SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended July 18, 1999
or,
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-12644
Benihana Inc.
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 593-0770
None
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Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock $.10 par value, 3,576,616 shares outstanding at August 6, 1999
Class A Common Stock $.10 par value, 2,569,819 shares
outstanding at August 6, 1999
<PAGE>
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FOUR PERIODS ENDED JULY 18, 1999
TABLE OF CONTENTS
PAGE
PART I - Financial Information
Consolidated Balance Sheets at July 18, 1999
(unaudited) and March 28, 1999 1
Consolidated Statements of Operations
(unaudited) for the Four Periods Ended
July 18, 1999 2 - 3
Consolidated Statement of Stockholders' Equity
(unaudited) for the Four Periods Ended
July 18, 1999 4
Consolidated Statements of Cash Flows
(unaudited) for the Four Periods Ended
July 18, 1999 5
Notes to the Consolidated Financial
Statements 6 - 8
Management's Discussion and Analysis of the
Financial Condition and Results of
Operations 9 - 11
PART II - Other Information 12
<PAGE>
BENIHANA INC. AND SUBSIDIARIES
PART I - Financial Information
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share information)
<TABLE>
<CAPTION>
(Unaudited)
July 18, March 28,
1999 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> (C>
Assets
Current assets:
Cash and equivalents $ 1,107 $ 1,684
Receivables (net of allowance for doubtful accounts of $0
in July 1999 and $35 in March 1999) 340 269
Inventories 3,420 3,106
Prepaid expenses 708 635
- -------------------------------------------------------------------------------------------------------------------
Total Current Assets 5,575 5,694
Property and equipment, net 38,269 37,128
Deferred income taxes, net 3,269 3,385
Goodwill, net 11,993 12,150
Other assets 2,737 2,511
- -------------------------------------------------------------------------------------------------------------------
$61,843 $60,868
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 9,988 $10,497
Current maturities of long-term debt and
obligations under capital leases 2,419 2,298
- -------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 12,407 12,795
Long-term debt 9,813 10,646
Due to affiliates - long term 26
Obligations under capital leases 2,528 2,702
Stockholders' Equity:
Preferred stock - $1.00 par value;
authorized - 5,000,000 shares, issued
and outstanding - 700 shares and
1,000 shares, respectively 1 1
Common stock - $.10 par value;
convertible into Class A Common, authorized - 12,000,000 shares, issued
and outstanding - 3,576,616 shares and 3,571,616 shares,
respectively 358 357
Class A common stock - $.10 par value;
authorized - 20,000,000 shares, issued and outstanding
2,569,819 shares and 2,563,443 shares, respectively 257 256
Additional paid-in capital 14,673 14,604
Retained earnings 21,922 19,597
Treasury stock - 9,177 shares at cost (116) (116)
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Total Stockholders' Equity 37,095 34,699
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$61,843 $60,868
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</TABLE>
See notes to consolidated financial statements
-1-
<PAGE>
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share information)
<TABLE>
<CAPTION>
Four Periods Ended
July 18, July 19,
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Net restaurant food and beverage sales $39,392 $34,545
Other income 289 273
- -------------------------------------------------------------------------------------------------------------------
Total Revenues 39,681 34,818
Costs and Expenses
Cost of restaurant food and beverage sales 10,662 9,156
Restaurant expenses 23,288 21,667
General and administrative expenses 1,870 1,784
Interest expense 319 541
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Total Costs and Expenses 36,139 33,148
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Income from operations before income taxes 3,542 1,670
Income tax provision 1,204 502
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Net Income $ 2,338 $ 1,168
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Earnings Per Share
Basic earnings per common share $ .38 $ .19
Diluted earnings per common share $ .36 $ .18
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</TABLE>
See notes to consolidated financial statements
-2-
<PAGE>
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands, except per share information)
<TABLE>
<CAPTION>
Class A Additional Total
Preferred Common Common Paid-in Retained Treasury Stockholders'
Stock Stock Stock Capital Earnings Stock Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 28, 1999 $1 $357 $256 $14,604 $19,597 ($116) $34,699
Net income 2,338 2,338
Dividend on preferred stock (13) (13)
Issuance of 6,376 shares of
class A common stock under
exercise of options 1 53 54
Issuance of 5,000 shares of
common stock under
exercise of options 1 16 17
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, July 18, 1999 $1 $358 $257 $14,673 $21,922 ($116) $37,095
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE>
BENIHANA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Four Periods Ended
July 18, July 19,
1999 1998
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<S> <C> <C>
Operating Activities:
Net income $2,338 $1,168
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,317 1,202
Deferred income taxes 116
Change in operating assets and liabilities that provided (used) cash:
Accounts receivable (70 64
Inventories (314) (25)
Prepaid expenses (73) 104
Other assets (292) (42)
Accounts payable and accrued expenses (509) (897)
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Net cash provided by operating activities 2,513 1,574
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Investing activities:
Expenditures for property and equipment (2,235) (1,376)
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Net cash (used in) investing activities (2,235) (1,376)
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Financing Activities:
Proceeds from issuance of common stock 70 2
Repayment of long-term debt and obligations
under capital leases (912) (878)
Dividend paid on preferred stock (13) (19)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (855) (895)
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Net (decrease)increase in cash and cash equivalents (577) (697)
Cash and cash equivalents, beginning of year 1,684 1,169
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Cash and cash equivalents, end of period $1,107 $ 472
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Supplemental Cash Flow Information:
Cash paid during the four periods:
Interest $ 392 $ 461
Income taxes 1,022 1,283
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOUR PERIODS ENDED JULY 18, 1999 AND JULY 19, 1998
(UNAUDITED)
1. GENERAL
The accompanying consolidated financial statements are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments at July 18,
1999) which are, in the opinion of management, necessary for a fair
presentation of financial position and results of operations. The results of
operations for the four periods (sixteen weeks) ended July 18, 1999 are not
necessarily indicative of the results to be expected for the full year.
Certain information and footnotes normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted. The Company's fiscal year consists of 13
four-week accounting periods.
2. INVENTORIES
Inventories consist of (in thousands):
July 18, March 28,
1999 1999
-------- ---------
Food and beverage $ 936 $1,147
Supplies 2,484 1,959
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$3,420 $3,106
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3. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income available
to common shareholders by the weighted average number of common shares
outstanding during each period. The diluted earnings per common share
computation includes dilutive common share equivalents issued under the
Company's various stock option plans and dilutive convertible preferred
stock.
-5-
<PAGE>
BENIHANA INC. AND SUBSIDIARIES
The following data shows the amounts (in thousands) used in computing
earnings per share and the effect on income and the weighted average number
of shares of dilutive potential common stock.
<TABLE>
<CAPTION>
Four Periods Ended
July 18, July 19,
1999 1998
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<S> <C> <C>
Income from operations $2,338 $1,168
Less preferred dividends (13) (18)
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Income for computation of basic
earnings per common share 2,325 1,150
Convertible preferred stock 13 18
------ ------
Income for computation of diluted
earnings per common share $2,338 $1,168
====== ======
</TABLE>
<TABLE>
<CAPTION>
Four Periods Ended
July 18, July 19,
1999 1998
-------- --------
<S> <C> <C>
Weighted average number of common
shares used in basic EPS 6,142 6,089
Effect of dilutive securities:
Stock options 320 178
Convertible preferred stock 105 150
-------- -------
Weighted number of common shares
and dilutive potential common stock
used in diluted EPS 6,567 6,417
======== ======
</TABLE>
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<PAGE>
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues consist of sales of food and beverages sold in each of
the owned restaurants and franchise fees received from franchisees. 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. Expenses are
additionally dependent upon commodity costs, average wage rates, marketing costs
and the costs of interest and administering restaurant operations.
The Company's revenues, net income and diluted earnings per share increased
sharply in the current four periods when compared to the equivalent four periods
in the prior year. The improved results reflect a continued increase in sales
for restaurants opened longer than one year. The increased revenues combined
with tighter control on restaurant expenses and lower interest costs doubled net
income and diluted earnings per share during the current four periods over the
prior comparable four periods.
REVENUES
The amounts of sales and the changes in amount and percentage change in amount
of sales from the previous fiscal year are shown in the following tables.
Four Periods Ended
July 18, July 19,
1999 1998
-------- --------
Net restaurant sales $39,392 $34,545
Other income 289 273
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$39,681 $34,818
======= =======
Four Periods Ended
July 18, July 19,
1999 1998
-------- --------
Amount of change in total
revenues from previous year $ 4,863 $ 7,229
Percentage of change from the
previous year 14.0% 26.2%
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<PAGE>
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Four Periods Ended July 18, 1999 compared to July 19, 1998 -- Restaurant
revenues continued to increase in the four periods ended July 18, 1999 as
compared to the equivalent periods ended July 19, 1998. The increase in revenues
is attributable to increased customer traffic of over 7% for restaurants opened
longer than one year in the current four periods when compared to the comparable
prior year four periods. Also, contributing to the increase is the opening of a
traditional restaurant opened in December 1998 operating in Ontario, California.
COSTS AND EXPENSES
Costs of restaurant sales, which are generally variable with sales, directly
increased with changes in revenues for the four periods. The following table
reflects the proportion that the various elements of costs and expenses bore to
sales and the changes in amounts and percentage changes in amounts from the
previous year's four periods.
Four Periods Ended
July 18, July 19,
1999 1998
-------- --------
COST AS A PERCENTAGE OF
RESTAURANT SALES:
Cost of restaurant food and
beverage sales 27.1% 26.5%
Restaurant expenses 59.1% 62.7%
General and administrative
expenses 4.8% 5.2%
AMOUNT OF CHANGE FROM
PREVIOUS YEAR (IN THOUSANDS):
Cost of restaurant food and
beverage sales $1,506 $2,126
Restaurant expenses $1,621 $5,139
General and administrative expenses $ 86 $ 401
PERCENTAGE CHANGE FROM
PREVIOUS YEAR:
Cost of restaurant food and
beverage sales 16.4% 30.2%
Restaurant expenses 7.5% 31.1%
General and administrative expenses 4.8% 29.0%
Four Periods Ended July 18, 1999 compared to July 19, 1998 -- The cost of food
and beverage sales increased in dollar amount when expressed as a percentage of
sales in the current four periods and compared to equivalent periods in the
prior year. The increase resulted from higher commodities costs, principally
beef costs, in the current four periods compared to the prior year equivalent
periods.
-8-
<PAGE>
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Restaurant expenses increased in dollar amount and decreased when expressed as a
percentage of sales in the current four periods. The increase in absolute dollar
amount is attributable to the aforementioned increase in sales. Restaurant
expenses decreased when expressed as a percentage of sales due to higher labor
costs and employee benefit costs in the prior four periods as compared to the
current four periods. The Company experienced higher labor costs in the prior
year due to increases in the minimum wage rates during that period. The higher
employee benefit costs resulted from unusual amount of claims that were
submitted under the Company's self-insured health benefit plan in the previous
four periods.
General and administrative costs increased in total dollar amount and decreased
when expressed as a percentage of sales for four periods. Management does not
consider the increase in absolute amount to be material. The decrease when
expressed as a percentage of sales is due to the aforementioned increase in
sales.
Interest costs decreased in the current four periods when compared to the
comparable period of the prior year. The decrease is attributable to the
decrease in total borrowings outstanding from the prior year.
The Company's effective income tax rate increased in the four periods to 34.0%
from 30.1 % in the prior year's four periods. The increase reflects increased
state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company does not require significant amounts of inventory or receivables,
and, as is typical of many restaurant companies, the Company does not have to
provide financing for such assets and operates with a minimum amount or deficit
of working capital.
The Company requires capital principally for the construction and development of
new restaurants, acquisitions of other restaurant businesses, and the
refurbishment of existing restaurant units.
As of July 18, 1999, the Company had available $15,000,000 under a revolving
line of credit facility. Management believes that the amount available under the
revolving facility together with internally generated funds from operations
provide sufficient cash resources for anticipated capital improvements as well
as construction of new restaurants.
The Company has signed leases for four new restaurants. Estimated remaining
expenditures to complete construction and open these new restaurants are
expected to be $4,600,000. Two of the new restaurants will operate as
traditional Benihana restaurants in Monterey and Santa Monica, California and
are projected to open in the spring of 2000. The other two will be operated
under the Company's new sushi concept, Sushi Doraku by Benihana in Miami Beach,
Florida and Chicago, Illinois and are scheduled to open in the winter of 1999.
Forward Looking Information
Statements in this report concerning the Company's business outlook or future
economic performance, anticipated profitability, revenues, expenses or other
financial items, together with other statements that are not historical facts,
are "forward-looking statements" as that term is defined under Federal
Securities Laws. "Forward-looking statements" are subject to risks,
uncertainties and other factors which could cause actual results to differ
materially from those stated in such statements. Such risks, uncertainties and
factors include,
-9-
<PAGE>
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
but are not limited to, changes in customers' tastes and preferences, acceptance
of the Company's concepts in new locations, industry cyclicality, fluctuations
in customer demand, the seasonal nature of the business, fluctuations on
commodities costs, the ability to complete construction of new units in a timely
manner, obtaining governmental permits on a reasonably timely basis, and general
economic conditions, as well as other risks detailed in the Company's filings
with the Securities and Exchange Commission.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates on debt and
changes in commodity prices. A discussion of the Company's accounting policy for
derivative financial instruments is included in the Summary of Significant
Accounting Policies in the notes to the consolidated financial statements
included in the Company's Annual Report filed with the Securities and Exchange
Commission.
The Company's net exposure to interest rate risk consists of floating rate
borrowings that are benchmarked to US and European short-term interest rates.
The Company may from time-to-time utilize interest rate swaps to manage overall
borrowing costs and reduce exposure to adverse fluctuations in interest rates.
The Company does not use derivative instruments for trading purposes and the
Company has a policy to that effect. At July 18, 1999, the Company had a
financial derivative with a notional amount of $5,266,000 against floating rate
debt of $10,750,000. A one percentage point interest charge on the outstanding
balance of the variable rate debt as of July 18, 1999 would not be material.
The Company purchases certain commodities such as beef, chicken and seafood.
These commodities are purchased based upon market prices established with
vendors. The Company does not use financial instruments to hedge commodity
prices because these purchase arrangements help to control the ultimate cost
paid and any cost aberrations have historically been short term in nature.
Year 2000
The year 2000 (Y2K) issue is the result of computer programs using two digits,
as opposed to four digits, to indicate the year. Computer systems that cannot
interpret data beyond 1999 may fail and cause critical business processes to be
materially disrupted. Such failures may occur not only within our own systems,
but also in the systems of vendors in the supply chain, credit card processors
and the financial institutions upon which we rely. The Company has implemented a
plan to address the Y2K issue in steps to mitigate risks in our proprietary
systems and to identify Y2K risks in our supply chain.
The risks in the Company's own systems were identified to include point-of-sale
systems at the restaurants and systems upon which management relies to provide
information to control and guide operations and prepare financial information.
The Company has tested the point-of-sale systems used in the restaurants and
management has determined that they were compliant with Y2K. The Company's
management information system were not incompliance with Y2K. Management
evaluated various courses of action to make the information systems Y2K
compliant. Management determined that the system could have been made Y2K
compliant, but they were not sufficient to support future growth. Management
decided to replace existing financial systems and after conducting interviews
with several software vendors, management contracted with a major supplier of
enterprise resource planning systems to improve our core financial information
and restaurant logistical capabilities beyond the capabilities of the previously
existing financial systems. The new system has been installed and is operating.
Management believes that these systems are Y2K compliant and
-10-
<PAGE>
BENIHANA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
are reliable. The external costs associated with implementing these systems are
approximately $425,000, including the cost of software applications, the
hardware necessary to support the new applications software and contracted
services used to augment internal staff implementing the new system.
The Company's most significant vendors were formally contacted to determine
whether there would be material disruptions in the supply chain. The Company has
no significant system interfaces with vendors.
The Company's supply chain is composed of numerous different suppliers
throughout the country. Each of the restaurants purchase food, beverages and
supplies local to their markets, therefore, the Company is not materially
reliant on a few suppliers and the Company believes that the risk is minimal due
to the failure of any one vendor. However, there may be unidentifiable Y2K
problems further up the supply chain, the effects of which cannot be predicted.
Additionally, the Company relies upon utility service for electricity, gas and
water and may incur disruption in specific market areas.
Our significant vendors indicated to us that they are either Y2K compliant or
are currently taking measures to become Y2K compliant before disruptions that
might impact the Company would occur. Letters have been sent to all banks and
the credit card processors with which the Company has significant relationships
and Company management has reviewed and evaluated their responses. The bank's
and the credit card processing companies' responses to the Company were that
they are Y2K compliant.
-11-
<PAGE>
BENIHANA INC. AND SUBSIDIARIES
PART II - Other Information
Item 5. None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K - None
-12-
<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.
Benihana Inc.
--------------------
(Registrant)
Date August 18, 1999 /s/ Joel A. Schwartz
--------------------- ----------------------------
Joel A. Schwartz
President
/s/ Michael R. Burris
----------------------------
Michael R. Burris
Chief Financial Officer
-13-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the July 18,
1999 Financial Statements and is qualified in its entirety by reference to such
Financial Statements.
</LEGEND>
<CIK> 0000935226
<NAME> BENIHANA INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-26-2000
<PERIOD-START> MAR-29-1999
<PERIOD-END> JUL-18-1999
<EXCHANGE-RATE> 1
<CASH> 1,107
<SECURITIES> 0
<RECEIVABLES> 340
<ALLOWANCES> 0
<INVENTORY> 3,420
<CURRENT-ASSETS> 5,575
<PP&E> 38,269
<DEPRECIATION> 40,713
<TOTAL-ASSETS> 61,843
<CURRENT-LIABILITIES> 12,407
<BONDS> 12,341
0
1
<COMMON> 615
<OTHER-SE> 36,479
<TOTAL-LIABILITY-AND-EQUITY> 61,843
<SALES> 39,392
<TOTAL-REVENUES> 39,681
<CGS> 10,662
<TOTAL-COSTS> 23,288
<OTHER-EXPENSES> 1,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 319
<INCOME-PRETAX> 3,542
<INCOME-TAX> 1,204
<INCOME-CONTINUING> 2,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,338
<EPS-BASIC> .38
<EPS-DILUTED> .36
</TABLE>
