656 $ 666
General and administrative expenses $ (584) $ (40) $ 674
Percentages increase(decrease):
Cost of restaurant food and beverage sales 2.5% .2% 9.2%
Restaurant expenses 5.3% 10.6% 1.5%
General and administrative expenses (12.2%) (.1%) 16.2%
</TABLE>
Year ended March 30, 1997 compared to March 31, 1996 -- The cost of food and
beverage sales increased in total amount as a result of increased sales but was
reduced as a percentage of sales. Reductions in costs from the long-term
purchasing contracts and pricing improvements have been largely realized.
Restaurant expenses increased in total amount and as a percentage of sales.
Restaurant labor expense and related benefit costs increased $1,834,000 as a
result of the increased sales. Additionally, occupancy costs increased as a
result of higher rent expense from the aforementioned increased sales.
General and administrative costs decreased in total amount in the current year
resulting from reduced compensation expense. Additionally, certain license fees
were collected that had been written off in the prior year which contributed to
the decrease. General and administrative expenses decreased when expressed as a
percentage of sales due to the increase in sales coupled with the reduction of
general and administrative expenses.
18
<PAGE>
Interest expense decreased by $322,000 during the year. The decrease is
attributable to the decrease in total borrowings outstanding from the prior
year. Additionally, interest income increased by $186,000 as a result of
interest earned.
Year ended March 31, 1996 compared to March 26, 1995 -- The cost of food and
beverage sales increased in total amount as a result of increased sales but was
reduced as a percentage of sales as a result of lower overall commodity costs of
seafood and other factors. Long-term contracts have been entered into with
producers to purchase lobster that effectively lock in lower prices for 22 of
the Company's restaurants where such arrangements are feasible. Additionally,
the Company obtained more favorable pricing from several vendors for other food
products and services at several of the 17 restaurants that were purchased from
BOT. Restaurant operating costs increased in dollar amount and as a percentage
of sales. Restaurant labor expense and related benefits costs increased by
$2,767,000 as a result of the increased sales, increased operating hours at
several restaurants and service improvements that were made in some of the
primary markets. Advertising and promotional costs increased by $606,000 as a
result of additional television and print advertising. Maintenance and repairs
expense increased $214,000 resulting from additional spending to improve the
appearance at several of the restaurants. Other restaurant expenses increased
resulting from increased operating hours and certain expenses that are variable
to sales.
Certain significant infrequently occurring expenses included in general and
administrative expenses were incurred in the previous year where no such
expenses were incurred during fiscal 1996. In the fourth quarter of fiscal 1995,
the Company wrote off $659,000 of barter exchange credits and $125,000 of
deferred financing costs.
Interest expense increased by $86,000 during the year because of the additional
borrowings made to acquire the BOT Restaurant properties. Despite the increase
in debt, interest expense has not risen significantly due to the Company's
successful effort in reducing its interest rate as part of the consolidation of
its bank indebtedness.
Income Taxes
Prior to the year ended March 30, 1997, the Company had significant amounts of
net operating loss carryforward that resulted in tax assets. Other tax assets
resulted from income tax credits and certain temporary differences. Valuation
allowances were established to reduce the tax assets when, in management's
judgment that it was more likely than not that such assets would not be
realized. Reductions in the valuation allowances were made when realization of
the tax assets became probable as the Company's profitability improved. During
1996 all of the federal tax benefits of the net operating loss carryforwards
were exhausted resulting in an increased effective tax rate for 1997 and future
years. Additionally, the Company generated a net federal tax credit for FICA
taxes paid on reported tip income of $426,000 in 1997 and $288,000 in 1996. The
effective federal tax rate was 27% in fiscal 1997 and 17% in fiscal 1996.
Liquidity and Capital Resources
The Company does not require significant amounts of inventory or receivables.
Therefore, the Company, as is typical with many restaurant companies, does not
have to provide financing for such amounts and operates with a minimum amount of
working capital.
The following table presents a summary of the Company's cash flow for fiscal
1997.
Net cash provided by operating activities $6,300
Net cash used in investing activities (2,853)
Net cash used in financing activities (1,126)
------
Increase in Cash $2,321
======
The Company's working capital increased by $3,416,000 for the year ended March
30, 1997 as a result of cash provided by operations.
Capital expenditures increased to $2,818,000 in fiscal 1997 compared to
$2,156,000 in fiscal 1996. Capital spending has been accelerated to improve the
appearance of the restaurants, to update restaurant equipment and to build sushi
bars in certain restaurants. The Company has no material commitments for future
capital improvements but the Company expects that it will continue to make
expenditures to improve the appearance and efficiency of its restaurants. The
Company has signed leases for two Benihana Grill locations in Dallas, Texas and
Sugar Land, Texas which are expected to open in fiscal 1998. A total of $357,000
was expended for these two
19
<PAGE>
restaurants in fiscal 1997 and $1,043,000 is expected to be expended to complete
the restaurants. The Company presently intends on opening additional locations
during fiscal 1998 when suitable restaurant sites become available. Management
believes that it has sufficient cash resources from operating cash flows to
provide for the construction and opening costs. All capital improvements were
funded from operating cash flow.
Interest under the term loan accrues at either prime plus a margin from .75% to
1.75% or LIBOR plus a margin from 2.25% to 3.25%. The interest rate margin
depends upon the leverage ratio (liabilities divided by tangible net worth). In
fiscal 1996, the Company entered into a seven year interest rate swap agreement
involving the exchange of floating rate interest payment obligations for fixed
rate interest payment obligations. The original notional amount of this interest
rate swap agreement was $8,900,000 and is reduced by approximately $74,000
monthly until May 2002 when the balance under the agreement expires.
Operating cash flow for the fiscal years ended 1997 and 1996 was $6,300,000 and
$7,395,000, respectively. The principal use of this cash was to repay long-term
debt and capital lease obligations and expenditures for property and equipment
in addition to improving existing restaurant properties and construction of the
Dallas and Sugar Land restaurants.
Prior to the Reorganization, operating cash flows or deficits of the individual
restaurant properties acquired from BOT were distributed to or advanced from the
then owner, BOT. Such amounts are reflected in the statements of cash flows as a
"net cash distributed to BOT." These distributions will not recur; however, the
Company will be making payments to BOT under the terms of the preferred stock
and promissory note issued to BOT as a part of the Reorganization.
20
<PAGE>
<TABLE>
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
All dollar amounts in thousands, except per share amounts
<CAPTION>
Year ended March 30, March 31, March 26,
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Net restaurant sales $84,415 $81,094 $72,772
Other income 789 512 492
- -------------------------------------------------------------------------------------------------------------------
Total revenues 85,204 81,606 73,264
- -------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Cost of restaurant food and beverage sales 21,658 21,128 20,744
Restaurant expenses 51,246 48,676 44,020
General and administrative expenses 4,217 4,801 4,841
Interest expense 904 1,226 1,140
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 78,025 75,831 70,745
- -------------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 7,179 5,775 2,519
Income tax provision (benefit) (Note 11) 2,232 1,365 (232)
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 4,947 $ 4,410 $ 2,751
- -------------------------------------------------------------------------------------------------------------------
Pro Forma Income Per Common Share (Note 1)
Primary earnings per common share $ .80 $ .71 $ .42
Fully diluted earnings per common share $ .78 $ .70 $ .42
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
21
<PAGE>
<TABLE>
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
All dollar amounts in thousands, except share information
<CAPTION>
March 30, March 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,043 $ 4,722
Receivables (net of allowance for doubtful accounts of $27
in 1997 and $57 in 1996, respectively) (Note 10)
Trade 218 155
Other 324 97
- -------------------------------------------------------------------------------------------------------------------
Total receivables 542 252
Inventories (Notes 4, 10) 3,148 1,833
Prepaid expenses (Note 5) 837 920
- -------------------------------------------------------------------------------------------------------------------
Total current assets 11,570 7,727
Property and equipment, net (Notes 6, 9, 10) 25,416 24,915
Deferred income taxes, net (Note 11) 1,487 1,577
Other assets (Note 7) 2,089 2,038
- -------------------------------------------------------------------------------------------------------------------
$40,562 $36,257
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses (Note 8) $ 7,018 $ 6,539
Current maturities of long-term debt and
obligations under capital leases (Notes 9, 10) 1,436 1,488
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 8,454 8,027
Long-term debt (Note 10) 5,271 6,104
Due to Affiliates, long-term (Note 10) 312 439
Obligations under capital leases (Note 9) 3,771 4,361
Stockholders' Equity (Notes 10, 12):
Preferred stock - $1.00 par value; authorized - 5,000,000
shares, issued and outstanding - 2,000 shares 2 2
Common stock - $.10 par value; convertible into Class A
Common, authorized - 12,000,000 shares, issued and
outstanding - 3,557,366 and 3,516,066 shares, respectively 356 352
Class A Common stock - $.10 par value; authorized -
20,000,000 shares, issued and outstanding -
2,516,300 and 2,316,300 shares, respectively 252 232
Additional paid-in capital 14,978 14,285
Retained earnings 7,282 2,455
Treasury stock - 9,177 shares at cost (116)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 22,754 17,326
- -------------------------------------------------------------------------------------------------------------------
$40,562 $36,257
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
22
<PAGE>
<TABLE>
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
All dollar amounts in thousands, except share information
<CAPTION>
Retained
Class A Additional Earnings
Preferred Common Common Paid-in (Accumulated Treasury
Stock Stock Stock Capital Deficit) Stock
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 27, 1994 $ 2 $ 349 $ 232 $17,700 $(3,484) $ -
Cash paid and liabilities incurred for the
acquisition of the BOT Restaurants
(Note 2) (4,363)
Funds distributed to BOT (982)
Net income 2,751
- ---------------------------------------------------------------------------------------------------------------------------
Balance, March 26, 1995 2 349 232 13,337 (1,715) -
Issuance of 22,700 shares of stock under
exercise of options 3 73
Issuance of 450 shares of common stock
for incentive compensation 5
Tax benefit resulting from difference
between book and tax bases of assets
acquired from BOT 870
Preferred stock dividend (105)
Funds distributed to BOT (135)
Net income 4,410
- ---------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 2 352 232 14,285 2,455 -
Issuance of 41,000 shares of stock under
exercise of options 4 178
Purchase of 9,177 shares of common stock (116)
Preferred stock dividend (120)
Issuance of 300 shares of common stock
for incentive compensation 3
Issuance of 200,000 shares under
exercise of warrants 2 512
Net income 4,947
- --------------------------------------------------------------------------------------------------------------------------
Balance, March 30, 1997 $ 2 $ 356 $ 252 $14,978 $ 7,282 $ 116)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
23
<PAGE>
<TABLE>
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
All dollar amounts in thousands
<CAPTION>
March 30, March 31, March 26,
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income $4,947 $4,410 $2,751
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,427 2,416 2,136
Issuance of common stock for incentive compensation 3 5
Deferred taxes 90 676 (417)
Change in operating assets and liabilities that provided
(used) cash:
Accounts receivable (290) 149 29
Inventories (1,315) (274) (91)
Prepaid expenses 83 377 (7)
Other assets (124) 48 854
Accounts payable and accrued expenses 479 (412) 585
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,300 7,395 5,840
- -------------------------------------------------------------------------------------------------------------------
Investing Activities:
Expenditures for property and equipment 2,818) (2,156) (1,264)
Acquisition of BOT Restaurants (713)
Increase in cash surrender value of life insurance policy (35) (30) (29)
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (2,853) (2,186) (2,006)
- -------------------------------------------------------------------------------------------------------------------
Financing Activities:
Dividends paid on preferred stock (120) (105)
Proceeds from issuance of long-term debt 319
Repayment of long-term debt and obligations under
capital leases (1,604) (2,496) (2,454)
Net cash distributed to BOT (135) (982)
Proceeds from issuance of common stock 714 76
Purchase of treasury stock (116)
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (1,126) (2,341) (3,436)
- -------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 2,321 2,868 398
Cash and cash equivalents, beginning of year 4,722 1,854 1,456
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $7,043 $4,722 $1,854
- -------------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information Cash paid during the year for:
Interest $ 733 $ 809 $ 617
Income taxes $ 2,061 $ 353 $ 214
Noncash Items:
Long-term liabilities of $3,650,000 were incurred in connection with the
agreement to acquire the BOT Restaurants in 1995. See Note 2.
Capital lease obligations of $315,000 were incurred during 1995 when the
Company entered into lease agreements for new equipment.
See notes to consolidated financial statements
</TABLE>
24
<PAGE>
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 30, 1997, MARCH 31, 1996 AND MARCH 26, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Benihana Inc. and Subsidiaries ("The Company") is a Delaware
corporation that owns and operates 38 Japanese teppanyaki-style
restaurants and licenses twelve others. The Company has the rights to
open, license and develop Benihana restaurants in the United States,
Central and South America and the Caribbean islands.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires that
management make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Fiscal Year - The Company's fiscal year is a 52/53 week year ending on
the Sunday closest to March 31 of each year. During the year ended
March 31, 1996, the Company's fiscal year consisted of 53 weeks.
Principles of Consolidation - The consolidated financial statements
include the accounts of Benihana Inc., and all of its subsidiaries. In
consolidation, significant intercompany accounts and transactions are
eliminated.
Inventories - Inventories, which consist principally of restaurant
operating supplies and food and beverage are priced at the lower of
cost (first-in, first-out method) or market.
Pre-opening Costs - Costs of employee salaries, relocation expenses,
training of chefs, and miscellaneous supplies prior to opening a
restaurant are included as pre-opening costs and are amortized over a
twelve-month period commencing with the opening.
Property and Equipment - The Company's investment in property and
equipment is stated at cost and includes expenditures for new
facilities, additions to existing facilities, and interior design,
capitalized interest and construction costs which relate to property
and equipment. Depreciation and amortization are computed by the
straight-line method over the estimated useful life (buildings - 30
years, restaurant furniture, fixtures and equipment - 8 years, office
equipment - 8 years, and leaseholds - lesser of the lease terms,
including renewal options, or useful life). During 1996, the Company
reduced the lives of personal computers and related equipment from 8 to
3 years. The effect of the change in lives on depreciation expense was
immaterial.
Pro Forma Net Income Per Common Share - The pro forma net income per
common share was computed by using the weighted average number of
shares and dilutive common stock equivalents (6,069,000 shares in 1997,
6,003,000 shares in 1996 and 5,867,000 shares in 1995) of Common Stock
and Class A Common Stock. The amounts of preferred dividends and
interest expense that would have been incurred as a result of the
acquisition of the BOT Restaurants (see Note 2) have been factored in
the calculation of pro forma earnings per common share from the
beginning of each of the fiscal years ended March 31, 1996, and March
26, 1995.
Cash and Cash Equivalents - The Company considers all highly liquid
investment instruments purchased with a maturity of three months or
less to be cash equivalents.
25
<PAGE>
Accounting for Long-Lived Assets - Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" required that the
Company evaluate its net investment in restaurant properties in
relation to the estimated future cash flows expected to be generated
from revenue productive assets to determine if an impairment of value
exists. The Company has determined that no write down was necessary
during fiscal 1997 and 1996 based upon such evaluation.
Stock-Based Compensation - In October 1995, FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation", effective for transactions
entered into in fiscal years beginning after December 15, 1995. As
permitted by SFAS No. 123, the Company will continue to apply its
current accounting policy under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", and include certain
required disclosures in its financial statements (Note 12).
2. ACQUISITION
Effective May 15, 1995, the Company became the successor to Benihana
National Corp. (BNC) through the merger (Merger) of BNC and a wholly
owned subsidiary of the Company. Simultaneously with the Merger, the
Company acquired from Benihana of Tokyo, Inc. (BOT), a corporation
privately owned by Rocky H. Aoki, the Company's Chairman of the Board
and founder of the Benihana restaurant chain, all of BOT's Benihana
restaurants (the BOT Restaurants) in the continental United States,
consisting of 17 company-owned and four licensed locations.
The acquisition of the BOT Restaurants has been accounted for in a
manner similar to a pooling of interests since it was acquired from a
company under common control. Under the pooling of interests method,
assets, liabilities and equity are carried over based upon their
historical book values and operating results are included for each of
the entire fiscal years presented. Additionally, pro forma effect to
per share earnings was given for all periods prior to the
Reorganization for the incremental amounts of interest on additional
indebtedness and dividends on the preferred stock that was issued to
effect the Reorganization. The Company paid $3,000,000 in cash and
issued 76,905 shares of Common Stock, 2,000 shares of $1.00 par value
Class A Convertible Preferred Stock, and a 7 1/2% promissory note in
the amount of $650,000.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," the Company has estimated the fair value of
financial instruments. The estimated fair value has been determined by
the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is required in
interpreting data to develop such estimates. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The use of
different market assumptions could have a material effect on estimated
fair value. The carrying value and estimated fair value of the
financial instruments held by the Company as of March 30, 1997 are as
follows (in thousands):
26
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 7,043 $ 7,043 $ 4,722 $ 4,722
Receivables $ 861 $ 833 $ 595 $ 568
Cash surrender value of officer's
life insurance $ 305 $ 305 $ 270 $ 270
Financial liabilities
Bank and other indebtedness $ 6,543 $ 6,791 $ 7,495 $ 7,771
</TABLE>
The following methods and assumptions were used to estimate the fair
value of the Company's financial instruments for which it was
practicable to estimate that value:
Cash and cash equivalents
The carrying value approximates fair value because of the
short-term nature of the instruments.
Receivables
The carrying value approximates the fair value of current
receivables because of the short-term nature of these instruments.
The fair value of long-term receivables was estimated based on
discounted cash flows expected to be received using interest rates
at which similar loans are made to borrowers with similar credit
ratings.
Long-term debt
The fair value of outstanding borrowings under its long-term debt
agreement approximates the carrying value since the interest rate
floats subject to market conditions. The value of the interest
rate swap agreement included in the fair value of the debt was
obtained from dealer quotes which represent the estimated amount
the Company would receive or pay to terminate the agreement taking
into consideration current market interest rates.
<TABLE>
4. INVENTORIES
<CAPTION>
Inventories consist of (in thousands):
March 30, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Food and beverage $ 1,243 $ 565
Supplies 1,905 1,268
-------- --------
$ 3,148 $ 1,833
======== ========
5. PREPAID EXPENSES
<CAPTION>
Prepaid expenses consist of (in thousands):
March 30, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Prepaid insurance $ 547 $ 589
Prepaid advertising 14 35
Other 276 296
-------- --------
$ 837 $ 920
======== ========
27
<PAGE>
6. PROPERTY AND EQUIPMENT
<CAPTION>
Property and equipment consist of (in thousands):
March 30, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Land $ 4,824 $ 4,824
Buildings 9,566 9,374
Leasehold improvements 22,998 21,254
Restaurant furniture, fixtures, and equipment 14,075 13,209
Restaurant facilities and equipment under
capital leases 7,655 8,198
------- -------
59,118 56,859
Less accumulated depreciation and amortization
(Including accumulated amortization of
restaurant facilities and equipment
under capital leases of $5,599 and $5,493 in
1997 and 1996, respectively) 34,059 31,944
------- -------
25,059 24,915
Restaurants under construction 357
------- -------
$25,416 $24,915
======= =======
7. OTHER ASSETS
<CAPTION>
Other assets consist of (in thousands):
March 30, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Lease acquisition costs $ 490 $ 551
Cash surrender value of officer's life insurance 305 270
Premium on liquor licenses 651 651
Long-term note receivable 196 232
Security deposits 162 175
Other 285 159
------- -------
$ 2,089 $ 2,038
======= =======
</TABLE>
Included in other assets are lease acquisition costs incurred in
connection with the purchase of one restaurant. Such costs are being
amortized over the life of the lease. Amortization expense was $61,000
each year for 1997, 1996 and 1995.
Liquor licenses are stated at cost which, in the aggregate, is not in
excess of market. Certain of the liquor licenses have unlimited lives
provided that they are renewed annually (as is management's intention)
and, accordingly, the cost of those liquor licenses is not amortized.
28
<PAGE>
<TABLE>
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of (in thousands):
<CAPTION>
March 30, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Accounts payable $ 2,351 $ 2,100
Accrued salaries 687 363
Accrued property taxes 293 446
Accrued incentive compensation 866 736
Taxes, other than income taxes 973 804
Other accrued operating expenses 1,848 2,090
------- -------
$ 7,018 $ 6,539
======= =======
</TABLE>
9. LEASE OBLIGATIONS
The Company conducts its business primarily using leased facilities.
The typical restaurant lease is for a term of between 15 to 25 years
with renewal options ranging from 5 to 25 years. The leases generally
provide for the payment of property taxes, utilities, and various other
use and occupancy costs. Rentals under certain leases are based on a
percentage of sales in excess of a certain minimum level. Certain
leases provide for increases based upon the changes in consumer price
index. The Company is also obligated under various leases for
restaurant equipment and for office space and equipment. Minimum
payments under lease commitments are summarized below for capital and
operating leases. The imputed interest rates used in the calculations
for capital leases vary from 9.75% to 12% and are equivalent to the
rates which would have been incurred to borrow, over a similar term,
the amounts necessary to purchase the leased assets.
The amounts of operating and capital lease obligations are as follows
(in thousands):
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- --------
<S> <C> <C>
Fiscal year ending
1998 $ 2,044 $ 916
1999 1,859 893
2000 1,795 893
2001 1,524 893
2002 1,161 893
Thereafter 7,230 1,558
------- -------
Total minimum lease payments $15,612 6,046
=======
Less amount representing interest 1,799
-------
Total obligations under capital leases 4,247
Less current maturities 476
-------
Long-term obligations under capitalized
leases at March 30, 1997 $ 3,771
=======
</TABLE>
29
<PAGE>
<TABLE>
Rental expense consists of (in thousands):
<CAPTION>
March 30, March 31, March 26,
1997 1996 1995
--------- --------- ---------
<S> <C> <C>
Minimum rental commitments $ 3,310 $ 3,162 $ 2,994
Rental based on percentage of sales 1,036 884 699
-------- -------- --------
$ 4,346 $ 4,046 $ 3,693
======== ======== ========
10. LONG-TERM DEBT
<CAPTION>
Long-term debt consists of (in thousands):
March 30, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Notes payable - bank:
Term loan $ 6,104 $ 6,937
7 1/2% Promissory Note due to BOT, payable
in 60 monthly installments of $13 (See Note 2) 439 558
-------- --------
6,543 7,495
Less current portion 960 952
-------- --------
$ 5,583 $ 6,543
======== ========
</TABLE>
In connection with the acquisition described in Note 2, the Company
consolidated its outstanding bank indebtedness and an additional
$3,300,000 of borrowings into one term loan arrangement (the
Consolidated Loan) on May 15, 1995. The terms of the Consolidated Loan
call for 83 equal monthly principal payments of $69,427 commencing June
1995 and a final payment of $1,868,775 in May 2002. Interest under the
term loan accrues at either prime plus a margin from .75% to 1.75% or
at LIBOR plus a margin from 2.25% to 3.25%. The interest rate margin
depends upon the leverage ratio (liabilities divided by tangible net
worth). During the year ended March 30, 1997, interest was accrued at
LIBOR plus 2.50% (7.94% at March 30, 1997). In fiscal 1996, the Company
entered into a seven year interest rate swap agreement involving the
exchange of floating rate interest payment obligations for fixed rate
payment obligations. The swap agreement was entered into to protect
against significant increases in interest rates on the variable rate
bank indebtedness. Periodic cash payments either received or paid
pursuant to the swap are accrued on a settlement basis as an adjustment
to interest expense. The original notional amount of the agreement was
$8,900,000 and is reduced by $74,000 monthly until May 2002 when the
balance of the agreement expires.
The Consolidated Loan is collateralized by a mortgage on the Company's
real property and a security interest in the Company's personal
property. The Consolidated Loan agreement limits additional
indebtedness, capital expenditures and the payment of dividends and has
requirements to maintain a minimum amount of tangible net worth,
specific ratio of liabilities to tangible net worth and debt service
coverage, among other restrictive covenants.
11. INCOME TAXES
Deferred tax assets and liabilities reflect the impact of temporary
differences between amounts of assets and liabilities for financial
reporting purposes and the bases of such assets and liabilities as
measured by income tax law. A valuation allowance is recognized to
reduce deferred tax assets to the amounts that are more likely than not
to be realized.
30
<PAGE>
<TABLE>
The net deferred tax asset balance consists of (in thousands):
<CAPTION>
March 30, 1997 March 31, 1996
Assets Liabilities Total Assets Liabilities Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Excess book amortization for
for pre-opening costs and
capital leases $ 899 $ - $ 899 $ 935 $ - $ 935
Tax loss carryforwards 99 99
Accelerated depreciation for
tax purposes 708 (708) 915 (915)
Income tax credits 963 963 1,324 1,324
Other 333 333 134 134
----------------------------------------------------------------------------
Total asset (liability) $2,195 $ 708 $1,487 $ 2,492 $ 915 $1,577
============================================================================
The income tax provision (benefit) consists of (in thousands):
<CAPTION>
March 30, March 31, March 26,
1997 1996 1995
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal (net of utilization of net operating loss
of $5,488 and $1,800 in fiscal 1996 and
1995, respectively) $1,637 $ 320 $ 10
State (net of utilization of net operating loss
of $480 in 1995) 505 369 175
Deferred:
Federal and State 90 676 (417)
-----------------------------------------------
Income tax provision (benefit) $2,232 $1,365 $ (232)
===============================================
The income tax provision (benefit) differed from the amount computed at
the statutory rate as follows (in thousands):
<CAPTION>
March 30, March 31, March 26,
1997 1996 1995
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax provision at statutory rate of 34% $2,441 $1,963 $ 856
Change in valuation allowance (592) (510)
State income taxes, net of federal benefit 333 244 117
Subchapter S exemption (62) (463)
Tax credits, net (426) (288) (282)
Other (116) 100 50
------------------------------------------
Income tax provision (benefit) $2,232 $1,365 $ (232)
===========================================
</TABLE>
BOT had elected to be treated as a Subchapter S Corporation whereby
earnings, except in certain state jurisdictions, are taxable to the
stockholder. No pro forma effect for federal income taxes has been
recorded related to the earnings of the BOT Restaurants prior to its
acquisition in fiscal 1995 since there were sufficient deferred tax
assets available to offset such taxes.
12. STOCKHOLDERS' EQUITY
Preferred Stock - The preferred stock has a liquidation preference of
$1,000 per share, carries a cumulative dividend of 6% and entitles the
holder a right to convert into 300,000 shares of the Company's Class A
Common Stock. The Company has the option to redeem the Preferred Stock
commencing January 1997 at $1,000 per share.
31
<PAGE>
Common Stock - The Company's Common Stock is convertible to Class A
Common Stock on a one-for-one basis. The Class A Common Stock is
identical to the Common Stock except that it gives the holder one-tenth
(1/10) vote per share, voting together with the Company's Common Stock
as a single class on all matters except the election of directors. For
election of directors, the Class A Common Stockholders vote as a class
to elect 25% of the members of the Board of Directors.
Stock Options - The Company has various stock option plans (a 1994
Employee Stock Option Plan, a 1996 Class A Stock Option Plan and a
Directors Stock Option Plan) under which a maximum of approximately
850,000 shares of the Company's Common Stock may be issued. Options
granted under the plans may not have terms exceeding ten years, and
require an exercise price at market value on the date of the grant, or
at 110% of market value in the case of optionees (for incentive stock
options) that own more than 10% of the combined voting rights of the
Company's Common and Class A Common Stock. Under the director's plan,
options to purchase 2,500 shares are automatically granted to each of
the Company's non-employee directors on the date of the Company's
annual meeting.
Additionally, the Company had a 1985 Stock Option Plan that expired on
October 9, 1995. Certain options granted under such plan are still
exercisable on varying dates through 2005.
In connection with a previous issuance of long-term debt to a bank in
1990, the Company issued a warrant to purchase 200,000 shares of Class
A Common Stock at a price of $2.66. This warrant was purchased from the
bank by one of the members of the Company's Board of Directors during
fiscal 1996 and was exercised during fiscal 1997.
SFAS No. 123 requires entities that account for awards for stock-based
compensation to employees in accordance with APB No. 25 to present pro
forma disclosure of net income and earnings per share as if
compensation cost was measured at the date of grant based on fair value
of the award. The fair value for these options was estimated at the
date of grant using a Black- Scholes option pricing model with the
following weighted-average assumptions: a risk-free interest rate of
6.8%; no dividend yield; a volatility factor of 45%; and a
weighted-average expected life of the options of 8 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's stock options
have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its stock options.
For purpose of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's net income and net income per share would have been reduced
to the following pro forma amounts (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
March 30, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Net income:
As reported $4,947 $4,410
Pro forma $4,870 $4,386
Primary earnings per share:
As reported $.80 $.71
Pro forma $.78 $.71
</TABLE>
32
<PAGE>
The above pro forma amounts reflect only the effect of stock options
granted subsequent to April 1, 1995. Accordingly, the pro forma amounts
may not be representative of the future effects on reported net income
and earnings per share that will result from the future granting of
stock options, since the pro forma compensation expense is allocated
over the periods in which options become exercisable and net option
awards are granted each year.
The following table summarizes information about fixed-price stock
options outstanding at March 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- ---------------------
Weighted-
Average Weighted Weighted
Ranges of Remaining Average Average
exercise Contratual Exercise Exercise
Prices Number Life Price Number Price
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1 3/8 - 3 1/4 42,400 7 $ 2.52 42,400 $ 2.52
6 3/4 - 8 3/8 36,500 8 7.46 36,500 7.46
8 3/8 - 10 1/8 123,507 9 9.41 41,169 9.41
10 1/2 - 11 1/2 20,000 9 10.88 20,000 10.88
---------------- ------- -------
$ 1 3/8 -$11 1/2 222,407 140,069
Transactions under the above plans for the three years ended March 30,
1997 are as follows:
<CAPTION>
March 30, March 31, March 26,
1997 1996 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year 129,900 121,100 72,450
Granted 133,507 31,500 61,000
Canceled (10,000)
Expired (2,350)
Exercised (41,000) (22,700)
-------------------------------------------
Balance, end of year 222,407 129,900 121,100
===========================================
Weighted average fair value of options
granted during year $ 9.57 $ 8.69 $ 4.07
</TABLE>
On March 30, 1997, options for 140,069 of the shares are exercisable at
prices ranging from $1 3/8 to $11 1/2.
There were approximately 913,900 shares of common stock reserved at
March 30, 1997, for issuance upon exercise of stock options under all
stock option plans.
Stock Rights - During fiscal 1997, the Company adopted a Shareholder
Rights Plan and declared a distribution of one Preferred Share Purchase
Right (Right) for each outstanding share of the Company's Common Stock
and Class A Common Stock as of February 26, 1997 and for each share
issued by the Company thereafter. The Rights operate to create
substantial dilution to a potential acquiror who seeks to make an
acquisition the terms of which the Company's Board of Directors
believes is inadequate or structured in a coercive manner.
Prior to becoming exercisable, the Rights are evidenced by the
certificates representing the Common Stock and Class A Common Stock and
may not be separately traded. The Rights become exercisable on the
tenth day (or such later date as the Board of Directors may determine)
after public announcement that a person or a group (subject to certain
exceptions) has acquired 20% or more of the outstanding Common Stock or
an announcement of a tender offer that would result in beneficial
ownership by a person or a group of 20% or more of the Common Stock.
33
<PAGE>
13. INCENTIVE AND DEFERRED COMPENSATION PLANS
In fiscal 1996, the Company adopted the Benihana Incentive Compensation
Plan (Plan) whereby bonus awards are made if the Company attains a
certain targeted return on equity. The purpose of the Plan is to
encourage and enable officers and employees and align interests of
Benihana employees with those of its shareholders. One-third of the
amounts awarded is immediately made available to the employee and the
remaining two-thirds is available ratably over the succeeding two
years. Amounts allocated under the plan may be taken in cash, deferred
in a non-qualified deferred compensation plan or be used to purchase
the Company's Common Stock at 85% of its market value. The target rate,
which for 1997 was 20% and for 1996 was 15%, is approved annually based
upon a review of the return of other publicly traded restaurant
businesses by the Compensation Committee of the Board of Directors. The
amount of the awards is capped at 50% of the eligible salary of the
employee (salary less 40% of the FICA salary base). Under the Plan, the
Company accrued $450,000 and $503,000 for fiscal 1997 and 1996,
respectively.
In fiscal 1996, the Company adopted the Benihana Executive Retirement
Plan whereby certain key executives may elect to defer up to 20% of
their salary and 100% of their bonus until retirement or age 55,
whichever is later, or due to disability or death. Employees may select
from various investment options for their available account balances.
Investment earnings are credited to their accounts.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
Quarter ended (in thousands except for per share amounts)
<CAPTION>
March 30, 1997
-------------------------------------------------------------------------------------------------
4th 3rd 2nd 1st
<S> <C> <C> <C> <C>
REVENUES $20,597 $19,826 $19,176 $25,605
GROSS PROFIT 15,369 14,748 14,343 19,086
NET INCOME 1,401 1,402 841 1,303
PRO FORMA NET INCOME
PER COMMON SHARE:
PRIMARY $ .23 $ .22 $ .13 $ .21
FULLY DILUTED $ .22 $ .22 $ .13 $ .21
Quarter ended (in thousands except for per share amounts)
<CAPTION>
March 31, 1996
-------------------------------------------------------------------------------------------------
4th 3rd 2nd 1st
<S> <C> <C> <C> <C>
REVENUES $ 21,267 $ 18,969 $ 17,699 $ 23,671
GROSS PROFIT 16,035 14,180 13,038 17,225
NET INCOME 1,301 1,309 689 1,111
PRO FORMA NET INCOME
PER COMMON SHARE:
PRIMARY $ .21 $ .21 $ .11 $ .18
FULLY DILUTED $ .21 $ .21 $ .11 $ .18
</TABLE>
34
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Benihana Inc:
We have audited the accompanying consolidated balance sheets of Benihana Inc.
and subsidiaries (the Company) as of March 30, 1997 and March 31, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended March 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Benihana Inc. and subsidiaries as
of March 30, 1997 and March 31, 1996, and the results of their operations and
their cash flows for each of the three years in the period ended March 30, 1997
in conformity with generally accepted accounting principles.
Miami, Florida
May 9, 1997
35
<PAGE>
COMMON STOCK INFORMATION
The Company's Common Stock and Class A Stock are traded in the Nasdaq National
Market System. There were 326 holders of record of the Company's Common Stock
and 474 holders of record of the Class A Common Stock at March 30, 1997.
The table below sets forth high and low bid prices for the Company's Common
Stock and Class A Common Stock, which do not include commissions and mark-ups or
mark-downs for the periods indicated. Such bid prices reflect inter-dealer
prices without retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------
March 30, 1997 March 31, 1996
---------------------- ----------------------
COMMON STOCK High Low High Low
<S> <C> <C> <C> <C>
1st Quarter 16 1/4 10 1/4 8 3/4 7
2nd Quarter 14 1/8 10 10 3/8 8 3/8
3rd Quarter 14 10 7/8 10 3/4 9 7/8
4th Quarter 12 7 11 3/4 10 3/8
<CAPTION>
Fiscal Year Ended
-----------------
March 30, 1997 March 31, 1996
---------------------- ----------------------
CLASS A
COMMON STOCK High Low High Low
<S> <C> <C> <C> <C>
1st Quarter 10 8 3/8 5 1/2 4
2nd Quarter 9 3/8 7 3/4 7 5 1/8
3rd Quarter 9 3/16 7 1/2 8 3/8 6 3/8
4th Quarter 8 3/4 6 5/8 9 1/8 8 1/8
</TABLE>
The Class A Common Stock is identical to the Common Stock except that it gives
the holder one-tenth (1/10) vote per share, voting together with the Company's
Common Stock as a single class on all matters except the election of directors.
For election of directors, the Class A Common shareholders vote as a class to
elect 25% of the members of the Board of Directors.
The Company has not declared or paid a cash dividend since its organization and
has no present intention of paying any such dividend in the foreseeable future.
The Company intends to retain all available cash for the operation and expansion
of its business. In addition, the Company's present loan agreement restricts the
payment of dividends.
36
<PAGE>
EXHIBIT 23.01
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Benihana Inc. on Form S-8 of our report dated May 9, 1997 appearing in the
Annual Report on Form 10-K of Benihana Inc. for the year ended March 30, 1997.
Deloitte & Touche LLP
Miami, Florida
May 21, 1997
37
<PAGE>
EXHIBIT 23.02
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Benihana Inc. on Form S-3 of our report dated May 9, 1997 appearing in the
Annual Report on Form 10-K of Benihana Inc. for the year ended March 30, 1997,
and to the reference to us under the heading "Experts" in the Prospectus, which
is a part of this Registration Statement.
Deloitte & Touche LLP
Miami, Florida
May 21, 1997
38
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidated financial statements of the company for the year ended March 30,
1997 and is qualified in its entirety by reference to the Form 10-KSB for fiscal
1997.
</LEGEND>
<CIK> 0000935226
<NAME> BENIHANA INC.
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0
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</TABLE>
