Annual Reports

 
Quarterly Reports

 
8-K

 
Other

Benihana 10-Q 2008

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2


UNITED STATES
SECURITY AND EXCHANGE COMMISSION
Washington, D.C. 20549

 


 

FORM 10-Q


 

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

 

 

For the quarterly period ended January 6, 2008

 

 

o

TRANSITION REPORT PERSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

Commission File No. 0-26396
BENIHANA INC.
(Exact name of registrant as specified in its charter)

 

 

 

 

 

Delaware

 

 

65-0538630

 

(State or other jurisdiction

 

 

(I.R.S. Employer

 

of 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


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.

x Yes                o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

 

 

o

Large accelerated filer

 

x

Accelerated filer

 

 

 

 

 

 

 

o

Non-accelerated filer

 

o

Smaller reporting company

 

   (Do not check if a smaller
     reporting company)

 

 

 


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes                x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

Common Stock $.10 par value, 6,300,921 shares outstanding at February 1, 2008


 

 

 

Class A Common Stock $.10 par value, 8,952,579 shares outstanding at February 1, 2008




BENIHANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE TEN PERIODS ENDED JANUARY 6, 2008

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

 

 

 

PAGE

PART I -

FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Financial Statements- unaudited

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited) at January 6, 2008 and April 1, 2007

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (unaudited) for the Three and Ten Periods Ended January 6, 2008 and December 31, 2006

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity (unaudited) for the Ten Periods Ended January 6, 2008

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the Ten Periods Ended January 6, 2008 and December 31, 2006

 

5

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

6 - 14

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15 - 28

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

29

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

30

 

 

 

 

 

PART II -

OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

31 - 32

 

 

 

 

 

 

Item 1A.

Risk Factors

 

32

 

 

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

32 - 33

 

 

 

 

 

 

Item 6.

Exhibits and Reports on Form 8-K

 

34

 

 

 

 

 

 

 

Signature

 

35

 

 

 

 

 

 

 

Certifications

 

36 - 39

- 1 -


BENIHANA INC. AND SUBSIDIARIES

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS- UNAUDITED

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share information)

 

 

 

 

 

 

 

 

 

 

January 6,
2008

 

April 1,
2007

 

 

Assets

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,953

 

$

8,449

 

Receivables, net

 

 

3,261

 

 

2,800

 

Inventories

 

 

5,966

 

 

5,729

 

Prepaid expenses and other current assets

 

 

3,506

 

 

2,784

 

Investment securities available for sale - restricted

 

 

860

 

 

841

 

Deferred income tax asset, net

 

 

2,273

 

 

931

 

               

Total current assets

 

 

17,819

 

 

21,534

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

176,332

 

 

146,479

 

Goodwill

 

 

29,900

 

 

29,900

 

Deferred income tax asset, net

 

 

2,967

 

 

169

 

Other assets, net

 

 

6,610

 

 

6,207

 

               

Total assets

 

$

233,628

 

$

204,289

 

               

 

 

 

 

 

 

 

 

Liabilities, Convertible Preferred Stock and Stockholders’ Equity

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

8,657

 

$

9,318

 

Accrued expenses

 

 

25,228

 

 

20,663

 

Accrued put option liability

 

 

3,718

 

 

3,718

 

Income tax payable

 

 

555

 

 

136

 

               

Total current liabilities

 

 

38,158

 

 

33,835

 

 

 

 

 

 

 

 

 

Deferred obligations under operating leases

 

 

10,839

 

 

8,611

 

Borrowings under line of credit

 

 

6,931

 

 

 

Other long term liabilities

 

 

3,650

 

 

 

               

Total liabilities

 

 

59,578

 

 

42,446

 

               

 

 

 

 

 

 

 

 

Commitments and contingencies (Notes 4 and 8):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock - $1.00 par value; authorized -5,000,000 shares; Series B Mandatory Redeemable Convertible Preferred Stock - authorized - 800,000 shares; issued and outstanding –800,000 shares with a liquidation preference of $20 million plus accrued and unpaid dividends as of January 6, 2008

 

 

19,428

 

 

19,361

 

               

Stockholders’ Equity:

 

 

 

 

 

 

 

Common stock - $.10 par value; convertible into Class A common stock; authorized, 12,000,000 shares; issued and outstanding, 6,335,921 and 7,133,092 shares, respectively

 

 

633

 

 

713

 

Class A common stock - $.10 par value; authorized, 20,000,000 shares; issued and outstanding, 8,917,579 and 7,791,588 shares, respectively

 

 

892

 

 

779

 

Additional paid-in capital

 

 

67,961

 

 

63,563

 

Retained earnings

 

 

85,120

 

 

77,427

 

Accumulated other comprehensive income, net of tax

 

 

16

 

 

 

               

Total stockholders’ equity

 

 

154,622

 

 

142,482

 

               

Total liabilities, convertible preferred stock and stockholders’ equity

 

$

233,628

 

$

204,289

 

               

See accompanying notes to unaudited condensed consolidated financial statements.

- 2 -


BENIHANA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share information)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

 

Ten Periods Ended

 

 

 

 

 

 

 

 

January 6,
2008

 

December 31,
2006

 

 

January 6,
2008

 

December 31,
2006

 

           

 

       

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant sales

 

$

69,439

 

$

61,867

 

 

$

225,394

 

$

199,846

 

Franchise fees and royalties

 

 

375

 

 

335

 

 

 

1,324

 

 

1,178

 

               

 

           

Total revenues

 

 

69,814

 

 

62,202

 

 

 

226,718

 

 

201,024

 

               

 

           

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of food and beverage sales

 

 

16,343

 

 

15,153

 

 

 

53,041

 

 

48,618

 

Restaurant operating expenses

 

 

41,428

 

 

36,195

 

 

 

134,693

 

 

117,796

 

Restaurant opening costs

 

 

1,227

 

 

363

 

 

 

2,688

 

 

1,074

 

Marketing, general and administrative expenses

 

 

6,208

 

 

5,322

 

 

 

21,274

 

 

17,628

 

               

 

           

Total operating expenses

 

 

65,206

 

 

57,033

 

 

 

211,696

 

 

185,116

 

               

 

           

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

4,608

 

 

5,169

 

 

 

15,022

 

 

15,908

 

Interest income, net

 

 

147

 

 

33

 

 

 

258

 

 

285

 

               

 

           

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

4,755

 

 

5,202

 

 

 

15,280

 

 

16,193

 

Income tax provision

 

 

1,584

 

 

1,923

 

 

 

5,394

 

 

5,770

 

               

 

           

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

3,171

 

 

3,279

 

 

 

9,886

 

 

10,423

 

Less: accretion of issuance costs and preferred stock dividends

 

 

250

 

 

272

 

 

 

834

 

 

834

 

               

 

           

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

$

2,921

 

$

3,007

 

 

$

9,052

 

$

9,589

 

               

 

           

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.19

 

$

0.20

 

 

$

0.60

 

$

0.65

 

Diluted earnings per common share

 

$

0.19

 

$

0.19

 

 

$

0.58

 

$

0.60

 

               

 

           

See accompanying notes to unaudited condensed consolidated financial statements.

- 3 -


BENIHANA INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Ten Periods Ended January 6, 2008

(In thousands, except share information)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common
Stock

 

Class A
Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income,
net of tax

 

Total
Stockholders’
Equity

 

                           

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, April 1, 2007

 

$

713

 

$

779

 

$

63,563

 

$

77,427

 

$

 

$

142,482

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

9,886

 

 

 

 

 

9,886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investment securities available for sale, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 

 

16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

Cummulative effect of accounting change (Note 5)

 

 

 

 

 

 

 

 

 

 

 

(1,355

)

 

 

 

 

(1,355

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 218,830 shares of Class A common stock from exercise of options

 

 

 

 

 

22

 

 

1,725

 

 

 

 

 

 

 

 

1,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 109,990 shares of common stock from exercise of options

 

 

11

 

 

 

 

 

867

 

 

 

 

 

 

 

 

878

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of 907,161 shares of common stock into 907,161 shares of Class A common stock

 

 

(91

)

 

91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividend paid in lieu of fractional shares on stock split

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared on Series B Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

(767

)

 

 

 

 

(767

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accretion of issuance costs on Series B Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

(67

)

 

 

 

 

(67

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

 

 

 

 

 

 

481

 

 

 

 

 

 

 

 

481

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax benefit from stock option exercises

 

 

 

 

 

 

 

 

1,325

 

 

 

 

 

 

 

 

1,325

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                       

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 6, 2008

 

$

633

 

$

892

 

$

67,961

 

$

85,120

 

$

16

 

$

154,622

 

                                       

See accompanying notes to unaudited condensed consolidated financial statements.

- 4 -


BENIHANA INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


 

 

 

 

 

 

 

 

 

 

Ten Periods Ended

 

 

 

 

 

 

 

January 6,
2008

 

December 31,
2006

 

           

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

9,886

 

$

10,423

 

Adjustments to reconcile net income to net

 

 

 

 

 

 

 

cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

13,070

 

 

10,634

 

Deferred income taxes

 

 

(1,618

)

 

(667

)

Stock-based compensation

 

 

481

 

 

270

 

Tax benefit from stock option exercises

 

 

(1,325

)

 

(1,075

)

Loss on disposal of assets

 

 

679

 

 

120

 

Change in operating assets and liabilities that provided (used) cash:

 

 

 

 

 

 

 

Receivables

 

 

(1,514

)

 

(423

)

Inventories

 

 

(237

)

 

466

 

Prepaid expenses and other current assets

 

 

(721

)

 

(19

)

Income taxes and other long term liabilities

 

 

1,507

 

 

4,137

 

Other assets

 

 

(994

)

 

(156

)

Accounts payable

 

 

757

 

 

(1,627

)

Accrued expenses and deferred obligations under operating leases

 

 

5,176

 

 

3,016

 

               

Net cash provided by operating activities

 

 

25,147

 

 

25,099

 

               

Investing Activities:

 

 

 

 

 

 

 

Expenditures for property and equipment

 

 

(41,787

)

 

(25,421

)

Acquisition of business

 

 

 

 

(2,743

)

Payment of contingent consideration on RA Sushi acquisition

 

 

 

 

(228

)

Sale (purchase) of investment securities, available for sale, net

 

 

7

 

 

(107

)

Cash proceeds from sale of Sushi Doraku

 

 

 

 

515

 

Collection on Sushi Doraku note

 

 

2

 

 

16

 

Cash proceeds from disposal of property and equipment

 

 

6

 

 

6

 

               

Net cash used in investing activities

 

 

(41,772

)

 

(27,962

)

               

Financing Activities:

 

 

 

 

 

 

 

Borrowings on line of credit

 

 

41,885

 

 

 

Repayments on line of credit

 

 

(34,954

)

 

 

Repayment of long-term bank debt

 

 

 

 

(3,333

)

Proceeds from issuance of common stock under exercise of stock options

 

 

2,625

 

 

2,061

 

Tax benefit from stock option exercises

 

 

1,325

 

 

1,075

 

Dividends paid on Series B Preferred Stock

 

 

(748

)

 

(748

)

Cash dividend paid in lieu of fractional shares on stock split

 

 

(4

)

 

 

               

Net cash provided by (used in) financing activities

 

 

10,129

 

 

(945

)

               

Net decrease in cash and cash equivalents

 

 

(6,496

)

 

(3,808

)

Cash and cash equivalents, beginning of period

 

 

8,449

 

 

18,303

 

               

Cash and cash equivalents, end of period

 

$

1,953

 

$

14,495

 

               

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

Cash paid during the ten periods:

 

 

 

 

 

 

 

Interest

 

$

232

 

$

344

 

Income taxes

 

 

5,505

 

 

2,302

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

Acquired property and equipment for which cash payments had not yet been made

 

$

5,467

 

$

2,466

 

Note receivable received as partial consideration for sale of location

 

 

 

 

24

 

Accrued but unpaid dividends on the Series B Preferred Stock

 

 

268

 

 

252

 

Unrealized gain on investment securities available for sale, net of tax

 

 

16

 

 

 

               

See accompanying notes to unaudited condensed consolidated financial statements.

- 5 -


BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

1.

General

The accompanying condensed consolidated balance sheet as of April 1, 2007, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of and for the three and ten periods ended January 6, 2008 have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnotes normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto for the year ended April 1, 2007 appearing in the Benihana Inc. and Subsidiaries (the “Company”) Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

These unaudited interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of financial position and results of operations. The results of operations for the ten periods (forty weeks) ended January 6, 2008 and December 31, 2006 are not necessarily indicative of the results to be expected for the full year.

On May 18, 2007, the Company’s Board of Directors unanimously declared a three-for-two stock split to be effected by means of a dividend of one-half of one share of Common Stock for each outstanding share of Common Stock and each outstanding share of Class A Common Stock. The stock dividend was paid on June 15, 2007 to holders of record of the Common Stock and Class A Common Stock at the close of business on June 1, 2007. In lieu of distributing a fractional share of Common Stock, the Company paid to stockholders holding an odd number of shares of Common Stock or an odd number of shares of Class A Common Stock, an amount in cash equal to one-third of the closing price of the Common Stock on the NASDAQ National Market System on June 1, 2007, totaling approximately $4,000.

The number and class of shares available upon exercise of any options granted by the Company under its various stock options plans were equitably adjusted to reflect the stock dividend in accordance with the terms of such plans, taking into effect any differential in the closing price of the Common Stock and the Class A Common Stock on June 1, 2007. Applicable terms of all other instruments and agreements to purchase Common Stock or Class A Common Stock were appropriately adjusted to reflect the stock dividend as well. All applicable share and per-share data in these condensed consolidated financial statements and related disclosures have been retroactively adjusted to give effect to this stock split.

Certain amounts shown in the condensed consolidated statement of cash flows for the ten periods ended December 31, 2006 have been reclassified to conform to the current period condensed consolidated statement of cash flows presentation. The changes from amounts previously presented to the condensed consolidated statement of cash flows captions are described below:

 

 

 

-

 

Net decrease in cash and cash equivalents increased by approximately $107,000 during the ten periods ended December 31, 2006; and

-

 

Net cash used in investing activities increased by approximately $107,000 during the ten periods ended December 31, 2006.

- 6 -


BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Company has a 52/53-week fiscal year. The Company’s fiscal year ends on the Sunday occurring within the dates of March 26 and April 1. The Company divides the fiscal year into 13 four-week periods where the first fiscal quarter consists of 4 periods totaling 16 weeks and each of the remaining three quarters consist of 3 periods totaling 12 weeks each. In the event of a 53-week year, the additional week is included in the fourth quarter of the fiscal year. This operating calendar provides for a consistent number of operating days within each period, as well as ensures that certain holidays significant to the Company occur consistently within the same fiscal quarters. Because of the differences in length of fiscal quarters, however, results of operations between the first quarter and the later quarters of a fiscal year are not comparable. The current fiscal year consists of 52 weeks and will end on March 30, 2008. The prior fiscal year ended on April 1, 2007 and consisted of 53 weeks.

 

 

2.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for financial assets and liabilities for fiscal years beginning after November 15, 2007. SFAS No. 157 is effective for nonfinancial assets and liabilities, except those items recognized at fair value on an annual or more frequently recurring basis, for fiscal years beginning after November 15, 2008. The Company is currently reviewing the provisions of SFAS 157 to determine the impact on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides reporting entities an option to report selected financial assets, including investment securities designated as available for sale, and liabilities, including most insurance contracts, at fair value. SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The standard also requires additional information to aid financial statement users’ understanding of a reporting entity’s choice to use fair value on its earnings and also requires entities to display the fair value of those affected assets and liabilities in the primary financial statements. SFAS 159 is effective as of the beginning of a reporting entity’s first fiscal year beginning after November 15, 2007. Application of the standard is optional and any impacts are limited to those financial assets and liabilities to which SFAS 159 would be applied. The Company is currently reviewing the provisions of SFAS 159 to determine the impact, if elected, on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R establishes the principles and requirements on how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree as well as the recognition and measurement of goodwill acquired in a business combination. SFAS 141R also requires certain disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Acquisition costs associated with the business combination will generally be expensed as incurred. SFAS 141R is effective for business combinations occurring in fiscal years beginning after December 15, 2008. Early adoption of SFAS 141R is not permitted. Acquisitions, if any, after the effective date will be accounted for in accordance with SFAS 141R.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 applies to all entities that prepare consolidated financial statements but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS 160 establishes accounting and reporting standards that require noncontrolling interests to be reported as a component of equity, changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value. SFAS 160 is to be applied prospectively to business combinations consummated on or after the beginning of the first annual

- 7 -


BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

reporting period on or after December 15, 2008. Acquisitions, if any, after the effective date will be accounted for in accordance with SFAS 160.

 

 

3.

Inventories

Inventories consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

January 6,
2008

 

April 1,
2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and beverage

 

$

2,575

 

$

2,165

 

Supplies

 

 

3,391

 

 

3,564

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

$

5,966

 

$

5,729

 

 

 

   

 

   

 


 

 

4.

Long-Term Debt

The Company presently has available up to $75 million from Wachovia Bank, National Association (“Wachovia”) under the terms of a line of credit facility entered into on March 15, 2007. The line of credit facility allows the Company to borrow up to $75 million through March 15, 2012, and is secured by the assets of the Company. There are no scheduled payments prior to maturity. The Company may, however, prepay outstanding borrowings prior to that date. The Company has the option to pay interest at Wachovia’s prime rate plus an applicable margin or at the London interbank offering rate plus an applicable margin. The interest rate may vary depending upon the ratio of the sum of the Company’s earnings before interest, taxes, depreciation and amortization, as defined in the agreement, to its indebtedness. The Company also incurs a commitment fee on the unused balance available under the terms of the line of credit, based on a leverage ratio. The agreement requires that the Company maintain certain financial ratios and profitability amounts and limits the payment of cash dividends.

At January 6, 2008, the Company had $6.9 million outstanding under the line of credit facility at an interest rate of 5.38%; borrowings from which were used to fund capital expenditures in connection with its expansion and renovation program. The amount available to be borrowed under the line of credit is reduced on a dollar-for-dollar basis by the cumulative amount of any outstanding letters of credit, which totaled approximately $1.0 million at January 6, 2008. Accordingly, at January 6, 2008, the Company had approximately $67.1 million available for borrowing under the line of credit facility.

As of January 6, 2008, the Company was in compliance with all covenants of the Company’s credit agreement with Wachovia.

 

 

5.

Income Taxes

On April 2, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 addresses the determination of how benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority.

As a result of the implementation of FIN 48, the Company recorded a non-cash cumulative transition charge of approximately $1.4 million as a reduction of retained earnings (see unaudited condensed consolidated statement of stockholders’ equity). As of April 2, 2007, the Company had $3.3 million of unrecognized tax benefits, of which approximately $0.7 million would impact the effective tax rate if recognized. As of January 6, 2008, the Company had $3.5 million of unrecognized tax benefits, of which approximately $0.5 million would impact the tax rate, if recognized.

- 8 -


BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of April 2, 2007, the Company had approximately $0.4 million accrued for the payment of interest and approximately $0.6 million accrued for the payment of penalties related to unrecognized tax benefits. As of January 6, 2008, the Company had approximately $0.4 million accrued for the payment of interest and approximately $0.5 million accrued for the payment of penalties related to unrecognized tax benefits.

The unrecognized tax benefits and related interest and penalties are generally classified as other long term liabilities in the accompanying 2008 condensed consolidated balance sheet. However, approximately $0.4 million is classified as current income tax payable in the accompanying 2008 condensed consolidated balance sheet.

The Company files income tax returns which are periodically audited by various federal and state jurisdictions. With few exceptions, the Company is no longer subject to federal and state income tax examinations for years prior to fiscal year 2005.

During the ten periods ended January 6, 2008, the Company recognized approximately $0.2 million in potential interest and penalties associated with unrecognized tax benefits.

The Company is in the process of applying for accounting method changes concerning the timing of certain deductions for income tax purposes, which are expected to be filed with the Internal Revenue Service during the current fiscal year. The Company estimates that, if approved by the Internal Revenue Service, the amount of unrecognized tax benefits could be reduced by approximately $2.9 million within the next twelve months.

 

 

6.

Earnings Per Share

Basic earnings per common share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding during each period. The diluted earnings per common share computation includes dilutive common share equivalents issued under the Company’s various stock option plans and conversion rights of Series B Preferred Stock.

The following data shows the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock (in thousands):

- 9 -


BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

Ten Periods Ended

 

 

 

 

 

 

 

 

 

January 6,
2008

 

December 31,
2006

 

January 6,
2008

 

December 31,
2006

 

 

 

 

 

 

 

 

 

 

 

Net income, as reported

 

$

3,171

 

$

3,279

 

$

9,886

 

$

10,423

 

Less: Accretion of issuance costs and preferred stock dividends

 

 

250

 

 

272

 

 

834

 

 

834

 

 

 

   

 

   

 

   

 

   

 

Income for computation of basic earnings per common share

 

 

2,921

 

 

3,007

 

 

9,052

 

 

9,589

 

Add: Accretion of issuance costs and preferred stock dividends

 

 

250

 

 

272

 

 

834

 

 

834

 

 

 

   

 

   

 

   

 

   

 

 

Income for computation of diluted earnings per common share

 

$

3,171

 

$

3,279

 

$

9,886

 

$

10,423

 

 

 

   

 

   

 

   

 

   

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

Ten Periods Ended

 

 

 

 

 

 

 

 

 

January 6,
2008

 

December 31,
2006

 

January 6,
2007

 

December 31,
2006

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares used in basic earnings per share

 

 

15,252

 

 

14,889

 

 

15,147

 

 

14,814

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

278

 

 

845

 

 

387

 

 

828

 

Series B Preferred Stock

 

 

1,600

 

 

1,599

 

 

1,600

 

 

1,599

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares and dilutive potential common stock used in diluted earnings per share

 

 

17,130

 

 

17,333

 

 

17,134

 

 

17,241

 

 

 

   

 

   

 

   

 

   

 

Stock options to purchase 255,000 shares of common stock were excluded from the calculation of diluted earnings per share due to their anti-dilutive effect for the three and ten periods ended January 6, 2008. For the three and ten periods ended December 31, 2006, no stock options to purchase common stock were excluded from the calculation of diluted earnings per share.

 

 

7.

Stock-Based Compensation

On November 2, 2007, the Company’s shareholders approved the 2007 Equity Incentive Plan. As of that date, all future awards are to be granted under the 2007 Equity Incentive Plan. Therefore, the Company no longer grants options under any of its previously approved plans, including: the 2003 Directors’ Stock Option Plan, 2000 Employees Class A Stock Option Plan, 1997 Employees Class A Stock Option Plan, and Amended and Restated Directors’ Stock Option Plan (together, the “Prior Option Plans”). All outstanding options issued under such Prior Option Plans will not be affected and will continue to be outstanding in accordance with their terms and the terms of the Prior Option Plan pursuant to which they were issued. The number of shares of Class A stock available for grant under the 2007 Equity Incentive Plan is 750,000, of which a maximum of 550,000 may be issued upon the exercise of incentive stock options. As of January 6, 2008, of these amounts, the Company has granted options to purchase 70,000 shares of Class A Stock, leaving 680,000 shares available for future grants.

The purpose of the 2007 Equity Incentive Plan is to enable the Company to attract, retain and motivate key employees and non-employee directors by providing them equity participation. The plan provides for incentive stock options (ISO’s) under Section 422 of the Internal Revenue Code of 1986, as amended, and for options which are not ISO’s, stock appreciation rights (SARs), stock grants and stock equivalent units. Options, SARs and stock equivalent units granted under the employee plans may not have terms exceeding ten years (in the case of optionees holding 10% or more of the combined voting rights of the

- 10 -


BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Company’s securities, ISO’s may not have terms exceeding five years), and may not provide for an option exercise price of less than 100% of the fair market value of the Company’s Class A Stock on the day of the grant (110% of such fair market value in the case of optionees holding 10% or more of the combined voting rights of the Company’s securities).

The Company recorded approximately $0.2 million (approximately $0.1 million, net of tax) and approximately $0.5 million (approximately $0.3 million, net of tax) in stock compensation expense during the three and ten periods ended January 6, 2008, respectively. The Company recorded approximately $0.1 million (approximately less than $0.1 million, net of tax) and approximately $0.3 million (approximately $0.2 million, net of tax) in stock compensation expense during the three and ten periods ended December 31, 2006, respectively.

Options to purchase 70,000 shares of Class A common stock were granted during the three and ten periods ended January 6, 2008. Options to purchase 70,000 shares of Class A Common Stock and 35,000 shares of Common Stock, as adjusted, were granted during the three and ten periods ended December 31, 2006. The following assumptions were used in the Black-Scholes option pricing model used in valuing options granted: a risk-free interest rate of 3.4% and 4.6% for fiscal years 2008 and 2007, respectively; an expected life of three years; no expected dividend yield; and a volatility factor of 46% and 44% for fiscal years 2008 and 2007, respectively.

The following is a summary of stock option activity for the ten periods ended January 6, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Weighted
Average
Exercise
Price

 

Weighted
Average
Remaining
Contractual
Life

 

Aggregate
Intrinsic
Value

 

 

 

 

 

 

 

 

 

 

 

Outstanding at April 1, 2007

 

 

1,560,922

 

$

9.21

 

4.6

 

$

15,048,000

 

Granted

 

 

70,000

 

 

16.36

 

 

 

 

 

 

Canceled/Expired

 

 

(11,164

)

 

17.33

 

 

 

 

 

 

Exercised

 

 

(328,820

)

 

7.99

 

 

 

 

 

 

 

 

   

 

   

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at January 6, 2008

 

 

1,290,938

 

$

9.84

 

4.5

 

$

2,804,000

 

 

 

   

 

   

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at January 6, 2008

 

 

1,189,271

 

$

9.22

 

4.0

 

$

2,804,000

 

 

 

   

 

   

 

 

 

   

 

The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. For the three periods ended January 6, 2008 and December 31, 2006, the total intrinsic value of stock options exercised was approximately $0.1 million and $0.5 million, respectively. For the ten periods ended January 6, 2008 and December 31, 2006, the total intrinsic value of stock options exercised was approximately $4.0 million and $3.2 million, respectively. Proceeds from stock options exercised during the ten periods ended January 6, 2008 and December 31, 2006 totaled approximately $2.6 million and $2.1 million, respectively. Upon the exercise of stock options, shares are issued from new issuances of stock. The tax benefit realized for tax deductions from stock options exercised during the ten periods ended January 6, 2008 and December 31, 2006 totaled approximately $1.3 million and $1.1 million, respectively. As of January 6, 2008, total unrecognized compensation cost related to non-vested share-based compensation totaled approximately $0.6 million and is expected to be recognized over approximately 2 years.

 

 

8.

Commitments and Contingencies

Haru Minority Interest

In December 1999, the Company completed the acquisition of 80% of the equity of Haru Holding Corp. (“Haru”). The acquisition was accounted for using the purchase method of accounting. Pursuant to the purchase agreement, at any time during the period from July 1, 2005 through September 30, 2005, the holders of the balance of Haru’s equity (the “Minority Stockholders”) had a one-time option to sell their remaining shares to the Company (the “put option”). The exercise price under the put option was to be calculated as four and one-half (4½) times Haru’s consolidated cash flow for the fiscal year ended March

- 11 -


BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

27, 2005 less the amount of Haru’s debt (as that term is defined in the purchase agreement) at the date of the computation.

On July 1, 2005, the Minority Stockholders exercised the put option.

The Company believes that the proper application of the put option price formula would result in a payment to the former Minority Stockholders of approximately $3.7 million. The Company has offered to pay such amount to the former Minority Stockholders and recorded a $3.7 million liability with respect thereto.

On August 25, 2006, the former Minority Stockholders sued the Company. The suit (which was originally filed in the Supreme Court of the State of New York, County of New York, but has been removed to the United States District Court for the Southern District of New York) seeks an award of $10.7 million based on the former Minority Stockholders’ own calculation of the put option price formula and actions allegedly taken by the Company to reduce the value of the put option.

On December 19, 2007, the Court dismissed all of the claims against the Company, except for the breach of fiduciary duty and breach of contract claims. On January 25, 2008, the Company filed its Answer and Affirmative Defenses to the Amended Complaint. The Court has set a discovery deadline of July 25, 2008.

The Company believes that it has correctly calculated the put option price and that the claims of the former Minority Stockholders are without merit. However, there can be no assurance as to the outcome of this litigation.

Other Litigation

On May 17, 2007, Benihana Monterey Corporation, a subsidiary of the Company, filed a complaint in the action, Benihana Monterey Corporation v. Nara Benihana Monterey, Inc., et al, , pending in the Superior Court of California, County of Monterey. The action was commenced against various defendants in connection with a default on a Promissory Note in the amount of $375,000 signed by one of the Company’s franchisees and a Personal Guaranty signed by the owner of such franchise. The Company seeks $375,000 plus interest and costs and has attached certain of the defendants’ assets by way of an Attachment Order. The franchisee has filed a counter-claim alleging certain misrepresentations by the Company, and the Company has filed an answer to the counter-claim denying the allegations contained therein. The Company has sent defendants discovery requests to explore the defenses to its claim and the merits of the franchisee’s counter-claim. The Company believes these allegations are without merit and is taking all appropriate actions to prosecute its claim. The Company continues to evaluate the collectability of the outstanding balance. As of January 6, 2008, no loss for uncollectability had been recognized.

On August 3, 2007, the Company was served with a complaint in the action, National Cable Communications, LLC v. The Romann Group and Benihana Inc., pending in the Supreme Court of the State of New York. In this action, plaintiff alleges that the Company is jointly and severally liable with its co-defendant, the Romann Group, for spot cable advertisements allegedly purchased by Romann Group, on behalf of the Company and placed by plaintiff. Plaintiff’s complaint demands judgment of approximately $570,000 plus interest, costs and disbursements. The Company has answered the complaint, denying liability with respect to the plaintiff’s claims and has asserted cross-claims against the Romann Group. The Romann Group served its answer in this action denying the Company’s cross claims and asserted counterclaims against the plaintiff and cross-claims against the Company for unspecified damages. The Company believes that both the plaintiff’s and the Romann Group’s cross-claims are without merit and will vigorously defend against the claims.

The Company is not subject to any other pending legal proceedings, other than ordinary routine claims incidental to its business, which the Company does not believe will materially impact results of operations.

- 12 -


BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Supply Agreements

The Company has entered into non-cancellable supply agreements for the purchase of beef and certain seafood items, in the normal course of business, at fixed prices for periods generally between six and twelve months. These supply agreements will eliminate volatility in the cost of the commodities over the terms of the agreements. These supply agreements are not considered derivative contracts.

 

 

9.

Restaurant Operating Expenses

Restaurant operating expenses consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

Ten Periods Ended

 

 

 

 

 

 

 

 

 

January 6,
2008

 

December 31,
2006

 

January 6,
2008

 

December 31,
2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Labor and related costs

 

$

23,673

 

$

20,962

 

$

76,460

 

$

67,517

 

Restaurant supplies

 

 

1,630

 

 

1,487

 

 

5,167

 

 

4,570

 

Credit card discounts

 

 

1,354

 

 

1,143

 

 

4,281

 

 

3,700

 

Utilities

 

 

1,726

 

 

1,489

 

 

5,918

 

 

5,177

 

Occupancy costs

 

 

4,024

 

 

3,870

 

 

13,384

 

 

12,091

 

Depreciation and amortization

 

 

3,739

 

 

3,135

 

 

12,477

 

 

10,299

 

Other restaurant operating expenses

 

 

5,282

 

 

4,109

 

 

17,006

 

 

14,442

 

 

 

   

 

   

 

   

 

   

 

Total restaurant operating expenses

 

$

41,428

 

$

36,195

 

$

134,693

 

$

117,796

 

 

 

   

 

   

 

   

 

   

 


 

 

10.

Segment Reporting

The Company’s reportable segments are those that are based on the Company’s methods of internal reporting and management structure. The Company manages operations by restaurant concept.

Revenues for each of the segments consist of restaurant sales. Franchise revenues, while generated from Benihana franchises, have not been allocated to the Teppanyaki segment. Franchise revenues are reflected as corporate revenues.

The table below presents information about reportable segments (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

 

 

 

 

 

 

January 6, 2008

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi Doraku

 

Corporate

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

51,666

 

$

9,731

 

$

8,042

 

$

 

$

375

 

$

69,814

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

7,032

 

 

(345

)

 

664

 

 

 

 

(2,743

)

 

4,608

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

6,077

 

 

2,638

 

 

2,506

 

 

 

 

 

 

11,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

 

 

 

 

 

 

December 31, 2006

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi Doraku

 

Corporate

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

46,061

 

$

8,628

 

$

7,178

 

$

 

$

335

 

$

62,202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

5,805

 

 

212

 

 

1,369

 

 

 

 

(2,217

)

 

5,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

3,506

 

 

1,565

 

 

 

 

 

 

 

 

5,071

 

- 13 -


BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ten Periods Ended

 

 

 

 

 

 

 

January 6, 2008

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi Doraku

 

Corporate

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

166,151

 

$

33,287

 

$

25,956

 

$

 

$

1,324

 

$

226,718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

20,297

 

 

746

 

 

3,432

 

 

 

 

(9,453

)

 

15,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

25,621

 

 

6,530

 

 

9,636

 

 

 

 

 

 

41,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ten Periods Ended

 

 

 

 

 

 

 

December 31, 2006

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi Doraku

 

Corporate

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

147,756

 

$

28,127

 

$

23,778

 

$

185

 

$

1,178

 

$

201,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

16,807

 

 

1,859

 

 

4,400

 

 

69

 

 

(7,227

)

 

15,908

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

21,823

 

 

6,129

 

 

440

 

 

 

 

 

 

28,392

 


 

 

11.

Related Party Transaction

During October 2007, the Company entered into a lease for a Benihana restaurant to be located in Orlando, Florida. The landlord is Bluegreen Vacations Unlimited, Inc., a subsidiary of Bluegreen Corporation. Two directors of the Company are also directors of Bluegreen Corporation.

- 14 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company’s revenues consist of sales of food and beverages at the Company’s restaurants and licensing fees from franchised restaurants. Cost of restaurant food and beverages sold represents the direct cost of the ingredients for the prepared food and beverages sold. Restaurant operating expenses consist of direct and indirect labor, occupancy costs, advertising and other costs that are directly attributed to each restaurant location. Restaurant opening costs include rent paid during the development period, as well as labor, training expenses and certain other pre-opening charges which are expensed as incurred.

Restaurant revenues and expenses are dependent upon a number of factors including the number of restaurants in operation, restaurant patronage and the average check amount. Expenses are additionally dependent upon commodity costs, average wage rates, marketing costs and the costs of administering restaurant operations.

The following tables reflect changes in restaurant count during the three and ten periods January 6, 2008 and December 31, 2006:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

 

 

 

 

 

 

January 6, 2008

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi
Doraku

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant count, beginning of period

 

 

60

 

 

14

 

 

7

 

 

 

 

81

 

Openings

 

 

 

 

2

 

 

2

 

 

 

 

4

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant count, end of period

 

 

60

 

 

16

 

 

9

 

 

 

 

85

 

 

 

   

 

   

 

   

 

   

 

   

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

 

 

 

 

 

 

December 31, 2006

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi
Doraku

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant count, beginning of period

 

 

58

 

 

11

 

 

7

 

 

 

 

76

 

Openings

 

 

1

 

 

2

 

 

 

 

 

 

3

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant count, end of period

 

 

59

 

 

13

 

 

7

 

 

 

 

79

 

 

 

   

 

   

 

   

 

   

 

   

 

- 15 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ten Periods Ended

 

 

 

 

 

 

 

January 6, 2008

 

 

 

 

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi Doraku

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant count, beginning of period

 

 

59

 

 

13

 

 

7

 

 

 

 

79

 

Openings

 

 

2

 

 

3

 

 

2

 

 

 

 

7

 

Closings

 

 

(1

)

 

 

 

 

 

 

 

(1

)

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant count, end of period

 

 

60

 

 

16

 

 

9

 

 

 

 

85

 

 

 

   

 

   

 

   

 

   

 

   

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ten Periods Ended

 

 

 

 

 

 

 

December 31, 2006

 

 

 

 

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi Doraku

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant count, beginning of period

 

 

56

 

 

9

 

 

7

 

 

1

 

 

73

 

Openings

 

 

2

 

 

4

 

 

 

 

 

 

6

 

Acquisition

 

 

1

 

 

 

 

 

 

 

 

1

 

Sale to Related Party

 

 

 

 

 

 

 

 

(1

)

 

(1

)

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant count, end of period

 

 

59

 

 

13

 

 

7

 

 

 

 

79

 

 

 

   

 

   

 

   

 

   

 

   

 

As of January 6, 2008, there were also 18 franchised Teppanyaki restaurants operating in the United States, Latin America and the Caribbean.

Revenues increased 12.2% and 12.8% in the current three and ten periods ended January 6, 2008, respectively, when compared to the corresponding period a year ago. Net income decreased 3.3% and 5.2% in the current three and ten periods ended January 6, 2008, respectively, when compared to the corresponding period a year ago. Earnings per diluted share were unchanged in the current three periods ended January 6, 2008 when compared to the corresponding period a year ago. Earnings per diluted share decreased 3.3% in the current ten periods ended January 6, 2008, when compared to the corresponding period a year ago. For purposes of calculating diluted earnings per share, the Company experienced a decrease of 1.2% and 0.6% in the diluted weighted average shares outstanding for the current three and ten periods ended January 6, 2008, respectively, when compared to the corresponding period a year ago.

REVENUES

Three Periods Ended January 6, 2008 Compared to December 31, 2006:

The amounts of revenues and the changes in amount and percentage change in amount of revenues when compared to the same period in the prior year are shown in the following tables (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

Change

 

 

 

 

 

 

 

 

 

January 6,
2008

 

December 31,
2006

 

$

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant sales

 

$

69,439

 

$

61,867

 

$

7,572

 

 

12.2

%

Franchise fees and royalties

 

 

375

 

 

335

 

 

40

 

 

11.9

%

 

 

   

 

   

 

   

 

   

 

Total revenues

 

$

69,814

 

$

62,202

 

$

7,612

 

 

12.2

%

 

 

   

 

   

 

   

 

   

 

Components of restaurant revenues consisted of the following (in thousands):

- 16 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

Change

 

 

 

 

 

 

 

 

 

January 6,
2008

 

December 31,
2006

 

$

 

%

 

 

 

 

 

 

 

 

 

 

 

Total restaurant sales by concept:

 

 

 

 

 

 

 

 

 

 

 

 

 

Teppanyaki

 

$

51,666

 

$

46,061

 

$

5,605

 

 

12.2

%

RA Sushi

 

 

9,731

 

 

8,628

 

 

1,103

 

 

12.8

%

Haru

 

 

8,042

 

 

7,178

 

 

864

 

 

12.0

%

Sushi Doraku

 

 

 

 

 

 

 

 

 

 

 

   

 

   

 

   

 

   

 

Total restaurant sales

 

$

69,439

 

$

61,867

 

$

7,572

 

 

12.2

%

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparable restaurant sales by concept:

 

 

 

 

 

 

 

 

 

 

 

 

 

Teppanyaki

 

$

45,145

 

$

43,942

 

$

1,203

 

 

2.7

%

RA Sushi

 

 

8,321

 

 

8,628

 

 

(307

)

 

-3.6

%

Haru

 

 

7,190

 

 

7,178

 

 

12

 

 

0.2

%

Sushi Doraku

 

 

 

 

 

 

 

 

 

 

 

   

 

   

 

   

 

   

 

Total comparable restaurant sales

 

$

60,656

 

$

59,748

 

$

908

 

 

1.5

%

 

 

   

 

   

 

   

 

   

 

The increase in Teppanyaki comparable sales was primarily the result of an 11.8% increase in the average per person guest check offset by a decrease of 8.0% in guest counts for Teppanyaki restaurants opened longer than one year. This decrease in guest counts was primarily experienced in lunch traffic. Comparable Teppanyaki guest counts during the dinner daypart decreased by 2.6%. RA Sushi’s decrease in comparable sales was primarily driven by a 5.8% decrease in guest counts at locations opened longer than one year offset by a 2.1% increase in the average per person guest check. Haru’s comparable sales increase was primarily comprised of a 3.7% increase in the average per person guest check offset by a decrease of 2.5% in guest counts at locations open longer than one year.

The Company believes that recent decreases in comparable guest counts are reflective of the current economic conditions impacting consumers.

The following table summarizes the changes in restaurant sales between the three periods ended January 6, 2008 and December 31, 2006 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi Doraku

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant sales during the three periods ended December 31, 2006

 

$

46,061

 

$

8,628

 

$

7,178

 

$

 

$

61,867

 

Increase (decrease) in comparable sales

 

 

1,203

 

 

(307

)

 

12

 

 

 

 

908

 

Increase from new restaurants

 

 

2,137

 

 

1,410

 

 

852

 

 

 

 

4,399

 

Decrease from closed restaurant

 

 

(664

)

 

 

 

 

 

 

 

(664

)

Increase from temporary closures

 

 

2,929

 

 

 

 

 

 

 

 

2,929

 

 

 

   

 

   

 

   

 

   

 

   

 

Restaurant sales during the three periods ended January 6, 2008

 

$

51,666

 

$

9,731

 

$

8,042

 

$

 

$

69,439

 

 

 

   

 

   

 

   

 

   

 

   

 

Ten Periods Ended January 6, 2008 Compared to December 31, 2006:

The amounts of revenues and the changes in amount and percentage change in amount of revenues when compared to the same period in the prior year are shown in the following tables (in thousands):

- 17 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ten Periods Ended

 

Change

 

 

 

 

 

 

 

 

 

January 6,
2008

 

December 31,
2006

 

$

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant sales

 

$

225,394

 

$

199,846

 

$

25,548

 

 

12.8

%

Franchise fees and royalties

 

 

1,324

 

 

1,178

 

 

146

 

 

12.4

%

 

 

   

 

   

 

   

 

   

 

Total revenues

 

$

226,718

 

$

201,024

 

$

25,694

 

 

12.8

%

 

 

   

 

   

 

   

 

   

 

Components of restaurant revenues consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ten Periods Ended

 

Change

 

 

 

 

 

 

 

 

 

January 6,
2008

 

December 31,
2006

 

$

 

%

 

 

 

 

 

 

 

 

 

 

 

Total restaurant sales by concept:

 

 

 

 

 

 

 

 

 

 

 

 

 

Teppanyaki

 

$

166,151

 

$

147,756

 

$

18,395

 

 

12.4

%

RA Sushi

 

 

33,287

 

 

28,127

 

 

5,160

 

 

18.3

%

Haru

 

 

25,956

 

 

23,778

 

 

2,178

 

 

9.2

%

Sushi Doraku

 

 

 

 

185

 

 

(185

)

 

-100.0

%

 

 

   

 

   

 

   

 

   

 

Total restaurant sales

 

$

225,394

 

$

199,846

 

$

25,548

 

 

12.8

%

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparable restaurant sales by concept:

 

 

 

 

 

 

 

 

 

 

 

 

 

Teppanyaki

 

$

145,515

 

$

139,955

 

$

5,560

 

 

4.0

%

RA Sushi

 

 

28,570

 

 

28,132

 

 

438

 

 

1.6

%

Haru

 

 

25,104

 

 

23,778

 

 

1,326

 

 

5.6

%

Sushi Doraku

 

 

 

 

 

 

 

 

 

 

 

   

 

   

 

   

 

   

 

Total comparable restaurant sales

 

$

199,189

 

$

191,865

 

$

7,324

 

 

3.8

%

 

 

   

 

   

 

   

 

   

 

The increase in Teppanyaki comparable sales was the result of a 9.9% increase in the average per person guest check offset by a decrease of 5.1% in guest counts for Teppanyaki restaurants opened longer than one year. This decrease in guest counts was primarily experienced in lunch traffic. Comparable Teppanyaki guest counts during the dinner daypart were unchanged in the current ten periods when compared to the corresponding period a year ago. RA Sushi’s increase in comparable sales was primarily driven by a 2.8% increase in the average per person guest check offset by a decrease of 0.8% in guest counts at locations opened longer than one year. Haru’s comparable sales increase was primarily comprised of a 5.1% increase in guest counts at locations opened longer than one year and a 1.1% increase in average per person guest check.

As noted above, the Company believes that recent decreases in comparable guest counts are reflective of the current economic conditions impacting consumers.

The following table summarizes the changes in restaurant sales between the ten periods ended January 6, 2008 and December 31, 2006 (in thousands):

- 18 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi Doraku

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant sales during the ten periods ended December 31, 2006

 

$

147,756

 

$

28,127

 

$

23,778

 

$

185

 

$

199,846

 

Increase in comparable sales

 

 

5,560

 

 

438

 

 

1,326

 

 

 

 

7,324

 

Increase from new restaurants

 

 

8,846

 

 

4,722

 

 

852

 

 

 

 

14,420

 

Decrease from closed or sold restaurants

 

 

(1,655

)

 

 

 

 

 

(185

)

 

(1,840

)

Increase from temporary closures

 

 

5,644

 

 

 

 

 

 

 

 

5,644

 

 

 

   

 

   

 

   

 

   

 

   

 

Restaurant sales during the ten periods ended January 6, 2008

 

$

166,151

 

$

33,287

 

$

25,956

 

$

 

$

225,394

 

 

 

   

 

   

 

   

 

   

 

   

 

COSTS AND EXPENSES

Three Periods Ended January 6, 2008 Compared to December 31, 2006:

The following table summarizes costs and expenses by concept, as well as consolidated, for the three periods ended January 6, 2008 and December 31, 2006 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

 

 

 

 

 

 

January 6, 2008

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi
Doraku

 

Corporate

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of food and beverage sales

 

$

12,163

 

$

2,382

 

$

1,798

 

$

 

$

 

$

16,343

 

Restaurant operating expenses

 

 

30,459

 

 

6,054

 

 

4,915

 

 

 

 

 

 

41,428

 

Restaurant opening costs

 

 

196

 

 

713

 

 

318

 

 

 

 

 

 

1,227

 

Marketing, general and administrative expenses

 

 

1,816

 

 

927

 

 

347

 

 

 

 

3,118

 

 

6,208

 

 

 

   

 

   

 

   

 

   

 

   

 

   

 

Total operating expenses

 

$

44,634

 

$

10,076

 

$

7,378

 

$

 

$

3,118

 

$

65,206

 

 

 

   

 

   

 

   

 

   

 

   

 

   

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

 

 

 

 

 

 

December 31, 2006

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi
Doraku

 

Corporate

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of food and beverage sales

 

$

11,443

 

$

2,141

 

$

1,569

 

$

 

$

 

$

15,153

 

Restaurant operating expenses

 

 

27,081

 

 

5,200

 

 

3,914

 

 

 

 

 

 

36,195

 

Restaurant opening costs

 

 

14

 

 

349

 

 

 

 

 

 

 

 

363

 

Marketing, general and administrative expenses

 

 

1,718

 

 

726

 

 

326

 

 

 

 

2,552

 

 

5,322

 

 

 

   

 

   

 

   

 

   

 

   

 

   

 

Total operating expenses

 

$

40,256

 

$

8,416

 

$

5,809

 

$

 

$

2,552

 

$

57,033

 

 

 

   

 

   

 

   

 

   

 

   

 

   

 

The following table summarizes costs and expenses as a percentage of restaurant sales by concept, as well as consolidated, for the three periods ended January 6, 2008 and December 31, 2006:

- 19 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

 

 

 

 

 

 

January 6, 2008

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi
Doraku

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of food and beverage sales

 

 

23.5

%

 

24.5

%

 

22.4

%

 

 

 

23.5

%

Restaurant operating expenses

 

 

59.0

%

 

62.2

%

 

61.1

%

 

 

 

59.7

%

Restaurant opening costs

 

 

0.4

%

 

7.3

%

 

4.0

%

 

 

 

1.8

%

Marketing, general and administrative expenses

 

 

3.5

%

 

9.5

%

 

4.3

%

 

 

 

8.9

%

 

 

   

 

   

 

   

 

   

 

   

 

Total operating expenses

 

 

86.4

%

 

103.5

%

 

91.7

%

 

 

 

93.9

%

 

 

   

 

   

 

   

 

   

 

   

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Periods Ended

 

 

 

 

 

 

 

December 31, 2006

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi
Doraku

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of food and beverage sales

 

 

24.8

%

 

24.8

%

 

21.9

%

 

 

 

24.5

%

Restaurant operating expenses

 

 

58.8

%

 

60.3

%

 

54.5

%

 

 

 

58.5

%

Restaurant opening costs

 

 

 

 

4.0

%

 

 

 

 

 

0.6

%

Marketing, general and administrative expenses

 

 

3.7

%

 

8.4

%

 

4.5

%

 

 

 

8.6

%

 

 

   

 

   

 

   

 

   

 

   

 

Total operating expenses

 

 

87.4

%

 

97.5

%

 

80.9

%

 

 

 

92.2

%

 

 

   

 

   

 

   

 

   

 

   

 

Cost of food and beverage sales

The cost of food and beverage sales increased in the current three periods in total dollar amount but decreased when expressed as a percentage of restaurant sales when compared to the corresponding period a year ago. Cost of food and beverage sales, which is generally variable with sales, increased with the increase in restaurant sales during the current three periods ended January 6, 2008. The decrease, when expressed as a percentage of sales, during the current three periods is attributable to menu price increases, effected at the beginning of the current fiscal year, at the Company’s Teppanyaki locations, and during three periods ended October 14, 2007, at the Company’s RA Sushi and Haru locations. The Teppanyaki menu prices were increased by approximately 7% and the RA Sushi and Haru menu prices were increased by approximately 3% in order to offset increases in commodity costs and minimum wage rates.

Restaurant operating expenses

Restaurant operating expenses increased in amount and when expressed as a percentage of restaurant sales when compared to the corresponding period a year ago. The majority of the increase is consistent with the increase in sales experienced between periods.

During the third quarter of fiscal 2007, the Company recognized business interruption insurance proceeds of approximately $0.3 million related to one of its Teppanyaki restaurants damaged by fire. No similar proceeds were recognized during the current year third quarter.

The Company recognized additional depreciation expense totaling approximately $0.3 million during both the three periods ended January 6, 2008 and the three periods ended December 31, 2006, which resulted from reevaluating the remaining useful lives of assets at Teppanyaki restaurants to be renovated as part of its rejuvenation program. During the three periods ended January 6, 2008 and December 31, 2006, the Company continued to incur approximately $0.2 million and $0.6 million in ongoing expenses at Teppanyaki restaurants temporarily closed for remodeling, respectively.

During the third quarter of fiscal 2008, inefficiencies associated with new store openings were realized because two new RA Sushi restaurants and two new Haru restaurants opened during the quarter. Operating efficiencies at RA Sushi were also negatively impacted by decreasing comparable sales during

- 20 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

the current quarter.

Restaurant opening costs

Restaurant opening costs increased in the three periods ended January 6, 2008 compared to the prior year corresponding period. The increase in the current three periods when compared to the equivalent period a year ago is attributable to increased development activity.

Marketing, general and administrative costs

Marketing, general and administrative costs increased in absolute amount and when expressed as a percentage of sales in the three periods ended January 6, 2008 when compared to the prior year corresponding period. These increases are directly related to the continued expansion of the Company’s infrastructure to support planned development, as evidenced at RA Sushi and on a consolidated basis. Accordingly, the Company expects marketing, general and administrative costs, when expressed as a percentage of sales, to be greater than the prior year on an annualized basis.

Interest income, net and income taxes

Interest income, net increased in the three periods ended January 6, 2008 when compared to the corresponding period of the prior year.

The Company’s effective income tax rate was 33.3% and 37.0%, for the three periods ended January 6, 2008 and December 31, 2006, respectively. During the current quarter, the effective income tax rate was favorably impacted primarily by fluctuations in pretax book income as well as federal tax credits.

Ten Periods Ended January 6, 2008 Compared to December 31, 2006:

The following table summarizes costs and expenses by concept, as well as consolidated, for the ten periods ended January 6, 2008 and December 31, 2006 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ten Periods Ended

 

 

 

 

 

 

 

January 6, 2008

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi
Doraku

 

Corporate

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of food and beverage sales

 

$

39,065

 

$

8,187

 

$

5,789

 

$

 

$

 

$

53,041

 

Restaurant operating expenses

 

 

100,074

 

 

19,820

 

 

14,799

 

 

 

 

 

 

134,693

 

Restaurant opening costs

 

 

667

 

 

1,273

 

 

748

 

 

 

 

 

 

2,688

 

Marketing, general and administrative expenses

 

 

6,048

 

 

3,261

 

 

1,188

 

 

 

 

10,777

 

 

21,274

 

 

 

   

 

   

 

   

 

   

 

   

 

   

 

Total operating expenses

 

$

145,854

 

$

32,541

 

$

22,524

 

$

 

$

10,777

 

$

211,696

 

 

 

   

 

   

 

   

 

   

 

   

 

   

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ten Periods Ended

 

 

 

 

 

 

 

 

 

December 31, 2006

 

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi
Doraku

 

Corporate

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of food and beverage sales

 

$

36,174

 

$

7,117

 

$

5,264

 

$

63

 

$

 

$

48,618

 

Restaurant operating expenses

 

 

88,338

 

 

16,182

 

 

13,223

 

 

53

 

 

 

 

117,796

 

Restaurant opening costs

 

 

361

 

 

712

 

 

1

 

 

 

 

 

 

1,074

 

Marketing, general and administrative expenses

 

 

6,076

 

 

2,257

 

 

890

 

 

 

 

8,405

 

 

17,628

 

 

 

   

 

   

 

   

 

   

 

   

 

   

 

Total operating expenses

 

$

130,949

 

$

26,268

 

$

19,378

 

$

116

 

$

8,405

 

$

185,116

 

 

 

   

 

   

 

   

 

   

 

   

 

   

 

The following table summarizes costs and expenses as a percentage of restaurant sales by concept, as well as consolidated, for the ten periods ended January 6, 2008 and December 31, 2006:

- 21 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ten Periods Ended

 

 

 

 

 

 

 

January 6, 2008

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi
Doraku

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of food and beverage sales

 

 

23.5

%

 

24.6

%

 

22.3

%

 

 

 

23.5

%

Restaurant operating expenses

 

 

60.2

%

 

59.5

%

 

57.0

%

 

 

 

59.8

%

Restaurant opening costs

 

 

0.4

%

 

3.8

%

 

2.9

%

 

 

 

1.2

%

Marketing, general and administrative expenses

 

 

3.6

%

 

9.8

%

 

4.6

%

 

 

 

9.4

%

 

 

   

 

   

 

   

 

   

 

   

 

Total operating expenses

 

 

87.8

%

 

97.8

%

 

86.8

%

 

 

 

93.9

%

 

 

   

 

   

 

   

 

   

 

   

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ten Periods Ended

 

 

 

 

 

 

 

December 31, 2006

 

 

 

 

 

 

 

Teppanyaki

 

RA Sushi

 

Haru

 

Sushi
Doraku

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of food and beverage sales

 

 

24.5

%

 

25.3

%

 

22.1

%

 

34.1

%

 

24.3

%

Restaurant operating expenses

 

 

59.8

%

 

57.5

%

 

55.6

%

 

28.6

%

 

58.9

%

Restaurant opening costs

 

 

0.2

%

 

2.5

%

 

 

 

 

 

0.5

%

Marketing, general and administrative expenses

 

 

4.1

%

 

8.0

%

 

3.7

%

 

 

 

8.8

%

 

 

   

 

   

 

   

 

   

 

   

 

Total operating expenses

 

 

88.6

%

 

93.4

%

 

81.5

%

 

62.7

%

 

92.6

%

 

 

   

 

   

 

   

 

   

 

   

 

Cost of food and beverage sales

The cost of food and beverage sales increased in the current ten periods in total dollar amount but decreased when expressed as a percentage of restaurant sales when compared to the corresponding period a year ago. Cost of food and beverage sales, which is generally variable with sales, increased with the increase in restaurant sales during the current ten periods ended January 6, 2008. The decrease, when expressed as a percentage of sales, during the current ten periods is attributable to menu price increases, effected at the beginning of the current fiscal year, at the Company’s Teppanyaki locations, and during the three periods ended October 14, 2007, at the Company’s RA Sushi and Haru locations. The Teppanyaki menu prices were increased by approximately 7%, and the RA Sushi and Haru menu prices were increased by approximately 3% in order to offset increases in commodity costs and minimum wage rates.

Restaurant operating expenses

Restaurant operating expenses increased in amount and when expressed as a percentages of restaurant sales when compared to the corresponding period a year ago. The majority of the increase is consistent with the increase in sales experienced between periods.

During the third quarter of fiscal 2007, the Company recognized business interruption insurance proceeds of approximately $0.3 million related to one of its Teppanyaki restaurants damaged by fire. No similar proceeds were recognized during the current year.

The Company recognized additional depreciation expense totaling approximately $2.1 million during the ten periods ended January 6, 2008 and approximately $1.5 million for the ten periods ended December 31, 2006, which resulted from reevaluating the remaining useful lives of assets at Teppanyaki restaurants to be renovated as part of its rejuvenation program. During both the ten periods ended January 6, 2008 and the ten periods ended December 31, 2006, the Company continued to incur approximately $1.4 million in ongoing expenses at Teppanyaki restaurants temporarily closed for remodeling.

During the ten periods ended January 6, 2008, inefficiencies associated with new store openings were

- 22 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

realized because three new RA Sushi restaurants and two new Haru restaurants opened during the current fiscal year. Operating efficiencies at RA Sushi were also negatively impacted by decreasing comparable sales during the three periods ended January 6, 2008.

Restaurant opening costs

Restaurant opening costs increased in the ten periods ended January 6, 2008 compared to the prior year corresponding period. The increase in the ten periods ended January 6, 2008 when compared to the equivalent period a year ago is attributable to increased development activity.

Marketing, general and administrative costs

Marketing, general and administrative costs increased in absolute amount and when expressed as a percentage of sales in the ten periods ended January 6, 2008 when compared to the prior year corresponding period. These increases are directly related to the continued expansion of the Company’s infrastructure to support planned development, as evidenced at RA Sushi and on a consolidated basis. Accordingly, the Company expects marketing, general and administrative costs, when expressed as a percentage of sales, to be greater than the prior year on an annualized basis.

Interest income, net and income taxes

Interest income, net decreased in the ten periods ended January 6, 2008 when compared to the corresponding period of the prior year primarily due to an increase in interest expense as a result of outstanding borrowings offset by, to a lesser extent, an increase in interest income.

The Company’s effective income tax rate was 35.3% and 35.6%, for the ten periods ended January 6, 2008 and December 31, 2006, respectively.

FINANCIAL RESOURCES

The Company presently has available up to $75 million from Wachovia Bank, National Association (“Wachovia”) under the terms of a line of credit facility entered into on March 15, 2007. The line of credit facility allows the Company to borrow up to $75 million through March 15, 2012, and is secured by the assets of the Company. There are no scheduled payments prior to maturity. The Company may, however, prepay outstanding borrowings prior to that date. The Company has the option to pay interest at Wachovia’s prime rate plus an applicable margin or at the London interbank offering rate plus an applicable margin. The interest rate may vary depending upon the ratio of the sum of the Company’s earnings before interest, taxes, depreciation and amortization, as defined in the agreement, to its indebtedness. The Company also incurs a commitment fee on the unused balance available under the terms of the line of credit, based on a leverage ratio. The agreement requires that the Company maintain certain financial ratios and profitability amounts and limits the payment of cash dividends.

At January 6, 2008, the Company had $6.9 million outstanding under the line of credit facility at an interest rate of 5.38%; borrowings from which were used to fund capital expenditures in connection with its expansion and renovation program. The amount available to be borrowed under the line of credit is reduced on a dollar-for-dollar basis by the cumulative amount of any outstanding letters of credit, which totaled approximately $1.0 million at January 6, 2008. Accordingly, at January 6, 2008, the Company had approximately $67.1 million available for borrowing under the line of credit facility.

As of January 6, 2008, the Company was in compliance with all covenants of the Company’s credit agreement with Wachovia.

Additionally, as further discussed in Part II. Item 1, Legal Proceedings, on August 25, 2006, the former Minority Stockholders of Haru Holding Corp. (“Haru”) sued the Company seeking an award of $10.7 million in respect of the exercise of the put option on their remaining 20% interest in Haru. The Company believes that it has correctly calculated the put option price at $3.7 million and has recorded a $3.7 million liability with respect thereto. However, there can be no assurance as to the outcome of this litigation.

- 23 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company has entered into non-cancellable supply agreements for the purchase of beef and certain seafood items, in the normal course of business, at fixed prices for periods generally between six and twelve months. These supply agreements will eliminate volatility in the cost of the commodities over the terms of the agreements. These supply agreements are not considered derivative contracts.

Since restaurant businesses do not have large amounts of inventory and accounts receivable, there is generally no need to finance such items. As a result, many restaurant businesses, including the Company, operate with negative working capital. During the ten periods ended January 6, 2008, working capital has decreased by $8.0 million. This trend is reflective of the Company’s ongoing expansion and renovation programs, which have resulted in decreased cash and cash equivalents as well as increased liabilities associated with capital expenditures.

The following table summarizes the sources and uses of cash and cash equivalents (in thousands):

 

 

     Ten Periods Ended       

 

 

 

January 6,

 

December 31,

 

 

 

 

 

 

 

 

 

 

 

2008

 

2006

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

25,147

 

$

25,099

 

Net cash used in investing activities

 

 

(41,772

)

 

(27,962

)

Net cash provided by (used in) financing activities

 

 

10,129

 

 

(945

)

 

 

   

 

   

 

Net decrease in cash and cash equivalents

 

$

(6,496

)

$

(3,808

)

 

 

   

 

   

 

The Company undertook a design initiative to develop a prototype Benihana Teppanyaki restaurant to improve the unit-level economics while shortening construction time and improving decor. The restaurant in Miramar, Florida, which opened during June 2006, was the first restaurant to feature the new prototype design. Under a renovation program commenced during 2005, the Company is also using many of the design elements of the new prototype to refurbish the Company’s older Teppanyaki restaurant units.

During fiscal 2006, management made a strategic decision to accelerate the renovation and revitalization program. The Company is committed to revitalizing its 40-plus year old Benihana Teppanyaki concept for a new generation, while simultaneously generating a solid return on invested capital for the Company’s shareholders. The Company plans to refurbish 24 of its older Teppanyaki restaurants through fiscal year 2009.

As of February 14, 2008, the Company has completed fifteen renovations, including four minor renovations. The Company expects to complete one more renovation by the end of the current fiscal year, with five more in progress. Renovations currently require on average, between $2.0 million and $2.3 million in capital expenditures per unit, with an average of 20 to 24 weeks loss of business. The cost to remodel each unit is directly dependent on the scope of work to be performed at each location. Management is continuously reviewing the extent of work to be performed at these sites. The scope of work may be impacted by the age of the location, current condition of the location, as well as local permitting requirements. The scope of work will vary by location. Some locations will undergo a limited remodel, while most will undergo a complete renovation and a major facility upgrade of its HVAC, electrical and plumbing systems. Where possible, the Company may also increase seating capacity at restaurants undergoing renovation. Management believes the long-term benefits of the revitalization initiative far outweigh the costs. The renovation of the Company’s older Teppanyaki units is necessary to ensure the continued relevance of the Benihana brand, and the program will enhance the Company’s leadership position as the premier choice for Japanese-style dining.

Other future capital requirements depend on numerous factors, including market acceptance of products, the timing and rate of expansion of the business, acquisitions, and other factors. The Company has experienced increases in its expenditures commensurate with growth in its operations and management anticipates that expenditures will continue to increase in the foreseeable future. As of February 14, 2008, the Company had seventeen restaurants under development, consisting of eight Benihana Teppanyaki restaurants and nine RA Sushi restaurants.

- 24 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition to investments in new restaurant units and the renovation program, the Company will use its capital resources to settle the outstanding liability incurred when the Minority Stockholders exercised their put option in Haru Holding Corp. On July 1, 2005, the Minority Stockholders exercised the put option. The Company believes that the proper application of the put option price formula would result in a payment to the former Minority Stockholders of approximately $3.7 million. The Company has offered to pay such amount to the former Minority Stockholders and recorded a $3.7 million liability with respect thereto.

On August 25, 2006, the former Minority Stockholders sued the Company. The suit (which was originally filed in the Supreme Court of the State of New York, County of New York but has been removed to the United States District Court for the Southern District of New York) seeks an award of $10.7 million based on the former Minority Stockholders’ own calculation of the put option price formula and actions allegedly taken by the Company to reduce the value of the put option.

On December 19, 2007, the Court dismissed all of the claims against the Company, except for the breach of fiduciary duty and breach of contract claims. On January 25, 2008, the Company filed its Answer and Affirmative Defenses to the Amended Complaint. The Court has set a discovery deadline of July 25, 2008.

The Company believes that it has correctly calculated the put option price and that the claims of the former Minority Stockholders are without merit. However, there can be no assurance as to the outcome of this litigation.

Management believes that the Company’s cash from operations and the funds available under its credit facility will provide sufficient capital to fund operations, the restaurant renovation program and restaurant expansion for at least the next twelve months.

Operating Activities

Net cash provided by operating activities totaled $25.1 million for the ten periods ended January 6, 2008 and December 31, 2006.

Investing Activities

Capital expenditures for the ten periods ended January 6, 2008 and December 31, 2006 were $41.8 million and $28.4 million, respectively. Capital expenditures are expected to continue at increased levels, as the Company continues its renovation program and increases new store construction.

During April 2006, the Company sold its sole Sushi Doraku restaurant to Mr. Kevin Aoki, a former director of the Company and the Company’s former Vice President of Marketing. The restaurant facility was sold for $539,000, of which $515,000 was paid in cash and $24,000 as a note receivable payable over 12 months. The note receivable has been paid in full by Mr. Aoki.

During September 2006, the Company completed the acquisition of a Benihana restaurant in Broomfield, Colorado that was previously owned and operated by a franchisee. The purchase price totaled $2.8 million, of which approximately $2.7 million was paid in cash and the remainder in other consideration.

Financing Activities

As previously discussed, the Company began drawing on its $75.0 million line of credit during the three periods ended October 14, 2007. Additionally, the Company expects to continue to draw on the line of credit in the near future, as a result of planned development and renovations. During the ten periods ended January 6, 2008, the Company borrowed $41.9 million under the credit facility and made $35.0 million in payments.

- 25 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

During the ten periods ended December 31, 2006, the Company made $3.3 million in scheduled payments related to borrowings under a term loan with Wachovia Bank, which was repaid in full during fiscal year 2007.

During the ten periods ended January 6, 2008 and December 31, 2006, proceeds from stock option exercises were $2.6 million and $2.1 million, respectively.

During the ten periods ended January 6, 2008 and December 31, 2006, the Company paid approximately $0.7 million in dividends on the Series B Preferred Stock.

Contractual Obligations

Other than the liability recognized as a result of adopting FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), as described below, there were no material changes outside the ordinary course of business during the interim period to those contractual obligations disclosed in the Company’s annual report on Form 10-K for the year ended April 1, 2007.

Critical Accounting Policies

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires management to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in these condensed consolidated financial statements. A summary of significant accounting policies and estimates and a description of accounting policies that are considered critical may be found in the Company’s 2007 Annual Report on Form 10-K, filed on June 15, 2007, in Note 1 of the Notes to Consolidated Financial Statements and the Critical Accounting Policies section of Management’s Discussion and Analysis.

On April 2, 2007, the Company adopted the provisions of FIN 48. FIN 48 addresses the determination of how benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority.

As a result of the implementation of FIN 48, the Company recorded a non-cash cumulative transition charge of approximately $1.4 million as a reduction of retained earnings (see unaudited condensed consolidated statement of stockholders’ equity). As of April 2, 2007, the Company had $3.3 million of unrecognized tax benefits, of which approximately $0.7 million would impact the effective tax rate if recognized. As of January 6, 2008, the Company had $3.5 million of unrecognized tax benefits, of which approximately $0.5 million would impact the tax rate, if recognized.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of April 2, 2007, the Company had approximately $0.4 million accrued for the payment of interest and approximately $0.6 million accrued for the payment of penalties related to unrecognized tax benefits. As of January 6, 2008, the Company had approximately $0.4 million accrued for the payment of interest and approximately $0.5 million accrued for the payment of penalties related to unrecognized tax benefits.

The Company files income tax returns which are periodically audited by various federal and state jurisdictions. With few exceptions, the Company is no longer subject to federal and state income tax examinations for years prior to fiscal year 2005.

- 26 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

During the ten periods ended January 6, 2008, the Company recognized approximately $0.2 million in potential interest and penalties associated with unrecognized tax benefits.

The Company is in the process of applying for accounting method changes concerning the timing of certain deductions for income tax purposes, which are expected to be filed with the Internal Revenue Service during the current fiscal year. The Company estimates that, if approved by the Internal Revenue Service, the amount of unrecognized tax benefits could be reduced by approximately $2.9 million within the next twelve months.

There were no other significant changes to the Company’s accounting policies during the three and ten periods ended January 6, 2008.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for financial assets and liabilities for fiscal years beginning after November 15, 2007. SFAS No. 157 is effective for nonfinancial assets and liabilities, except those items recognized at fair value on an annual or more frequently recurring basis, for fiscal years beginning after November 15, 2008. The Company is currently reviewing the provisions of SFAS 157 to determine the impact on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides reporting entities an option to report selected financial assets, including investment securities designated as available for sale, and liabilities, including most insurance contracts, at fair value. SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The standard also requires additional information to aid financial statement users’ understanding of a reporting entity’s choice to use fair value on its earnings and also requires entities to display the fair value of those affected assets and liabilities in the primary financial statements. SFAS 159 is effective as of the beginning of a reporting entity’s first fiscal year beginning after November 15, 2007. Application of the standard is optional and any impacts are limited to those financial assets and liabilities to which SFAS 159 would be applied. The Company is currently reviewing the provisions of SFAS 159 to determine the impact, if elected, on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R establishes the principles and requirements on how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree as well as the recognition and measurement of goodwill acquired in a business combination. SFAS 141R also requires certain disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Acquisition costs associated with the business combination will generally be expensed as incurred. SFAS 141R is effective for business combinations occurring in fiscal years beginning after December 15, 2008. Early adoption of SFAS 141R is not permitted. Acquisitions, if any, after the effective date will be accounted for in accordance with SFAS 141R.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 applies to all entities that prepare consolidated financial statements but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS 160 establishes accounting and reporting standards that require noncontrolling interests to be reported as a component of equity, changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value. SFAS 160 is to be applied

- 27 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

prospectively to business combinations consummated on or after the beginning of the first annual reporting period on or after December 15, 2008. Acquisitions, if any, after the effective date will be accounted for in accordance with SFAS 160.

Forward-Looking Statements

This quarterly report contains various “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent the Company’s expectations or beliefs concerning future events, including unit growth, future capital expenditures, and other operating information. A number of factors could, either individually or in combination, cause actual results to differ materially from those included in the forward-looking statements, including changes in consumer dining preferences, fluctuations in commodity prices, availability of qualified employees, changes in the general economy, industry cyclicality, and in consumer disposable income, competition within the restaurant industry, availability of suitable restaurant locations, harsh weather conditions in areas in which the Company and its franchisees operate restaurants or plan to build new restaurants, acceptance of the Company’s concepts in new locations, changes in governmental laws and regulations affecting labor rates, employee benefits, and franchising, ability to complete restaurant construction and renovation programs and obtain governmental permits on a reasonably timely basis, an adverse outcome in the dispute between the Company and the Minority Stockholders of Haru, and other factors that the Company cannot presently foresee.

The Impact of Inflation

Inflation has not been a significant factor in the Company’s business for the past several years. The Company has been able to keep increasing menu prices at a low level by strictly maintaining cost controls. At the beginning of the current fiscal year, the Company increased menu prices at its Teppanyaki locations by approximately 7%, and during the three periods ended October 14, 2007, the Company increased menu prices at its RA Sushi and Haru locations by approximately 3% in order to offset increases in commodity costs and minimum wage rates.

- 28 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to certain risks of increasing interest rates and commodity prices. The interest on the Company’s indebtedness is largely variable and is benchmarked to the prime rate in the United States or to the London interbank offering rate. The Company may protect itself from interest rate increases from time-to-time by entering into derivative agreements that fix the interest rate at predetermined levels. The Company has a policy not to use derivative agreements for trading purposes. The Company has no derivative agreements as of January 6, 2008.

The Company purchases commodities such as chicken, beef, lobster and shrimp for the Company’s restaurants. The prices of these commodities may be volatile depending upon market conditions. The Company does not purchase forward commodity contracts because the changes in prices for them have historically been short-term in nature and, in the Company’s view, the cost of the contracts is in excess of the benefits.

The Company has entered into supply agreements for the purchase of beef and certain seafood items, in the normal course of business, at fixed prices for periods generally between six and twelve months. These supply agreements will eliminate volatility in the cost of the commodities over the terms of the agreements. These supply agreements are not considered derivative contracts.

Seasonality of Business

The Company has a 52/53-week fiscal year. The Company’s fiscal year ends on the Sunday occurring within the dates of March 26 through April 1. The Company divides the fiscal year into 13 four-week periods. Because of the odd number of periods, the Company’s first fiscal quarter consists of 4 periods totaling 16 weeks and each of the remaining three quarters consists of 3 periods totaling 12 weeks each. In the event of a 53-week year, the additional week is included in the fourth quarter of the fiscal year. This operating calendar provides the Company a consistent number of operating days within each period, as well as ensures that certain holidays significant to the Company occur consistently within the same fiscal quarters. Because of the differences in length of fiscal quarters, however, results of operations between the first quarter and the later quarters of a fiscal year are not comparable. The current fiscal year consists of 52 weeks and will end on March 30, 2008. The prior fiscal year ended on April 1, 2007 and consisted of 53 weeks.

The Company’s business is not highly seasonal although it has more patrons coming to the Teppanyaki restaurants for special holidays such as Mother’s Day, Valentine’s Day and New Year’s Eve. Mother’s Day falls in the Company’s first fiscal quarter of each year, New Year’s Eve falls in the third quarter and Valentine’s Day falls in the fourth quarter.

- 29 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to the Securities and Exchange Act Rule 13a-15. Based upon this evaluation as of January 6, 2008, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

- 30 -


BENIHANA INC. AND SUBSIDIARIES

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Haru Minority Interest

In December 1999, the Company completed the acquisition of 80% of the equity of Haru Holding Corp. (“Haru”). The acquisition was accounted for using the purchase method of accounting. Pursuant to the purchase agreement, at any time during the period from July 1, 2005 through September 30, 2005, the holders of the balance of Haru’s equity (the “Minority Stockholders”) had a one-time option to sell their remaining shares to the Company (the “put option”). The exercise price under the put option was to be calculated as four and one-half (4½) times Haru’s consolidated cash flow for the fiscal year ended March 27, 2005 less the amount of Haru’s debt (as that term is defined in the purchase agreement) at the date of the computation.

On July 1, 2005, the Minority Stockholders exercised the put option.

The Company believes that the proper application of the put option price formula would result in a payment to the former Minority Stockholders of approximately $3.7 million. The Company has offered to pay such amount to the former Minority Stockholders and recorded a $3.7 million liability with respect thereto.

On August 25, 2006, the former Minority Stockholders sued the Company. The suit (which was originally filed in the Supreme Court of the State of New York, County of New York, but has since been removed to the United States District Court for the Southern District of New York) seeks an award of $10.7 million based on the former Minority Stockholders’ own calculation of the put option price formula and actions allegedly taken by the Company to reduce the value of the put option.

On December 19, 2007, the Court dismissed all of the claims against the Company, except for the breach of fiduciary duty and breach of contract claims. On January 25, 2008, the Company filed its Answer and Affirmative Defenses to the Amended Complaint. The Court has set a discovery deadline of July 25, 2008.

The Company believes that it has correctly calculated the put option price and that the claims of the former Minority Stockholders are without merit. However, there can be no assurance as to the outcome of this litigation.

Other Litigation

On May 17, 2007, Benihana Monterey Corporation, a subsidiary of the Company, filed a complaint in the action, Benihana Monterey Corporation v. Nara Benihana Monterey, Inc., et al, , pending in the Superior Court of California, County of Monterey. The action was commenced against various defendants in connection with a default on a Promissory Note in the amount of $375,000 signed by one of the Company’s franchisees and a Personal Guaranty signed by the owner of such franchise. The Company seeks $375,000 plus interest and costs and has attached certain of the defendants’ assets by way of an Attachment Order. The franchisee has filed a counter-claim alleging certain misrepresentations by the Company, and the Company has filed an answer to the counter-claim denying the allegations contained therein. The Company has sent defendants discovery requests to explore the defenses to its claim and the merits of the franchisee’s counter-claim. The Company believes these allegations are without merit and is taking all appropriate actions to prosecute its claim. The Company continues to evaluate the collectability of the outstanding balance. As of January 6, 2008, no loss for uncollectability had been recognized.

On August 3, 2007, the Company was served with a complaint in the action, National Cable Communications, LLC v. The Romann Group and Benihana Inc., pending in the Supreme Court of the State of New York. In this action, plaintiff alleges that the Company is jointly and severally liable with its co-defendant, the Romann Group, for spot cable advertisements allegedly purchased by Romann Group, on behalf of the Company, and placed by plaintiff. Plaintiff’s complaint demands judgment of

- 31 -


BENIHANA INC. AND SUBSIDIARIES

PART II – OTHER INFORMATION

approximately $570,000 plus interest, costs and disbursements. The Company has answered the complaint, denying liability with respect to the plaintiff’s claims and has asserted cross-claims against the Romann Group. The Romann Group served its answer in this action denying the Company’s cross claims and asserted counterclaims against the plaintiff and cross-claims against the Company. The Company believes that both the plaintiff’s and the Romann Group’s cross-claims are without merit and will vigorously defend against the claims.

The Company is not subject to any other pending legal proceedings, other than ordinary routine claims incidental to its business, which the Company does not believe will materially impact results of operations.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended April 1, 2007, which could materially affect the Company’s business, financial condition or future results. There have been no material changes with respect to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended April 1, 2007. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to management may materially adversely affect the Company’s business, financial condition, and/or operating results.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Company’s annual meeting of shareholders held on November 2, 2007, the holders of the Company’s Common Stock, along with the holders of the Series B Preferred Stock, voted to elect two Class III Directors for a term of three years, and the holders of the Company’s Class A Common Stock voted to elect one Class III Director for a term of three years. Additionally, all stockholders voted to approve the adoption of the 2007 Equity Incentive Plan and the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm. Results of the voting were as follows:

 

 

 

 

 

 

 

Class III Common Stock Nominees

 

 

For

 

Withheld

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lewis Jaffe

 

 

5,312,841

 

2,215,852

 

Richard C. Stockinger

 

 

5,302,756

 

2,215,847

 

 

 

 

 

 

 

 

Class III Class A Stock Nominee

 

 

For

 

Withheld

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Joel A. Schwartz

 

 

786,478

 

27,264

 

Accordingly, the following Directors were elected at the meeting:

          Lewis Jaffe, Richard C. Stockinger and Joel A. Schwartz

Other Directors whose term of office continues after the meeting are set forth below:

          John E. Abdo, Norman Becker, J. Ronald Castell, Robert B. Sturges, Joseph J. West and Taka Yoshimoto

Adoption of the 2007 Equity Incentive Plan was achieved with the following voting results:

- 32 -


BENIHANA INC. AND SUBSIDIARIES

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For

 

Against

 

Abstain

 

Broker Non-Vote

 

Common Votes

 

 

2,023,106

 

 

685,863

 

 

2,238,575

 

 

1,002,206

 

Class A Votes

 

 

577,984

 

 

92,672

 

 

4,823

 

 

138,263

 

Series B Preferred Votes

 

 

1,578,943

 

 

 

 

 

 

 

 

 

   

 

   

 

   

 

   

 

Total Votes

 

 

4,180,033

 

 

778,535

 

 

2,243,398

 

 

1,140,469

 

 

 

   

 

   

 

   

 

   

 

Ratification for the appointment of Deloitte & Touche LLP, as the Company’s independent registered public accounting firm, was achieved with the following voting results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For

 

Against

 

Abstain

 

Broker Non-Vote

 

Common Votes

 

 

5,932,706

 

 

16,590

 

 

454

 

 

 

Class A Votes

 

 

794,970

 

 

92,672

 

 

4,823

 

 

138,263

 

Series B Preferred Votes

 

 

1,578,943

 

 

 

 

 

 

 

 

 

   

 

   

 

   

 

   

 

Total Votes

 

 

8,306,619

 

 

109,262

 

 

5,277

 

 

138,263

 

 

 

   

 

   

 

   

 

   

 

- 33 -


BENIHANA INC. AND SUBSIDIARIES

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibit 31.1 – Chief Executive Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 – Chief Financial Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1 – Chief Executive Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2 – Chief Financial Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

- 34 -


SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

Benihana Inc.

 

 

 

 

 

(Registrant)

 

 

 

 

Date: February 15, 2008

/s/ Joel A. Schwartz

 

 

 

 

 

Joel A. Schwartz

 

 

Chief Executive Officer

 

 

and Chairman of the

 

 

Board of Directors

 

- 35 -


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