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EXCEL - IDEA: XBRL DOCUMENT - BENIHANA INCFinancial_Report.xls


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 EXCHANGE ACT OF 1934

For the quarterly period ended July 17, 2011

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

 
Commission File No. 0-26396
 
BENIHANA INC.
 
(Exact name of registrant as specified in its charter)
 
Delaware
 
65-0538630
(State or other jurisdiction
 
(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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
       
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: 5,999,904 shares outstanding at August 12, 2011
Class A common stock, $.10 par value: 10,732,520 shares outstanding at August 12, 2011

 
 
 

 

BENIHANA INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
TABLE OF CONTENTS
 
     PAGE
PART I
FINANCIAL INFORMATION
 
     
 
Item 1.
Financial Statements
 
       
   
Condensed Consolidated Balance Sheets (unaudited) at July 17, 2011 and March 27, 2011
1
       
   
Condensed Consolidated Statements of Income (unaudited) for the Four Periods Ended July 17, 2011 and July 18, 2010
2
       
   
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Four Periods Ended July 17, 2011 and July 18, 2010and January 3, 2010
3
       
   
Condensed Consolidated Statements of Cash Flows (unaudited) for the Four Periods Ended July 17, 2011 and July 18, 2010
4
       
   
Notes to Condensed Consolidated Financial Statements (unaudited)
5
       
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
12
       
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
19
       
 
Item 4.
Controls and Procedures
20
       
PART II
OTHER INFORMATION
 
       
  Item 1.  Legal Proceedings 20 
       
 
Item 1A.
Risk Factors
20
       
  Item 5.  Other Matters  20
       
 
Item 6.
Exhibits
21
 
 
 

 

BENIHANA INC. AND SUBSIDIARIES
 
PART I – FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share information)
 
     
July 17,
2011
   
March 27,
 2011
 
               
Assets
             
Current Assets:
             
Cash and cash equivalents
 
$
4,000
 
$
4,038
 
Receivables, net
   
2,121
   
2,207
 
Inventories
   
5,544
   
5,668
 
Income tax receivable
   
855
   
515
 
Prepaid expenses and other current assets
   
3,630
   
1,802
 
Investment securities available for sale - restricted
   
607
   
619
 
Deferred income tax asset, net
   
168
   
322
 
Total current assets
   
16,925
   
15,171
 
Property and equipment, net
   
178,641
   
182,992
 
Goodwill
   
6,896
   
6,896
 
Deferred income tax asset, net
   
10,379
   
10,053
 
Other assets, net
   
5,477
   
5,770
 
Total assets
 
$
218,318
 
$
220,882
 
               
Liabilities, Convertible Preferred Stock and Stockholders’ Equity
             
Current Liabilities:
             
Accounts payable
 
$
8,738
 
$
8,121
 
Accrued expenses
   
24,518
   
25,346
 
Total current liabilities
   
33,256
   
33,467
 
               
Deferred obligations under operating leases
   
14,547
   
14,268
 
Borrowings under line of credit
   
   
5,689
 
Other long term liabilities
   
812
   
1,025
 
Total liabilities
   
48,615
   
54,449
 
               
Commitments and contingencies (Notes 5 and 10)
             
               
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 –500,000 and 800,000 shares, respectively, with a liquidation preference of $12.5 million and $20 million, respectively, plus accrued and unpaid dividends
   
12,321
   
19,710
 
               
Stockholders’ Equity
             
Common stock - $.10 par value; convertible into Class A common stock; authorized, 12,000,000 shares; issued and outstanding, 6,009,154 and 5,552,747 shares, respectively
   
601
   
555
 
Class A common stock - $.10 par value; authorized, 32,500,000 shares;issued and outstanding, 10,706,020 and 10,552,378 shares, respectively
   
1,071
   
1,055
 
Additional paid-in capital
   
82,644
   
73,601
 
Retained earnings
   
73,509
   
71,849
 
Treasury stock, at cost - 56,042 and 46,667 shares, respectively
   
(482
)
 
(383
)
Accumulated other comprehensive income, net of tax
   
39
   
46
 
Total stockholders’ equity
   
157,382
   
146,723
 
Total liabilities, convertible preferred stock and stockholders' equity
 
$
218,318
 
$
220,882
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
- 1 -

 
 
BENIHANA INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share information)
 
     
Four Periods Ended
 
     
July 17,
2011
   
July 18,
2010
 
               
Revenues:
             
Restaurant sales
 
$
105,963
 
$
100,227
 
Franchise fees and royalties
   
581
   
542
 
Total revenues
   
106,544
   
100,769
 
               
               
Costs and Expenses:
             
Cost of food and beverage sales
   
26,296
   
24,595
 
Restaurant operating expenses
   
66,718
   
64,238
 
Restaurant opening costs
   
   
8
 
General and administrative expenses
   
11,166
   
9,397
 
Total operating expenses
   
104,180
   
98,238
 
               
Income from operations
   
2,364
   
2,531
 
Interest expense, net
   
160
   
397
 
               
Income before income taxes
   
2,204
   
2,134
 
Income tax provision
   
255
   
525
 
               
Net Income
   
1,949
   
1,609
 
Less: Accretion of preferred stock issuance costs and preferred stock dividends
   
289
   
333
 
               
Net income attributable to common stockholders
 
$
1,660
 
$
1,276
 
               
Earnings Per Share
             
Basic earnings per common share
 
$
0.10
 
$
0.08
 
Diluted earnings per common share
 
$
0.10
 
$
0.08
 
               
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
- 2 -

 

BENIHANA INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
Four Periods Ended July 17, 2011 and July 18, 2010
(In thousands, except share information)
 
                                 
Accumulated
       
                                 
Other
       
         
Class A
   
Additional
               
Comprehensive
   
Total
 
   
Common
   
Common
   
Paid-in
   
Retained
   
Treasury
   
Loss,
   
Stockholders’
 
   
Stock
   
Stock
   
Capital
   
Earnings
   
Stock
   
Net of tax
   
Equity
 
                                           
Balance, March 28, 2010
  $ 564     $ 977     $ 70,589     $ 71,598     $     $ (12 )   $ 143,716  
Comprehensive income:
                                                       
Net income
                            1,609                       1,609  
Net decrease in unrealized loss on investment securities available for sale, net of tax
                                            8       8  
Total comprehensive income
                                                    1,617  
Issuance of 1,359 shares of common stock and 26,500 shares of Class A common stock from exercise of options
    1       3       135                               139  
Dividends declared on Series B preferred stock
                            (307 )                     (307 )
Accretion of issuance costs on Series B preferred stock
                            (26 )                     (26 )
Stock-based compensation
                    124                               124  
Balance, July 18, 2010
  $ 565     $ 980     $ 70,848     $ 72,874     $     $ (4 )   $ 145,263  
 
                                 
Accumulated
       
                                 
Other
       
         
Class A
   
Additional
               
Comprehensive
   
Total
 
   
Common
   
Common
   
Paid-in
   
Retained
   
Treasury
   
Income,
   
Stockholders’
 
   
Stock
   
Stock
   
Capital
   
Earnings
   
Stock
   
Net of Tax
   
Equity
 
                                           
Balance, March 27, 2011
  $ 555     $ 1,055     $ 73,601     $ 71,849     $ (383 )   $ 46     $ 146,723  
Comprehensive income:
                                                       
Net income
                            1,949                       1,949  
Net decrease in unrealized gain on investment securities available for sale, net of tax
                                            (7 )     (7 )
Total comprehensive income
                                                    1,942  
Issuance of 15,000 shares of restricted Class A common stock
            2       (2 )                                
Conversion of 138,642 shares of common stock into 138,642 shares of Class A common stock
    (14 )     14                                          
Repurchase treasury stock - 9,375 shares Class A common stock
                                    (99 )             (99 )
Conversion of 300,000 shares of Series B preferred stock into 595,049 shares of common stock
    60               7,353                               7,413  
Dividends declared on Series B preferred stock
                            (265 )                     (265 )
Accretion of issuance costs on Series B preferred stock
                            (24 )                     (24 )
Stock-based compensation
                    1,596                               1,596  
Tax benefit from vesting of restricted Class A common stock
                    96                               96  
Balance, July 17, 2011
  $ 601     $ 1,071     $ 82,644     $ 73,509     $ (482 )   $ 39     $ 157,382  

See accompanying notes to unaudited condensed consolidated financial statements.
 
 
- 3 -

 
 
BENIHANA INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
   
Four Periods Ended
   
July 17,
   
July 18,
 
   
2011
   
2010
 
             
Operating Activities:
           
Net income
  $ 1,949     $ 1,609  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    5,966       6,515  
Amortization of deferred debt issuance costs
    80       283  
Stock-based compensation
    1,596       124  
Tax benefit from vesting of restricted Class A common stock
    (96 )     -  
Loss/(gain) on disposal of assets
    14       (11 )
Deferred income taxes
    (167 )     239  
Change in operating assets and liabilities that provided (used) cash:
               
Receivables
    86       355  
Inventories
    124       390  
Prepaid expenses and other current assets
    (1,828 )     (647 )
Income taxes and other long term liabilities
    (45 )     (212 )
Other assets
    120       (138 )
Accounts payable
    652       (261 )
Accrued expenses and deferred obligations under operating leases
    (850 )     1,588  
Net cash provided by operating activities
    7,601       9,834  
Investing Activities:
               
Expenditures for property and equipment and computer software
    (1,579 )     (1,259 )
Sale of investment securities, available for sale, net
    -       41  
Net cash used in investing activities
    (1,579 )     (1,218 )
Financing Activities:
               
Borrowings on line of credit
    22,746       32,970  
Repayments on line of credit
    (28,435 )     (37,687 )
Dividends paid on Series B preferred stock
    (467 )     (495 )
Proceeds from issuance of common stock and Class A common stock upon exercise of stock options
    -       139  
Tax benefit from vesting of restricted Class A common stock
    96       -  
Net cash used in financing activities
    (6,060 )     (5,073 )
Net (decrease) increase in cash and cash equivalents
    (38 )     3,543  
Cash and cash equivalents, beginning of period
    4,038       2,558  
Cash and cash equivalents, end of period
  $ 4,000     $ 6,101  
                 
Supplemental Disclosures of Cash Flow Information:
               
Cash paid during the four periods:
               
Interest
  $ 67     $ 373  
Income taxes
    937       131  
Noncash investing and financing activities:
               
Acquired property and equipment for which cash payments had not yet been made
  $ 740     $ 789  
Accrued but unpaid dividends on the Series B preferred stock
    34       49  
Change in unrealized (gain) loss on investment securities available for sale, net of tax
    (7 )     8  

See accompanying notes to unaudited condensed consolidated financial statements.

 
- 4 -

 
 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
1.  
General

The accompanying condensed consolidated balance sheet as of March 27, 2011, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements of Benihana Inc. and Subsidiaries (“we, “our,” “us,” the “Company”) as of July 17, 2011, and for the four periods (sixteen weeks) ended July 17, 2011 and July 18, 2010 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 (“SEC”). 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 March 27, 2011 appearing in our Annual Report on Form 10-K filed with the SEC.

The preparation of financial statements in conformity with US GAAP requires us 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 our financial position and results of operations. The results of operations for the four periods ended July 17, 2011 are not necessarily indicative of the results to be expected for the full year.

We have a 52/53-week fiscal year. Our fiscal year ends on the Sunday occurring within the dates of March 26 and April 1. We divide 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 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 for a consistent number of operating days within each period, as well as ensures that certain holidays significant to our operations occur consistently within the same fiscal quarters from year to year. Because of differences in the length of fiscal quarters, however, results of operations between the first quarter and the later quarters of a fiscal year are not comparable. Fiscal year 2012 consists of 53 weeks and fiscal year 2011 consists of 52 weeks. Fiscal year 2012 will end on April 1, 2012. Fiscal year 2011 ended on March 27, 2011.

2.  
Recently Issued Accounting Standards

In December 2010, the Financial Accounting Standards Board (FASB) issued authoritative guidance which modifies the requirements of Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. If applicable, we will adopt this guidance effective January 1, 2012, which coincides with our annual goodwill impairment test. We do not expect this guidance to have a material impact on our consolidated financial position or results of operations.

In June 2011, the FASB issued a new accounting standard on the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. We will adopt this new presentation standard as of the beginning of fiscal year 2013. The adoption of this standard will only impact the presentation of our financial statements and will not impact our consolidated financial position or results of operations.
 
 
- 5 -

 
 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
3.  
Inventories

Inventories consist of the following (in thousands):
 
   
July 17,
   
March 27,
 
   
2011
   
2011
 
             
Food and beverage
  $ 2,899     $ 2,889  
Supplies
    2,645       2,779  
                 
    $ 5,544     $ 5,668  
 
4.  
Fair Value Measurements

The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued liabilities approximate fair value due to the short-term nature of the items as of July 17, 2011 and March 27, 2011. We believe that the carrying amount of our debt at March 27, 2011 approximated fair value due to the variable rates associated with the debt instrument and the recent amendment to our line of credit agreement in fiscal year 2011 (refer to Note 5, Long-Term Debt). We had no borrowings outstanding under the credit facility as of July 17, 2011.

As of July 17, 2011, we held certain publicly traded mutual funds that invest in debt and equity securities that are required to be measured at fair value on a recurring basis. We invest in these mutual funds to mirror and track the performance of the elections made by employees that participate in our deferred compensation plan. These mutual fund investments are classified as available for sale and are carried at fair value, with unrealized gains and losses reflected as a separate component of stockholders’ equity. We determined the fair value of our investment securities available for sale using quoted market prices (Level 1 in the fair value hierarchy).   

The following tables disclose, as of July 17, 2011 and March 27, 2011, our available for sale investment securities at both the cost basis and fair value by investment type. None of our available for sale investment securities were in a loss position as of July 17, 2011 or March 27, 2011.
 
   
July 17, 2011
   
March 27, 2011
 
   
Cost
   
Fair value
   
Cost
   
Fair value
 
                         
Equity securities
  $ 439     $ 506     $ 360     $ 439  
Fixed income securities
    65       67       65       67  
Money market fund deposits
    34       34       113       113  
    $ 538     $ 607     $ 538     $ 619  
                                 
We periodically evaluate unrealized losses in our available for sale investment securities for other-than-temporary impairment using both qualitative and quantitative criteria and, as of July 17, 2011, determined that there was no material other-than-temporary impairment.

Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in the valuation of our reporting units for the purpose of assessing goodwill impairment and the valuation of property and equipment when assessing long-lived asset impairment. None of our nonfinancial assets or nonfinancial liabilities were measured at fair value during the four periods ended July 17, 2011.

5.  
Long-Term Debt

We entered into an Amended and Restated Credit Agreement with Wells Fargo (as successor by merger to Wachovia Bank, National Association) on February 10, 2011. The credit facility provides us a borrowing capacity of $30.0 million, with an option to increase the principal amount of the credit facility by $5.0 million to $35.0 million, subject to certain conditions. The credit facility is scheduled to mature on February 10, 2014. The credit facility is secured by the assets of the Company. There are no scheduled principal payments prior to maturity. The Company may, however, prepay outstanding borrowings prior to that date without penalty. The line of credit provides for an initial commitment fee of 0.5% on the unused portion of the loan commitment and a variable interest rate on outstanding balances benchmarked to the prime rate in the United States or to the London interbank offering rate. Both the commitment fee and the interest rate adjust based on a leverage ratio, as defined by the amended and restated agreement. While providing for working capital, capital expenditures and general corporate purposes, the amended and restated agreement requires that the Company maintain certain financial ratios and profitability amounts and restricts the amount of cash dividends paid and stock repurchases of the Company, as well as acquisitions and other investments.
 
 
- 6 -

 
 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
At July 17, 2011, we had no borrowings outstanding under the line of credit. Our borrowing capacity 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 $1.3 million at July 17, 2011, resulting in an available borrowing balance of $28.7 million. As of July 17, 2011, we were in compliance with the financial and non-financial covenants of the amended and restated agreement governing the line of credit.

6.  
Convertible Preferred Stock

The Series B preferred stock has a liquidation preference of $12.5 million as of July 17, 2011, or $25.00 per share, (subject to anti-dilution provisions) plus accrued and unpaid dividends. The Series B preferred stock is convertible into our common stock at a conversion price of approximately $12.67 per share that equates to 1.97 shares of common stock for each share of Series B preferred stock (subject to anti-dilution provisions). The Series B preferred stock carries a dividend at the annual rate of $1.25 per share (or 5% of the purchase price) payable in cash or additional Series B preferred stock, and votes on an "as if converted" basis together with the common stockholders on all matters put to a vote of the holders of common stock. In addition, under certain circumstances, the approval of a majority of the Series B preferred stock is required for certain events outside the ordinary course of business, including acquisitions or disposition of assets having a value in excess of 25% of our total consolidated assets.

We pay quarterly dividends on the Series B preferred stock, and at July 17, 2011, accrued but unpaid dividends totaled less than $0.1 million.

The conversion option of the Series B preferred stock is not a derivative liability that must be fair valued.

During the four periods ended July 17, 2011, the holder of the preferred stock converted 300,000 shares of the Series B preferred stock into 595,049 shares of common stock.

7.  
Income Taxes

Ordinarily, the effective tax rate at the end of an interim period is calculated using an estimate of the annual effective tax rate expected to be applicable for the full fiscal year. However, when a reliable estimate cannot be made, the actual effective tax rate for the year-to-date may be the best estimate of the annual effective tax rate. For the four periods ended July 17, 2011, we have used the actual effective year-to-date tax rate in calculating the interim effective tax rate as a reliable estimate of the annual effective tax rate cannot be made. During the four periods ended July 17, 2011, our effective income tax rate was favorably impacted by an increased level of tax credits relative to taxable income.

We file income tax returns which are periodically audited by various federal and state jurisdictions. With few exceptions, we are no longer subject to federal and state income tax examinations for years prior to fiscal year 2007. As of July 17, 2011, we had $0.1 million of gross unrecognized tax benefits related to uncertain tax positions, all of which would impact the tax rate if recognized. The amount accrued for the payment of interest was not significant, and we do not believe we have any potential liability for the payment of penalties. Of the total unrecognized tax benefits at July 17, 2011, we believe it is reasonably possible that this amount could be reduced by less than $0.1 million in the next twelve months due to the expiration of applicable statutes of limitations. As of March 27, 2011, we had $0.2 million of gross unrecognized tax benefits, all of which would impact the tax rate if recognized. Unrecognized tax benefits and related interest are classified as other long term liabilities in the accompanying condensed consolidated balance sheets. It is our continuing policy to recognize interest and penalties related to unrecognized tax benefits in income tax expense.

On August 16, 2011, the Internal Revenue Service commenced an audit of the Company's March 29, 2009 federal income tax return. No assessments have yet been made as a result of the audit.
 
 
- 7 -

 
 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
8.  
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 our various stock option plans and takes into account the conversion rights of our Series B preferred stock.

The components used in the computation of basic earnings per common share and diluted earnings per common share for the four periods ended July 17, 2011 and July 18, 2010 are shown below (in thousands):
 
   
Four Periods Ended
 
   
July 17,
   
July 18,
 
   
2011
   
2010
 
             
Net income, as reported
  $ 1,949     $ 1,609  
Less: Accretion of preferred stock issuance costs and preferred stock dividends
    289       333  
Income for computation of basic earnings per common share
    1,660       1,276  
Add: Accretion of preferred stock issuance costs and preferred stock dividends
           
Income for computation of diluted earnings per common share
  $ 1,660     $ 1,276  
Weighted average number of common shares used in basic earnings per share
    16,323       15,441  
Effect of dilutive securities:
               
Stock options
    51       18  
Series B preferred stock
           
Weighted average number of common shares and dilutive potential common stock used in diluted earnings per share
    16,374       15,459  
  
In computing diluted earnings per share, the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued, and in computing the dilutive effect of convertible securities, the numerator is adjusted to add back any preferred stock dividends and any other changes in income or loss that would result from the conversion of those securities. In applying the if-converted method, conversion shall not be assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive.

For the four periods ended July 17, 2011, stock options to purchase approximately 0.4 million shares of common stock were excluded from the calculation of diluted earnings per share due to their anti-dilutive effect. For the four periods ended July 18, 2010, stock options to purchase approximately 0.7 million shares of common stock were excluded from the calculation of diluted earnings per share due to their anti-dilutive effect. For the four periods ended July 17, 2011 and July 18, 2010, conversion of the convertible preferred stock was not assumed for purposes of computing diluted earnings per share since the effect would have been anti-dilutive.

9.  
Stock-Based Compensation
 
On August 20, 2009, our stockholders approved an amendment to our 2007 Equity Incentive Plan. The amendment (i) increased the number of authorized shares of our Class A common stock available for issuance under the equity plan by 2,000,000 shares to an aggregate of 2,750,000 shares, (ii) increased the number of shares which may be issued under the equity plan upon the exercise of incentive stock options by 1,450,000 shares to an aggregate of 2,000,000 shares and (iii) increased the maximum number of shares for which an employee of the Company may be granted equity awards under the equity plan during any calendar year by 550,000 shares to 750,000 shares. As of July 17, 2011, 660,233 shares of restricted Class A common stock, net of forfeitures, and options to purchase 343,287 shares of Class A common stock, net of cancellations, have been granted under the equity plan. Accordingly, 1,746,480 shares remain available for future grants under the equity plan.

 
- 8 -

 
 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  
We recorded $1.6 million ($1.0 million, net of tax) and $0.1 million (less than $0.1 million, net of tax) in stock-based compensation expense during the four periods ended July 17, 2011 and July 18, 2010, respectively.
 
Stock Options

No stock options were granted during the four periods ended July 17, 2011 or July 18, 2010. The following is a summary of stock option activity for the four periods ended July 17, 2011:
 
               
Weighted
       
         
Weighted
   
Average
       
         
Average
   
Remaining
   
Aggregate
 
         
Exercise
   
Contractual
   
Intrinsic
 
   
Shares
   
Price
   
Life
   
Value
 
         
(per share)
   
(in years)
   
(in thousands)
 
Outstanding at March 27, 2011
    801,800     $ 10.29       5.42     $ 514  
Granted
                           
Canceled/Expired
                           
Exercised
                           
Outstanding at July 17, 2011
    801,800     $ 10.29       4.81     $ 1,132  
Exercisable at July 17, 2011
    721,800     $ 10.63       5.00     $ 931  
 
The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds the exercise price of the option. Upon the exercise of stock options, shares are issued from the Company’s authorized but unissued shares. At July 17, 2011, total unrecognized stock-based compensation cost related to non-vested stock options totaled $0.2 million and is expected to be recognized over approximately 0.3 years.

Restricted Stock

The following is a summary of restricted stock activity for the four periods ended July 17, 2011:
 
         
Weighted
 
         
Average
 
         
Grant Date
 
   
Shares
   
Fair Value
 
         
(per share)
 
             
Nonvested at March 27, 2011
    472,917     $ 8.12  
Granted
    15,000       9.97  
Forfeited
    -       -  
Vested
    (52,500 )     8.53  
Nonvested at July 17, 2011
    435,417     $ 8.14  
                 
 
At July 17, 2011, there was $1.4 million of unrecognized compensation cost related to restricted stock awards, which is expected to be recognized over approximately 2.0 years.
 
 
- 9 -

 
 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
10.  
Commitments and Contingencies

During May 2010, the California Department of Alcoholic Beverage Control (the “Department”) notified us of proceedings against the Company based upon allegations that alcohol was served to underage guests in a RA Sushi location. The Department issued a decision imposing a 30 day suspension of the alcoholic beverage license. We will vigorously contest the suspension of the alcoholic beverage license for this location and the claim against us. While under appeal by us, the suspension is stayed, and we are permitted to continue operating under our alcoholic beverage license. In one incident, on which a claim had been filed against us, a guest was subsequently involved in a fatal automobile accident. In July 2011, a jury returned a verdict for which we were found to be 30% responsible, resulting in a liability of approximately $0.2 million. We have general liability insurance plans for such claims.
 
We are not subject to any other significant pending legal proceedings, other than ordinary routine claims incidental to our business or those otherwise covered by our insurance policies.

We do not believe that the ultimate resolution of these matters will have a material adverse effect on our results of operations, financial condition or cash flows. However, 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 condition, results of operations or cash flows.

Supply Agreements – We have entered into non-cancellable national supply agreements for the purchase of certain beef and seafood items, as well as produce, oils and other items used in the normal course of business, at fixed prices for up to twelve-month terms. The purpose of the supply agreements is to reduce the potential impact of the volatility in the cost of the commodities over the terms of the agreements. These supply agreements are not considered derivative contracts.

11.  
Restaurant Operating Expenses

Restaurant operating expenses consist of the following (in thousands):
 
   
Four Periods Ended
 
   
July 17,
   
July 18,
 
   
2011
   
2010
 
             
Labor and related costs
  $ 34,745     $ 33,452  
Restaurant supplies
    2,551       2,395  
Credit card discounts
    2,107       1,970  
Advertising and promotional costs
    4,040       3,670  
Utilities
    3,433       2,885  
Occupancy costs
    6,623       6,492  
Depreciation and amortization
    5,876       5,898  
Other restaurant operating expenses
    7,343       7,476  
Total restaurant operating expenses
  $ 66,718     $ 64,238  
 
12.  
Segment Reporting

Our reportable segments are those that are based on our methods of internal reporting and management structure. We manage 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 Benihana teppanyaki segment but instead are reflected as corporate revenues.

 
- 10 -

 
 
The tables below present information about reportable segments (in thousands):

      Four Periods Ended  
      July 17, 2011  
   
Teppanyaki
   
RA Sushi
   
Haru
   
Corporate
   
Consolidated
 
                               
Revenues
  $ 70,711     $ 25,309     $ 9,943     $ 581     $ 106,544  
Depreciation and amortization
    4,194       1,102       592       78       5,966  
Income (loss) from operations
    7,829       2,695       829       (8,989 )     2,364  
Capital expenditures
    1,161       174       220       24       1,579  
 
      Four Periods Ended  
      July 18, 2010  
 
Teppanyaki
 
RA Sushi
   
Haru
 
Corporate
 
Consolidated
 
                               
Revenues
  $ 65,119     $ 24,727     $ 10,381     $ 542     $ 100,769  
Depreciation and amortization
    4,195       1,116       596       608       6,515  
Income (loss) from operations
    5,939       2,602       1,170       (7,180 )     2,531  
Capital expenditures
    817       160       126       156       1,259  
 
13.  
Other Matters
 
As previously announced, in July 2010, our board of directors commenced a review of strategic alternatives available to us in order to maximize stockholder value. On May 13, 2011, our board of directors approved the following strategic alternatives. First, we have submitted to our stockholders for their approval a proposal to eliminate the Company's dual-class common stock structure by reclassifying our Class A Common Stock into Common Stock.  Second, our board of directors has amended our shareholder rights plan to expire automatically when and if the reclassification of the Class A Common Stock becomes effective. There can be no assurance that the proposed reclassification will be consummated or, if consummated, the timing thereof.

14.  
Subsequent Events

Effective August 15, 2011, we hired J. David Flanery as our Chief Financial Officer. Gene R. Baldwin, who served as our Interim Chief Financial Officer, remained our principal financial officer through the filing of this Form 10-Q.

 
- 11 -

 
 
BENIHANA INC. AND SUBSIDIARIES
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
OVERVIEW

Total revenues increased $5.8 million, or 5.7%, to $106.5 million, net income increased $0.3 million, or 21.1%, to $1.9 million and earnings per diluted share increased $0.02, or 22.8%, to $0.10 in the four periods ended July 17, 2011, compared to the corresponding prior year period. Operating income decreased $0.2 million, or 6.6%, to $2.4 million in the four periods ended July 17, 2011, compared to the corresponding prior year period. Restaurant operating income increased $1.6 million, while general and administrative expenses increased $1.8 million year-over-year. As discussed more fully in the Costs and Expenses section, the primary component of the increase in G&A expenses was a $1.5 million increase in stock based compensation, primarily related to the vesting of restricted share awards granted to certain executives pursuant to their employment agreements.

Our core concept, the Benihana teppanyaki restaurant, offers teppanyaki-style Japanese cuisine in which fresh steak, chicken and seafood are prepared by a chef on a steel teppan grill at the center of the guests’ table. We believe that the Benihana style of presentation makes us a unique choice for guests, and guests who are seeking greater value for their dining budget appreciate the added entertainment provided by the chef cooking directly at their table. In addition to our Benihana teppanyaki restaurants, we also operate two other restaurant concepts offering Asian, predominately sushi, entrees.

Our operating results continue to reflect the efforts of the Benihana Teppanyaki Renewal Program (“Renewal Program”) launched during fiscal year 2010. The Renewal Program focused on improving guest experiences as they relate to value, image, quality, consistency and Japanese culture. Although most initiatives have been implemented, we continue to review each aspect of the Renewal Program to continue the momentum. During fiscal year 2012, we continue to identify additional labor management opportunities, improve purchasing efficiencies, and develop our newly promoted or hired general managers. We continue to promote the Chef’s Table and Kabuki Kids marketing programs, which have 1.9 million addresses and 0.2 million participants, respectively. We are currently exploring additional ways to utilize certain features of these programs to further strengthen our brand awareness.

As a result of commodities pressures, during the four periods ended July 17, 2011, we increased prices at our Benihana restaurants for the first time since the implementation of the Renewal Program. The resulting impact was an increase in certain menu items of 2.0% and a decrease in the Chef’s Specials discount of 0.6%.

In light of prevailing economic conditions and costs incurred to implement the Renewal Program, beginning in fiscal year 2010, we have focused on conserving cash and increasing operating efficiencies. However, as the overall economy begins to stabilize and the results of the Renewal Program are realized, we plan to resume restaurant expansion. In this connection, we undertook an in depth reevaluation and analysis of our site selection and other development guidelines to ensure future new unit development is prudent and in line with our overall growth strategy.

The RA Sushi concept offers sushi and a full menu of 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. RA Sushi’s beverage sales represent approximately 30% of its restaurant sales. The RA Sushi restaurants are less expensive to build than our other two concepts and offer us an additional growth vehicle that we believe can succeed in various types of markets. In December 2010, we implemented a price increase across all RA Sushi restaurants in response to cost pressures. The result was an increase in certain menu items of 3.3% and a reduction to the happy hour discounts of 2.8%. In March 2011, RA Sushi launched "The Hook Up," a guest program that emails a complimentary $20 gift certificate on the guest’s half-birthday. During fiscal year 2012, we have implemented a review of the RA Sushi business in order to identify enhancements to the guest experience and other operational improvements.

Our Haru concept features an extensive menu of traditional Japanese and Japanese fusion dishes in a modern, urban atmosphere. We believe that the Haru concept is well suited for densely populated cities with nearby shopping, office and tourist areas. The Haru concept generates significant sales volumes from take-out and delivery. Approximately 32% of our Haru New York, NY locations’ revenues are derived from delivery and takeout sales. In March 2011, we increased menu prices. As a result, our food prices increased 1.1% and beverage prices increased 3.0%. Also in March 2011, Haru launched a guest program, "Access," which provides members with exclusive monthly offers.

 
- 12 -

 
 
The following tables reflect changes in our Company-owned restaurant count during the four periods ended July 17, 2011 and July 18, 2010:
 
      Four Periods Ended  
      July 17, 2011  
   
Teppanyaki
   
RA
Sushi
   
Haru
   
Total
 
                         
Restaurant count, beginning of period
    63       25       9       97  
Closings
    -       -       (1 )     (1 )
Restaurant count, end of period
    63       25       8       96  
 
      Four Periods Ended  
      July 18, 2010  
   
Teppanyaki
 
RA Sushi
   
Haru
   
Total
 
                         
Restaurant count, beginning of period
    63       25       9       97  
Openings
    -       -       -       -  
Restaurant count, end of period
    63       25       9       97  
                                 
As of July 17, 2011 and July 18, 2010, we had 20 franchised Benihana teppanyaki restaurants operating in the United States, Latin America and the Caribbean. Subsequent to July 17, 2011, two of these franchised restaurants in the United States have been closed.

As previously announced, in July 2010, our board of directors commenced a review of strategic alternatives available to us in order to maximize stockholder value. On May 13, 2011, our board of directors approved the following strategic alternatives. First, we have submitted to our stockholders for their approval a proposal to eliminate the Company's dual-class common stock structure by reclassifying our Class A Common Stock into Common Stock.  Second, our board of directors has amended our shareholder rights plan to expire automatically when and if the reclassification of the Class A Common Stock becomes effective. There can be no assurance that the proposed reclassification will be consummated or, if consummated, the timing thereof.

OPERATING RESULTS

Our revenues consist of sales of food and beverages at our restaurants and licensing fees from franchised restaurants. Cost of restaurant food and beverages sold represents the direct cost of the ingredients for the prepared food and beverages sold. Restaurant operating expenses consist of direct and indirect labor, occupancy costs, advertising and other costs that are directly attributed to each restaurant location. Restaurant opening costs include rent incurred 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 other costs of administering restaurant operations.

 
- 13 -

 
 
Four Periods Ended July 17, 2011 Compared to July 18, 2010:

The following tables show our operating results, as well as our operating expenses as a percentage of restaurant sales, for the four periods ended July 17, 2011 and July 18, 2010 (dollar amounts in thousands):
 
Four periods ended July 17, 2011:
                                     
   
Teppanyaki
   
RA Sushi
   
Haru
   
Restaurant Segment
 
Corporate
   
Consolidated
 
Revenues:
                                                                       
Restaurant sales
  $ 70,711       100.0 %   $ 25,309       100.0 %   $ 9,943       100.0 %   $ 105,963       100.0 %   $ -       -     $ 105,963       100.0 %
Franchise fees and royalties
    -               -               -               -               581               581          
Total revenues
    70,711               25,309               9,943               105,963               581               106,544          
                                                                                                 
Costs and expenses:
                                                                                               
Cost of food and beverage sales
    17,604       24.9 %     6,265       24.8 %     2,427       24.4 %     26,296       24.8 %     -       -       26,296       24.8 %
Restaurant operating expenses*
  44,775       63.3 %     15,508       61.3 %     6,435       64.7 %     66,718       63.0 %     -       -       66,718       63.0 %
Restaurant opening costs
    -       0.0 %     -       0.0 %     -       -       -       -       -       -       -       0.0 %
General and administrative expenses*
  503       0.7 %     841       3.3 %     252       2.5 %     1,596       1.5 %     9,570       -       11,166       10.5 %
Total operating expenses
    62,882       88.9 %     22,614       89.4 %     9,114       91.7 %     94,610       89.3 %     9,570       -       104,180       98.3 %
                                                                                                 
Income (loss) from operations
  $ 7,829       11.1 %   $ 2,695       10.6 %   $ 829       8.3 %   $ 11,353       10.7 %   $ (8,989 )     -     $ 2,364       2.2 %
                                                                                                 
Four periods ended July 18, 2010:
                                       
   
Teppanyaki
   
RA Sushi
   
Haru
   
Restaurant Segment
 
Corporate
   
Consolidated
 
Revenues:
                                                                                               
Restaurant sales
  $ 65,119       100.0 %   $ 24,727       100.0 %   $ 10,381       100.0 %   $ 100,227       100.0 %   $ -       -     $ 100,227       100.0 %
Franchise fees and royalties
    -               -               -               -               542               542          
Total revenues
    65,119               24,727               10,381               100,227               542               100,769          
                                                                                                 
Costs and expenses:
                                                                                               
Cost of food and beverage sales
    16,050       24.6 %     6,113       24.7 %     2,432       23.4 %     24,595       24.5 %     -       -       24,595       24.5 %
Restaurant operating expenses*
  42,517       65.3 %     15,207       61.5 %     6,514       62.7 %     64,238       64.1 %     -       -       64,238       64.1 %
Restaurant opening costs
    -       0.0 %     8       0.0 %     -       -       8       0       -       -       8       0.0 %
General and administrative expenses*
  613       0.9 %     797       3.2 %     265       2.6 %     1,675       1.7 %     7,722       -       9,397       9.4 %
Total operating expenses
    59,180       90.9 %     22,125       89.5 %     9,211       88.7 %     90,516       90.3 %     7,722       -       98,238       98.0 %
                                                                                                 
Income (loss) from operations
  $ 5,939       9.1 %   $ 2,602       10.5 %   $ 1,170       11.3 %   $ 9,711       9.7 %   $ (7,180 )     -     $ 2,531       2.5 %
                                                                                                 
*Includes depreciation and amortization expense as follows:
                                                                 
Four periods ended July 17, 2011:
                                         
   
Teppanyaki
   
RA Sushi
   
Haru
   
Restaurant Segmentl
 
Corporate
   
Consolidated
 
Restaurant operating expenses
  $ 4,193       5.9 %   $ 1,092       4.3 %   $ 591       5.9 %   $ 5,876       5.5 %   $ -             $ 5,876          
General and administrative expenses
  1       0.0 %     10       0.0 %     1       0.0 %     12       0.0 %     78       n/m       90          
Depreciation and amortization expense
$ 4,194             $ 1,102             $ 592             $ 5,888             $ 78             $ 5,966       5.6 %
                                                                                                 
Four periods ended July 18, 2010:
                                         
   
Teppanyaki
   
RA Sushi
   
Haru
   
Restaurant Segment
 
Corporate
   
Consolidated
 
Restaurant operating expenses
  $ 4,194       6.4 %   $ 1,109       4.5 %   $ 595       5.7 %   $ 5,898       5.9 %   $ -       -     $ 5,898          
General and administrative expenses
  1       0.0 %     7       0.0 %     1       0.0 %     9       0.0 %     608       n/m       617          
Depreciation and amortization expense
$ 4,195             $ 1,116             $ 596             $ 5,907             $ 608             $ 6,515       6.5 %
 
Total income from restaurant segment operations, including direct general and administrative expenses, was $11.4 million for the four periods ended July 17, 2011, an increase of $1.6 million or 16.9% over the prior year, led by a $1.9 million or 31.8% increase for the Benihana concept. The RA Sushi concept saw a $0.1 million or 3.6% improvement in operating income, while the Haru concept saw a $0.3 million decrease in operating income. Corporate loss from operations increased $1.8 million over the prior year, primarily related to general and administrative expenses, resulting in a total operating income decrease of $0.2 million or 6.6%. These changes in income from operations, when compared to the same period in the prior fiscal year, are due to changes in revenues and operating expenses as further described under the headings “Revenues” and “Costs and Expenses” below.
 
 
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REVENUES

The following table summarizes the changes in restaurant sales for the four periods ended July 17, 2011 compared to the four periods ended July 18, 2010 (in thousands):
 
   
Teppanyaki
   
RA Sushi
   
Haru
   
Total
 
                         
Restaurant sales during the four periods ended July 18, 2010
  $ 65,119     $ 24,727     $ 10,381     $ 100,227  
Increase (decrease) in comparable sales
    5,592       582       (196 )     5,978  
Decrease from closed retaurants
    -       -       (242 )     (242 )
Restaurant sales during the four periods ended July 17, 2011
  $ 70,711     $ 25,309     $ 9,943     $ 105,963  
 
The following table summarizes comparable restaurant sales by concept and percent changes for the four periods ended July 17, 2011, when compared to the same period in the prior fiscal year as well (dollars in thousands). Restaurants are considered comparable when they are open throughout the same periods in the two periods being compared. New restaurants enter the comparable base when they have been open for more than one year. Restaurants may leave and enter the comparable restaurant base as they are closed for renovation and subsequently re-open.
 
   
Four Periods Ended
 
   
July 17,
   
July 18,
   
Percent
 
   
2011
   
2010
   
Change
 
Comparable restaurant sales by concept:
                 
Teppanyaki
  $ 70,711     $ 65,119       8.6 %
RA Sushi
    25,309       24,727       2.4 %
Haru
    9,943       10,139       -1.9 %
Total comparable restaurant sales
  $ 105,963     $ 99,985       6.0 <