and its predecessor companies have operated Benihana teppanyaki-style
Japanese restaurants in the United States for over 40 years, and we believe we
are the largest operator of teppanyaki-style restaurants in the country.
Benihana Inc. is a Delaware corporation formed on December 6, 1994. Our core
concept, the traditional Benihana restaurant, offers teppanyaki-style Japanese
cooking in which fresh steak, chicken and seafood are prepared by a chef on a
steel teppan grill at the center of the customers table. Our Haru concept
offers an extensive menu of traditional Japanese and Japanese fusion dishes in
a modern, urban
atmosphere as well as take-out and delivery services. Our RA Sushi concept
offers sushi and a full menu of Pacific-Rim dishes in a high-energy environment
featuring upbeat design elements and contemporary music. Additionally, a
significant component of RA Sushis revenues is derived from beverage sales.
At May 31, 2008, we:
own and operate 60 Benihana
teppanyaki-style Japanese dinnerhouse restaurants, including one restaurant
under the name Samurai;
additional Benihana restaurants;
operate 9 Haru restaurants; and
operate 19 RA Sushi restaurants.
We own the related United
States trademarks and service marks to the names Benihana, Benihana of
Tokyo and the red flower symbol, and we have the exclusive rights to own,
develop and license Benihana and Benihana Grill restaurants in the United
States, Central and South America and the islands of the Caribbean. We also own
the United States trademarks and worldwide development rights to the names
Haru and RA.
Sales by our
owned restaurants were approximately $295.2 million for the fiscal year ended
March 30, 2008, as compared to approximately $271.1 million for the prior
fiscal year. Our net income for the fiscal year ended March 30, 2008 was
approximately $12.8 million, as compared to approximately $14.5 million for the
prior fiscal year.
For information concerning
our financial condition, results of operations and related financial data,
including selected data for our operating segments, refer to Managements
Discussion and Analysis of Financial Condition and Results of Operations and
Financial Statements and Supplementary Data.
We have a
52/53-week fiscal year. Our fiscal year ends on the Sunday within the dates of
March 26 through April 1. Fiscal years 2008 and 2006 consisted of 52 weeks,
while fiscal year 2007 consisted of 53 weeks. Our business is not highly
seasonal although we do have more diners coming to our restaurants for special
holidays such as Mothers Day, Valentines Day and New Years Eve. Mothers Day
falls in our first fiscal quarter, New Years Eve in the third fiscal quarter and
Valentines Day in the fourth fiscal quarter of each year.
executive offices are located at 8685 Northwest 53
Florida 33166 (telephone number 305-593-0770), and our corporate website
. We make our electronic filings with the
Securities and Exchange Commission (SEC), including annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to these reports, if any, available on the corporate website free of
charge as soon as practicable after filing with or furnishing to the SEC. These
reports are also available at
elements of our growth strategy are as follows:
Selectively Pursue Restaurant Growth.
believe that each of our three concepts has broad appeal and, as a result, we
have significant opportunities to selectively expand our business. We plan to
continue to capitalize on our broad customer appeal and strong brand
recognition within the casual dining segment by opening new restaurants and
selectively acquiring existing Asian-theme restaurants in major U.S. markets.
In fiscal 2008, we opened three Benihana restaurants, two Haru restaurants and
five RA Sushi restaurants. Additionally, in fiscal 2008, one new franchised
location was opened, and a franchised restaurant was closed. During fiscal
2008, we did close two Benihana restaurants located in Chicago, IL and Turtle
Creek, TX. We are currently developing two restaurants, as replacements for
these closed locations, in the same general markets.
date, we have opened four locations using the new prototype design, which was
first implemented in fiscal 2007. Our prototype is to be used at our new
Benihana restaurants to improve unit-level economics while shortening
construction time and improving decor. Elements of the new design are also
being incorporated into certain existing Benihana restaurants that we are
Maintain Strong Restaurant Unit Economics.
experienced management team intends to maintain and improve, where necessary,
attractive restaurant unit profit margins through sustained sales growth and
effective cost controls.
Continue To Build Brand Awareness And
We will continue to provide
marketing and promotional support to sustain and grow our reputation for
distinctive value, quality food and customer satisfaction.
Provide Strong Management Support.
senior management team is experienced in developing and operating distinctive,
high-volume casual dining establishments.
The Benihana Concept
concept offers casual dining in a distinctive Japanese atmosphere enhanced by
the unique entertainment provided by our highly-skilled Benihana chefs who
prepare fresh steak, chicken and seafood on a teppan grill, in traditional
Japanese style, at the center of the customers table. Most of our Benihana
restaurants are open for both lunch and dinner and have a limited menu,
offering a full course meal generally consisting of an appetizer, soup, salad,
tea, rice, vegetables, an entrée of steak, seafood or chicken (or any
combination thereof) and a dessert. Sushi is offered at all of our traditional
restaurants at either separate sushi bars, lounges or at the teppan grills, and we
believe that Benihana is the largest coast-to-coast restaurant chain
highlighting sushi as a part of an Asian theme.
items may be different in the various restaurants depending upon the local
geographic market. The servings prepared at the teppan tables are portion
controlled to provide consistency in quantities served to each customer.
Alcoholic and non-alcoholic beverages, including specialty mixed drinks, wine,
beer and soft drinks are available. Beverage sales in both the lounges and
dining rooms account for approximately 17% of total sales. The average check
size per person was $27.63 in fiscal 2008.
Each of our
teppan tables generally seats eight customers. The chef is assisted in the meal
service by a waitress or waiter who takes beverage and food orders. A
dinnertime meal takes approximately one hour and thirty minutes.
Of the 60
Benihana restaurants we operate as of May 31, 2008:
located in freestanding, special use restaurant buildings usually on leased
located in shopping centers; and
located in office or hotel building complexes.
freestanding restaurants were built to our specifications as to size, style and
interior and exterior decor using an overall Japanese design theme. The other
locations were adapted to the Benihana interior decor. The freestanding,
traditional Benihana restaurant units, which are generally one story buildings,
average approximately 8,000 square feet and are constructed on a land parcel of
approximately 1.25 to 1.50 acres. Benihana restaurants located in shopping
centers, office buildings and hotels are of similar size but differ somewhat in
appearance from location to location in order to conform to the appearance of
the buildings in which they are located or limitations imposed by landlords or municipalities.
A typical Benihana restaurant has 18 teppanyaki-style tables and seats from 86
to 178 customers in the dining rooms and 8 to 120 customers in the bar, lounge
and sushi bar areas. Currently, Benihana restaurants under development conform
to our new prototype design, which was first implemented during fiscal 2007 at
our Miramar, FL location. The prototype Benihana restaurant approximates 7,000
square feet and allows for alternative design options in layout and number of
tables. Additionally, as part of an ongoing rejuvenation program, we are
incorporating certain elements of our new prototype design at locations being
renovated, where possible.
year 2008, we opened three new Benihana restaurants in Maple Grove, MN,
Chandler, AZ and Dulles, VA. Restaurants in Turtle Creek, TX and Chicago, IL
closed during the current fiscal year. We are developing a restaurant in
Chicago, IL as a replacement for the restaurant previously located in that city. Additionally, during fiscal 2008, the Memphis,
TN location was destroyed by fire, and we are currently rebuilding the
restaurant. We are also developing Benihana restaurants to be located in
Coral Springs, FL, Orlando, FL, Westwood, MA, Meadowlands, NJ, Columbus, OH,
Plymouth Meeting, PA and Plano, TX.
The Haru Concept
concept offers an extensive menu of distinctive Japanese fusion dishes in a
modern, urban atmosphere. In addition to traditional, high quality sushi and
sashimi creations, Haru offers raw bar items and Japanese cuisine, including
crab dumplings, shrimp tempura and chicken teriyaki. Haru also offers delivery
and take-out services, which represent approximately 35% of total sales at the
New York, NY locations. The average check size per person was $30.35 in fiscal
operate seven Haru restaurants in New York City, one in Boston, MA and one in
Philadelphia, PA. The Haru restaurants that we operate are located in office or
residential buildings and vary in size and decor. We typically seek restaurant
locations that are in densely populated metropolitan areas in order to take
advantage of Harus take-out and delivery business. While there are no
additional restaurants currently under development, we continue to evaluate
future Haru locations that meet our development guidelines.
The RA Sushi Concept
The RA Sushi concept offers sushi and Pacific-Rim dishes in a
fun-filled, high-energy environment. RA Sushi caters to a younger demographic, and we believe that it is highly suitable for a variety of real estate options, including life-style centers, shopping
centers and malls, as well as areas with a nightlife component. Beverage sales in both the lounges and
dining rooms account for approximately 33% of RA Sushis total sales, and the average
check size per person was $21.52 for fiscal 2008.
19 RA Sushi restaurants in operation as of May 31, 2008 are located in special-use restaurant
buildings on leased land or in shopping or life style centers.
All of the restaurants were
built to our specifications as to size, style and emphasize a contemporary
interior and exterior decor. These restaurants average approximately 5,000
square feet excluding outdoor seating. A typical RA Sushi restaurant
seats from 150 to 225 customers in the bar and sushi areas, including outdoor
RA Sushi is our fastest growing concept. Having opened five new RA
Sushi restaurants during fiscal 2008 and one RA Sushi restaurant on May 5,
2008, we currently operate nineteen RA Sushi restaurants. We are focused on the
continued expansion of this concept and, as of May 31, 2008, have signed leases
for and are currently developing another seven RA Sushi restaurants to be
located in Chino Hills, CA, Huntington Beach, CA, Orlando, FL, South Miami, FL,
Leawood, KS, Westwood, MA and Houston, TX.
restaurants are under the direction of our Executive Vice President-Restaurant
Operations and are divided among eleven geographic regions, each managed by a
regional manager. Food preparation in the Benihana restaurants is supervised by
eight regional chefs. Our Haru restaurants are managed out of New York City
under the direction of Harus Vice President of Operations, and our RA Sushi
restaurants are managed out of Phoenix, AZ under the direction of RA Sushis
Vice President of Operations.
Each restaurant has a manager
and one or more assistant managers responsible for the operation of the
restaurant, including personnel matters, local inventory purchasing and
maintenance of quality control standards, cleanliness and service.
guidelines, as documented in our restaurant operations manuals, are followed to
assure consistently high quality customer service and food quality at each
location. Specifications are used for quality and quantity of ingredients, food
preparation, maintenance of premises and employee conduct and are incorporated
in manuals used by the managers, assistant managers and head chefs. Food and
portion sizes are regularly and systematically tested for quality and compliance
with our standards.
We have entered into non-cancellable
supply agreements for the purchase of certain beef and seafood items, in the
normal course of business, at fixed prices for up to twelve-month terms. These
supply agreements will eliminate volatility in the cost of the commodities over
the terms of the agreements. Substantially all commodities are distributed
to our Benihana restaurants by a national food service logistics company. Most
of the other food products are purchased locally by the individual restaurant
managers and senior chefs. Substantially all of our restaurant operating
supplies are purchased centrally and distributed to the restaurants from our
warehouse or a bonded warehouse.
restaurant chefs are trained in the teppanyaki style of cooking, sushi
preparation and in customer service with training programs lasting from eight
to twelve weeks. The sushi chefs training program lasts up to 24 weeks. A
portion of the training is spent working in a restaurant under the direct
supervision of an experienced head chef. The program includes training in our
method of restaurant operations and in both tableside and kitchen food
preparation. Manager training is similar except that the manager trainee is
given in-depth exposure to each position in the restaurant. Other categories of
employees are trained by the manager and assistant manager at each restaurant
unit. Ongoing continuing education programs and seminars are provided to
restaurant managers and chefs to improve restaurant quality and implement
changes in operating policy or menu listings.
We use various
incentive compensation plans pursuant to which key restaurant personnel share
in the results of operations at both a local and company-wide level.
television, radio, billboard and print media to promote our restaurants,
strengthen our brand identity and maintain high brand name recognition.
In fiscal year
2008, we expended approximately $7.7 million on advertising and other
marketing. Advertising programs are tailored to each local market. The Benihana
restaurants advertising and other marketing are designed to emphasize the
inherently fresh aspects of a Benihana meal and the entertainment value of the
chef cooking at the customers table. The entertainment component of the
Benihana method of food preparation and service is emphasized to distinguish
Benihana from other restaurant concepts. RA Sushis advertising campaigns are
geared to young affluent demographics via radio and print media, while Haru
focuses on local publications.
We have, from
time to time, franchised Benihana teppanyaki restaurants to operators in
markets in which we consider expansion to be of benefit to the Benihana system.
We selectively pursue franchising opportunities, particularly in Central and
South America and the islands of the Caribbean, where we own the rights to the
Benihana trademarks and system. As of May 31, 2008, we have 19 franchised
locations including 11 in the United States and 8 in international markets.
bear all direct costs involved in the development, construction and operation
of their restaurants. We provide franchisee support for:
exterior design and layout;
marketing and sales techniques; and
franchisees are required to operate their restaurants in accordance with
Benihana operating standards and specifications, including menu offerings, food
quality and preparation.
standard franchise agreement provides for payment to us of a non-refundable
franchise fee of up to $50,000 per restaurant and royalties up to 6% of gross
sales. In fiscal year 2008, revenues from franchising were approximately $1.8
To comply with
the terms of the franchise agreements, we are prohibited from opening
additional restaurants within certain areas in which our existing franchisees
have the exclusive right to open additional restaurants and operate their
existing Benihana restaurants. In general, such franchise agreements currently
provide for an initial payment to us with respect to each new restaurant opened
by a franchisee and continuing royalty payments to us based upon a percentage
of a franchisees gross sales throughout the term of the franchise.
Trade Names and Service Marks
Benihana is a
Japanese word meaning red flower. In the United States and certain foreign
countries, we own the Benihana and Benihana of Tokyo brand names and
related trademarks and red flower symbol, which we believe to be of material
importance to our business and are registered in the United States Patent and
Trademark Office. We also own the United States trademarks and worldwide
development rights to the names Haru and RA and related trademarks.
Tokyo, Inc., a privately held company and our largest stockholder and
originator of the Benihana concept, continues to own the rights to the Benihana
name and trademarks outside of the United States, Central and South America and
the islands of the Caribbean. Benihana of Tokyo, Inc. is also the operator of a
Benihana restaurant in Honolulu, Hawaii under an exclusive, royalty-free
franchise from us. We have no financial interest in any restaurant operated or
franchised by Benihana of Tokyo, Inc.
New Restaurant Site Selection and Development
We believe the
locations of our restaurants are critical to our long-term success and,
accordingly, we devote significant time and resources to analyzing each
prospective site. Each of our three concepts requires a different real estate
formula for successful execution. The Benihana concept is successful in
free-standing or in-line locations. The prototype was designed to accommodate
approximately 7,000 square feet and allows for flexibility in layout and number
of tables. The Haru concept is successful in densely populated urban markets
and space requirements are somewhat flexible. The RA Sushi concept is
successful in urban or suburban shopping malls, retail strip centers and
entertainment life-style centers and typically requires 4,500 to 5,500 square
feet plus patio seating. In general, we currently prefer to open our
restaurants in high profile sites within larger metropolitan areas with dense
populations and above-average household incomes. The layout of each restaurant
is customized to accommodate different types of buildings and different square
footage within the available space. In addition to analyzing demographic
information for each prospective site, we consider other factors such as
visibility, traffic patterns and general accessibility, the availability of
suitable parking and the proximity of residences and shopping areas.
restaurant development model for each of our active concepts typically calls
for us to occupy leased space in shopping malls, office complexes, strip
centers, entertainment centers and other real estate developments (the retail
lease development model) in larger metropolitan areas. We have also acquired
the land when it is economically justified. While we expect the retail lease development
model to continue as our principal approach for opening new restaurant units,
we also expect to open more freestanding Benihana restaurants. We generally
lease our restaurant locations for primary periods of 15 to 20 years and have
renewal options for varying lengths of time. Our rent structures vary from
lease to lease, but generally provide for the payment of both minimum base rent
and contingent rent, such as percentage rent based on restaurant sales and rent
increases based on changes in the consumer price index. We are also responsible
for our proportionate share of common area maintenance (CAM), insurance,
property tax and other occupancy-related expenses under our leases. Many of our
leases provide for maximum allowable annual percentage or fixed dollar
increases for CAM and insurance expenses to enable us to better predict and
control future variable lease costs. We expend cash for leasehold improvements
and furnishings, fixtures and equipment to build out leased premises. We own
all of the equipment in our restaurants and currently plan to do so in the
Due to the
uniquely flexible and customized nature of our Benihana restaurant operations
and the complex design, construction and preopening processes for each new
location, our lease negotiation and restaurant development timeframes vary for
each restaurant. The development and opening process generally ranges from
twelve to eighteen months after lease signing and depends largely upon the
availability of the leased space we intend to occupy and is often subject to
matters that result in delays outside of our control, usually the permitting
process, turnover of the premises from the landlord and mandates of local
governmental building authorities. The number and timing of new restaurants actually
opened during any given period, and their associated contribution, will depend
on a number of factors, including but not limited to, the identification and
availability of suitable locations and leases, the timing of the delivery of
the leased premises to us from our landlords so that we can commence our
build-out construction activities, the ability of our landlords and us to
timely obtain all necessary governmental licenses and permits to construct and
operate our restaurants, disputes experienced by our landlords or our outside
contractors, any unforeseen engineering or environmental problems with the
leased premises, weather conditions that interfere with the construction
process, our ability to successfully manage the design, construction and preopening
processes for each restaurant, the availability of suitable restaurant
management and hourly employees and general economic conditions. While we
manage those factors within our control, we have experienced unforeseen delays
in restaurant openings from time to time in the past and will likely experience
such delays in the future.
developed a prototype Benihana teppanyaki restaurant to improve the unit-level
economics while shortening construction time and improving decor. The new
design reflects the cutting edge of contemporary dining and entertainment and
places the customer at the center of the Benihana experience through the visual
impact of the exterior, a vibrant waiting area and a more dramatic stage for
our legendary Benihana chefs. The restaurant in Miramar, FL, which opened
during June 2006, was the first company-owned restaurant to feature the new
prototype design. The restaurants in Maple Grove, MN, Chandler, AZ and Dulles,
VA also feature the prototype design.
prototype design standardizes the look and feel, as well as the operational
efficiency, of the Benihana operations, it does provide certain flexibility to
accommodate specific market conditions.
Renovation of Existing Restaurants
Under a renovation program
commenced during 2005, we are also using many of the design elements of the new
prototype to refurbish our mature Benihana restaurant units.
During fiscal 2006,
management made a strategic decision to accelerate the renovation and
revitalization program. We are committed to revitalizing our 40-plus year old
Benihana teppanyaki concept for a new generation. The new design reflects the
cutting edge of contemporary dining and entertainment and places the customer
at the center of the Benihana experience through the visual impact of the
exterior, a vibrant waiting area and a more dramatic stage setting for our
legendary Benihana chefs. We plan to refurbish an aggregate 24 of our mature
Benihana restaurants. By transforming these 24 mature Benihana teppanyaki units,
we are opportunistically building a stronger foundation for our core brand amid
a growing American appetite for Asian cuisine. During fiscal 2006, our
restaurant in Short Hills, NJ was the first Benihana restaurant to be
retrofitted with the new design elements. During fiscal 2007, our Memphis, TN,
Cleveland, OH, Indianapolis, IN and Anaheim, CA restaurants re-opened after
similar renovations were completed. During fiscal 2008, our Fort Lauderdale, FL, Miami
Beach, FL, Burlingame, CA, Torrance, CA, San Diego, CA, Sacramento, CA,
Bethesda, MD, New York City, NY, Cherry Hill, NJ, Tucson, AZ and Dallas, TX
restaurants re-opened after similar renovations were completed.
At the end of fiscal 2008,
restaurants closed and undergoing major renovations included the Houston, TX,
Denver, CO, Cupertino, CA and Newport Beach, CA locations. These locations, as
well as four more renovations scheduled to commence in fiscal 2009, are
expected to be completed by the end of January 2009.
Renovations currently require
on average, between $2.0
million and $2.3 million in capital expenditures per unit. 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 others will undergo a complete renovation and
a major facility upgrade of its HVAC, electrical and plumbing systems.
Management believes the long-term benefits of the revitalization initiative far
outweigh the costs. The renovation of our older Benihana teppanyaki units is
necessary to ensure the continued relevance of the Benihana brand, and the
program will enhance our leadership position as the premier choice for
Restaurant Opening Costs for New Restaurants
opening costs include incremental out-of-pocket costs, which are directly
related to the openings of new restaurants and are not capitalizable and an
amortization of rentals under lease agreements for accounting purposes.
Restaurant opening costs include costs to recruit and train an average of
50-100 hourly restaurant employees and management personnel, wages, travel and
lodging costs for our opening training team and other support employees, costs
for practice service activities, restaurant supplies and straight-line minimum base rent during the
restaurant preopening period. Restaurant opening costs will vary from location
to location depending on a number of factors, including the proximity to our
existing restaurants, the size and physical layout of each location, the cost
of travel and lodging for different metropolitan areas and the extent of
unexpected delays, if any, in obtaining final licenses and permits to open the
restaurants, which may also be dependent upon our landlords obtaining their
licenses and permits as well as completing their construction activities for
the restaurant units. Restaurant opening costs will fluctuate from period to
period, based on the number and timing of restaurant openings and the specific
restaurant opening costs incurred for each restaurant unit. These fluctuations
could be significant. We expense restaurant opening costs as incurred.
At May 31,
2008, we employed approximately 5,700 people, of which approximately 100 were
corporate personnel and the balance were restaurant employees. Most employees,
except restaurant and corporate management personnel, are paid on an hourly
basis. We also employ some restaurant personnel on a part-time basis to provide
the services necessary during the peak periods of restaurant operations. We
believe our relationship with our employees is good.
Schwartz, age 67, serves as our Chairman of the Board and Chief Executive
Garcia, age 44, serves as President and Chief Operating Officer.
Yoshimoto, age 62, serves as Executive Vice President-Operations and Director.
Ortega, age 36, serves as Vice President-Finance and Chief Financial Officer.
dining segment of the restaurant industry is intensely competitive with respect
to price, service, location and the type and quality of food. Each of our
restaurants competes directly or indirectly with locally owned restaurants as
well as regional and national chains, and several of our significant
competitors are much larger or more diversified and have substantially greater
resources than we do. It is also anticipated that growth in the industry will
result in continuing competition for available restaurant sites as well as
continued competition in attracting and retaining qualified management-level
operating personnel. We believe that our competitive position is enhanced by
offering quality food selections at an appropriate price with the unique
entertainment provided by our chefs in an attractive, relaxed atmosphere.
Each of our
restaurants is subject to licensing and regulation by health, sanitation,
safety standards, the fire department and alcoholic beverage control as well as
other authorities in the state or municipality where it is located.
Difficulties or failure in obtaining the required licensing or requisite
approvals could result in delays or cancellations in the opening of new
restaurants, and termination of the liquor license would adversely affect the
revenues for the restaurant. While we have not yet experienced any material difficulties
in obtaining and maintaining necessary governmental approvals, the failure to
obtain or retain, or a delay in obtaining, food and liquor licenses or any
other governmental approvals could have a material adverse effect on our
operating results. Changes in federal and state environmental regulations have
not had a material effect on our operations, but more stringent and varied
local government requirements with respect to zoning, land use and
environmental factors could delay construction of new restaurants and
materially affect our existing restaurant operations.
We are also
subject to federal and state regulations regarding franchise offering and
sales. Such laws impose registration and disclosure requirements on franchisors
in the offer and sale of franchises or impose substantive standards on the
relationship between franchisee and franchisor.
with Disabilities Act, which prohibits discrimination on the basis of
disability in public accommodations and employment, mandates accessibility
standards for individuals with physical disabilities and increases the cost of
construction of new restaurants and of remodeling older restaurants.
We are subject
to dram-shop statutes in most of the states where we operate restaurants,
which generally provide a person injured by an intoxicated person the right to
recover damages from an establishment that wrongfully served alcoholic
beverages. We carry liquor liability coverage as part of our existing
comprehensive general liability insurance that we believe is consistent with
coverage carried by other entities in the restaurant industry of similar size
and scope of operations. Even though we are covered by general liability
insurance, a settlement or judgment against us under a dram-shop statute in
excess of our liability coverage could have a material adverse effect on our
federal and state labor laws govern our operations and our relationships with
our employees, including such matters as minimum wages, breaks, overtime, fringe
benefits, safety, working conditions and work authorization requirements.
Significant increases in minimum wages, changes in statutes regarding paid or
unpaid leaves of absence, mandated health benefits or increased tax reporting
and assessment or payment requirements related to our employees who receive
gratuities all could be detrimental to the profitability of our operations.
Various proposals that would require employers to provide health insurance for
all of their employees are considered from time-to-time in Congress and various
individual states. The imposition of any requirement that we provide health
insurance to all employees could have an adverse effect on our results of
operations and financial position, as well as the restaurant industry in general.
Our suppliers may also be affected by higher minimum wage and benefit
standards, which could result in higher costs for goods and services supplied
to us. While we carry employment practices insurance, a settlement or judgment
against us in excess of our coverage limitations could have a material adverse
effect on our results of operations, liquidity, financial position or business.
We have a
significant number of hourly restaurant employees that receive tip income. We
have elected to voluntarily participate in a Tip Rate Alternative Commitment
(TRAC) agreement with the Internal Revenue Service. By complying with the
educational and other requirements of the TRAC agreement, we reduce the
likelihood of potential employer-only FICA assessments for unreported or
Management Information Systems
restaurant managers with centralized financial and management control systems
through use of data processing information systems and prescribed reporting
procedures. We have also upgraded our point-of-sale and time and attendance
restaurant transmits sales, purchasing, payroll and other operational data to
our principal executive office on a weekly and four-week period basis. This
data is used to record sales, product, labor and other costs and to prepare
periodic financial and management reports. We believe that our centralized
accounting, payroll and human resources and information systems improve our
ability to control and manage our operations efficiently.
Forward Looking Statements
contains various forward-looking statements, which represent our expectations
or beliefs concerning future events, including unit growth, future capital
expenditures and other operating information. A number of factors could, either
individually or in combination, cause actual results to differ materially from
those included in the forward-looking statements, including changes in consumer
dining preferences, fluctuations in commodity prices, availability of qualified
employees, changes in the general economy, industry cyclicality, and in
consumer disposable income, competition within the restaurant industry,
availability of suitable restaurant locations or acquisition opportunities,
harsh weather conditions in areas in which we and our franchisees operate
restaurants or plan to build new restaurants, acceptance of our concepts in new
locations, changes in governmental laws and regulations affecting labor rates,
employee benefits and franchising, ability to complete new restaurant
construction and obtain governmental permits on a reasonably timely basis, the
possibility of an adverse outcome in our dispute with the former Minority
Stockholders of Haru Holding Corp., unstable economic conditions in foreign
countries where we franchise restaurants and other factors that we cannot
Failure of our
restaurants to achieve expected results could have a negative impact on our
revenues and performance results.
Performance results currently
achieved by our restaurants may not be indicative of longer-term performance or
the potential market acceptance of restaurants in new locations. We cannot be
assured that new restaurants that we open will have similar operating results
as existing restaurants. New restaurants take several months to reach expected
operating levels due to inefficiencies typically associated with new
restaurants, including lack of market awareness, inability to hire sufficient
staff and other factors. The failure of our existing or new restaurants to
perform as predicted could negatively impact our revenues and results of
The inability to
construct new restaurants and remodel existing restaurants within projected
budgets and time periods will adversely affect our business and financial
Many factors may affect the
costs associated with construction of new restaurants and remodeling of
existing restaurants, including:
shortages of materials and
construction or zoning
modifications in design to
the size and scope of the projects; and
increases in costs, any of which could give rise to delays or cost overruns.
If we are not able to develop
additional restaurants within anticipated budgets or time periods, our
business, financial condition, results of operations or cash flows will be
Failure to expand
our operations could adversely affect our business, financial condition,
results of operations and cash flows.
Critical to our future
success is our ability to profitably expand our operations. Our ability to
expand profitably will depend on a number of factors, including:
availability of suitable locations;
competition for restaurant
negotiation of favorable
timely development of
commercial, residential, street or highway construction near our restaurants;
management of the costs of
construction and development of new restaurants;
governmental approvals and permits;
recruitment of qualified
operating personnel, particularly managers and chefs;
competition in new markets;
The opening of additional
restaurants in the future will depend in part upon our ability to generate
sufficient funds from operations or to obtain sufficient equity or debt
financing on favorable terms to support our expansion. We may not be able to
open our planned new operations on a timely basis, if at all, and, if opened,
these restaurants may not be operated profitably. We have experienced, and
expect to continue to experience, delays in restaurant openings from time to
time. Delays or failures in opening planned new restaurants could have an
adverse effect on our business, financial condition, results of operations or
Changes in general
economic and political conditions affect consumer spending and may harm our
revenues and operating results.
Our countrys economic
condition affects our customers levels of discretionary spending. A decrease
in discretionary spending due to decreases in consumer confidence in the
economy, as well as a decrease in disposable income due to inflationary
pressures, could impact the frequency with which our customers choose to dine
out or the amount they spend on meals while dining out, thereby decreasing our
revenues and operating results.
Increases in the
minimum wage may have a material adverse effect on our business and financial
Many of our employees are
subject to various minimum wage requirements. Many restaurants are located in
states where the minimum wage was recently increased, with further increases in
other states going into effect during fiscal 2009. There likely will be
additional increases implemented in jurisdictions in which we operate or seek
to operate. Additionally, the United States Congress enacted an increase
in the federal minimum wage to be implemented in three stages: from $5.15 to
$5.85 on July 24, 2007; from $5.85 to $6.55 on July 24, 2008; and from $6.55 to
$7.25 July 24, 2009. State and federal minimum wage increases may have a
material adverse effect on our business, financial condition, results of
operations or cash flows.
Changes in food
costs could negatively impact our revenues and results of operations.
Our profitability is
dependent in part on our ability to anticipate and react to changes in food
costs. Any increase in distribution and commodity costs could cause our food
costs to fluctuate. Additional factors beyond our control through our supply
chain, including energy costs, adverse weather conditions and governmental
regulation may affect our food costs. We may not be able to anticipate and
react to changing food costs through our purchasing practices and menu price
adjustments in the future and failure to do so could negatively impact our
revenues and results of operations.
competition in the restaurant industry could prevent us from increasing or
sustaining our revenues and profitability.
The restaurant industry is
intensely competitive with respect to food quality, price-value relationships,
ambiance, service and location and many restaurants compete with us at each of
our locations. There are a number of well-established competitors with
substantially greater financial, marketing, personnel and other resources than
ours, and many of our competitors are well established in the markets where we
have restaurants or where we intend to locate restaurants. Additionally, other
companies may develop restaurants that operate with similar concepts.
Any inability to successfully
compete with the other restaurants in our markets will prevent us from
increasing or sustaining our revenues and profitability and will result in a
material adverse effect on our business, financial condition, results of
operations or cash flows. We may also need to modify or refine elements of our
restaurant system to evolve our concepts in order to compete with popular new
restaurant formats or concepts that may develop in the future. There can be no
assurance that we will be successful in implementing these modifications or
that these modifications will not reduce our profitability.
operating results may cause profitability to decline.
Our operating results may
fluctuate significantly as a result of a variety of factors, including:
consumer confidence in the
changes in consumer
timing of new restaurant
openings and related expenses;
timing and duration of
temporary restaurant closures;
changes in governmental
revenues contributed by new
increases or decreases in
comparable restaurant revenues.
We typically incur the most
significant portion of restaurant opening expenses associated with a given
restaurant within the three months immediately preceding and the month of the
opening of the restaurant. Our experience to date has been that labor and
operating costs associated with a newly opened restaurant for the first several
months of operation are materially greater than what can be expected after that
time, both in aggregate dollars and as a percentage of revenues. Accordingly,
the volume and timing of new restaurant openings has had, and is expected to
continue to have, a meaningful impact on restaurant opening expenses as well as
labor and operating costs.
Our inability to
find a sufficient number of qualified teppanyaki and sushi chefs could
negatively impact our expansion plans.
The success of our growth
strategy is dependant on hiring and training a sufficient number of qualified
teppanyaki and sushi chefs. The teppanyaki chefs are the centerpiece of the
experience at the Benihana restaurants where customers go to be entertained by
the chefs performance at their table. Sushi chefs must possess the skills
necessary for artfully preparing fresh sushi at each of our three concepts. Our
inability to identify and hire a sufficient number of qualified individuals for
these positions will have a direct negative impact on our ability to open new
Our inability to
retain key personnel could negatively impact our business.
Our success will continue to
be highly dependent on retaining key operating officers and employees. We must
continue to attract, retain and motivate a sufficient number of qualified
management and operating personnel, including regional managers, general
managers and executive and sushi chefs to keep pace with our expansion
schedule. Individuals of this caliber may be in short supply and such a
shortage may limit our ability to effectively penetrate new markets.
Additionally, the ability of these key personnel to maintain consistency in the
quality and atmosphere of our restaurants is a critical factor in our success.
Any failure to do so may harm our reputation and result in a loss of business.
Failure to comply
with governmental regulations could harm our business and our reputation.
We are subject to regulation
by federal agencies and regulation by state and local health, sanitation,
building, zoning, safety, fire and other departments relating to the
development and operation of restaurants. These regulations include matters
the preparation and sale of
food and alcoholic beverages; and
Our facilities are licensed
and subject to regulation under state and local fire, health and safety codes.
The construction and remodeling of restaurants will be subject to compliance
with applicable zoning, land use and environmental regulations. We may not be
able to obtain necessary licenses or other approvals on a cost-effective and
timely basis in order to construct and develop restaurants in the future.
Various federal and state
labor laws govern our operations and our relationship with our employees,
minimum wage, overtime, working conditions, fringe benefit and work
authorization requirements. In particular, we are subject to federal
immigration regulations. Given the location of many of our restaurants, even if
we operate those restaurants in strict compliance with federal immigration
requirements, our employees may not all meet federal work authorization or
residency requirements, which could lead to disruptions in our work force.
Our business can be adversely
affected by negative publicity resulting from complaints or litigation alleging
poor food quality, food-borne illness or other health concerns or operating
issues stemming from one or a limited number of restaurants. Unfavorable
publicity could negatively impact public perception of our brand.
We are required to comply
with the alcohol licensing requirements of the federal government, states and
municipalities where our restaurants are located. Alcoholic beverage control
regulations require applications to state authorities and, in certain
locations, county and municipal authorities for a license and permit to sell
alcoholic beverages. Typically, licenses must be renewed annually and may be
revoked or suspended for cause at any time. Alcoholic beverage control
regulations relate to numerous aspects of the daily operations of the
restaurants, including minimum age of guests and employees, hours of operation,
advertising, wholesale purchasing, inventory control and handling and storage
and dispensing of alcoholic beverages. If we fail to comply with federal, state
or local regulations, our licenses may be revoked and we may be forced to
terminate the sale of alcoholic beverages at one or more of our restaurants.
The federal Americans with
Disabilities Act (the ADA) prohibits discrimination on the basis of
disability in public accommodations and employment. We are required to comply
with the ADA and regulations relating to accommodating the needs of disabled
persons in connection with the construction of new facilities and with
significant renovations of existing facilities.
Failure to comply with these
and other regulations could negatively impact our business and our reputation.
Future changes in
financial accounting standards may cause adverse unexpected operating results
and affect our reported results of operations.
Changes in accounting
standards can have a significant effect on our reported results and may affect
our reporting of transactions completed before the change is effective. New
pronouncements and varying interpretations of pronouncements have occurred and
may occur in the future.
Changes to existing rules or
differing interpretations with respect to our current practices may adversely
affect our reported financial results.
growth and renovation strategies may strain our management resources and
negatively impact our competitive position.
Our growth and renovation
strategies may strain our management, financial and other resources. We must
maintain a high level of quality and service at our existing and future
restaurants, continue to enhance our operational, financial and management
capabilities and locate, hire, train and retain experienced and dedicated
operating personnel, particularly restaurant managers and chefs. We may not be
able to effectively manage these and other factors necessary to permit us to
achieve our expansion objectives and any failure to do so could negatively
impact our competitive position.
shortages may delay planned openings or damage customer relations.
Our success will continue to
be dependent on our ability to attract and retain a sufficient number of
qualified employees, including restaurant managers, chefs, kitchen staff and
wait staff to keep pace with our expansion schedule. Qualified individuals
needed to fill these positions may be in short supply in certain areas. Our
inability to recruit and retain qualified individuals may delay the planned
openings of new restaurants while high employee turnover in existing
restaurants may negatively impact customer service and customer relations resulting
in an adverse effect on our revenues or results of operations.
costs could negatively impact profitability.
The cost of insurance
(workers compensation insurance, general liability insurance, property
insurance, health insurance and directors and officers liability insurance) has
risen significantly over the past few years and is expected to continue to
increase. These increases, as well as potential state legislation requirements
for employers to provide health insurance to employees, could have a negative
impact on our profitability if we are not able to negate the effect of such
increases with plan modifications and cost control measures or by continuing to
improve our operating efficiencies. We self-insure a substantial portion of our
workers compensation and health care costs and unfavorable changes in trends
could also have a negative impact on our profitability.
have a material adverse effect on our business.
We may be the subject of
complaints or litigation from guests alleging illness, injury or other concerns
related to visits to our restaurants. We may be adversely affected by publicity
resulting from such allegations regardless of whether such allegations are
valid or whether we are liable. We may be subject to complaints or allegations
from current, former or prospective employees. We may also be subject to
complaints or allegations from our shareholders. A lawsuit or claim could
result in an adverse decision against us that could have a materially adverse
effect on our business. Additionally, the costs and expense of defending
ourselves against lawsuits or claims, regardless of merit, could have an
adverse impact on our profitability.
While we carry general
liability insurance, we may still be subject to a judgment in excess of our
insurance coverage and we may not be able to obtain or continue to maintain
such insurance coverage at reasonable costs, or at all.
We are involved in legal proceedings, including, but not
limited to the following matters:
We are in a dispute with the former holders
of the balance of Harus equity (the Minority Stockholders) concerning the
amount owed by us to the former Minority Stockholders in payment for shares in
the subsidiary which the former Minority Stockholders elected to sell to us.
filed a complaint in the action,
Benihana Monterey Corporation v. Nara
Benihana Monterey, Inc., et al,
, in connection with a default on
a Promissory Note in the amount of $375,000 signed by one of our franchisees
and a Personal Guaranty signed by the owner of such
Additionally, we were served with a complaint in the action,
Cable Communications, LLC v. The Romann Group and Benihana Inc.
, where the
plaintiff alleges that we are jointly and severally liable with our
co-defendant, the Romann Group, for unpaid payments relating to spot cable
advertisements allegedly purchased by Romann Group on our behalf and placed by
plaintiff. The Romann Group served its answer in this action denying our cross
claims and asserted counterclaims against the plaintiff and cross-claims
against us for unspecified damages.
The results of these matters
cannot be predicted with certainty, and an unfavorable resolution of one or
more of these matters could have a material adverse effect on our financial
position and results of operations.
existing and new regulations of corporate governance and public disclosure may
result in additional expenses.
Compliance with changing
laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and
NASDAQ Stock Market rules has required an increased amount of management
attention and external resources. We are committed to maintaining high
standards of corporate governance and public disclosure. This investment
required to comply with these changing regulations may result in increased
general and administrative expenses and a diversion of management time and
attention from revenue-generating activities to compliance activities.
Unresolved Staff Comments
Of the 88
restaurants in operation at May 31, 2008, 13 are located on owned real estate
and 75 are leased pursuant to land or land and building leases, which require
either a specific monthly rental or a minimum rent and additional rent based
upon a percentage of gross sales. In addition, there are eight Benihana
restaurants and seven RA Sushi restaurants under development. The freestanding,
traditional Benihana restaurant units, which are generally one story buildings,
are on average between approximately 7,000 and 8,000 square feet. Benihana
restaurants located in shopping centers, office buildings and hotels are of
similar size but differ somewhat in appearance from location to location in
order to conform to the appearance of the buildings in which they are located
or limitations imposed by landlords or municipalities. The RA Sushi and Haru
restaurant units average approximately 5,000 square feet, which excludes
approximately 16,300 square feet of space for our general administrative
offices in Miami, FL at an annual rental of approximately $304,000 and 8,000
square feet for a warehouse in Miami, FL at an annual rental of approximately
$40,000. The leases expire on November 30, 2013 and October 31, 2008,
actively pursuing new locations suitable for development as restaurant units
for each of our concepts. Generally, these leases are triple net leases which
pass increases in property operating expenses, such as real estate taxes and
utilities, through to us as tenant. Expiration of these leases, including
renewal options, occurs at various dates through calendar year 2034.
table sets forth the locations, by state, of our Company-owned restaurants as
of May 31, 2008:
District of Columbia
table sets forth the locations, by state, of our restaurants under development
as of May 31, 2008:
Haru Minority Stockholders Litigation
In December 1999, we 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 Harus equity (the Minority
Stockholders) had a one-time option to sell their remaining shares to us (the
put option). The exercise price under the put option was to be calculated as
four and one-half (4½) times Harus consolidated cash flow for the fiscal year
ended March 27, 2005 less the amount of Harus 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.
We believe 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. We have 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 us. The suit (which was 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 us
to reduce the value of the put option.
On December, 19, 2007, the
Court dismissed all of the claims against us, except for the breach of
fiduciary duty and breach of contract claims. On January 25, 2008, we filed our
Answer and Affirmative Defenses to the Amended Complaint. The Court has set a
discovery deadline of July 25, 2008.
We believe that we have
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.
On May 17, 2007, Benihana
Monterey Corporation, a subsidiary of ours, filed a complaint in the action,
Monterey Corporation v. Nara Benihana Monterey, Inc., et al,
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 our franchisees
and a Personal Guaranty signed by the owner of such franchise. We are seeking
$375,000 plus interest and costs and have attached certain of the defendants
assets by way of an Attachment Order. The franchisee filed a counter-claim
alleging certain misrepresentations by us, and in March of 2008, the Court
dismissed the counter-claim. We have obtained judgment against the defendant
for approximately $500,000, including the repayment of $375,000 Promissory
Note, interest and other costs. We have served the defendant with an order
regarding examination of the defendants assets and have filed a subpoena
requiring the defendant and the defendants entities to produce substantial
documents. We have evaluated the collectibility of the outstanding balance of
the Promissory Note, and during fiscal 2008, established a $400,000 reserve for
the estimated portion of the Promissory Note that may not be collectible.
On August 3, 2007, we were
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 we are jointly and
severally liable with our co-defendant, the Romann Group, for unpaid payments
relating to spot cable advertisements allegedly purchased by Romann Group on
our behalf and placed by plaintiff. Plaintiffs complaint demands judgment of
approximately $570,000 plus interest, costs and disbursements. We have answered
the complaint, denying liability with respect to the plaintiffs claims and
have asserted cross-claims against the Romann Group. The Romann Group served
its answer in this action denying our cross claims and asserted counterclaims
against the plaintiff and cross-claims against us for unspecified damages. We
believe that both the plaintiffs and the Romann Groups cross-claims are
without merit and will vigorously defend against the claims.
We are not subject to any
other significant pending legal proceedings, other than ordinary routine claims
incidental to our business.
of Matters to a Vote of Security Holders
There were no matters submitted
to a vote of security holders during the fourth quarter of fiscal year