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

FORM 10-Q
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended January 1, 2012

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
of incorporation or organization)
  (I.R.S. Employer
Identification No.)
                                                                                
8750 Northwest 36th Street, Suite 300, Miami, Florida 33178
(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).
 
  x Yes
o No
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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: 17,923,902 shares outstanding at January 27, 2012
 
 
 

 
BENIHANA INC. AND SUBSIDIARIES
 
TABLE OF CONTENTS
   
PAGE
PART I
FINANCIAL INFORMATION
 
 
Item 1.
Financial Statements
 
       
   
Condensed Consolidated Balance Sheets (unaudited) at January 1, 2012 and March 27, 2011
2
       
   
Condensed Consolidated Statements of Income (Loss) (unaudited) for the Three and Ten Periods Ended January 1, 2012 and January 2, 2011
3
       
   
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Ten Periods Ended January 1, 2012 and January 2, 2011
4
       
   
Condensed Consolidated Statements of Cash Flows (unaudited) for the Ten Periods Ended January 1, 2012 and January 2, 2011
5
       
   
Notes to Condensed Consolidated Financial Statements (unaudited)
6
       
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
14
       
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
26
       
 
Item 4.
Controls and Procedures
27
       
PART II
OTHER INFORMATION
 
       
 
Item 1.
Legal Proceedings
27
       
 
Item 1A.
Risk Factors
27
       
 
Item 6.
Exhibits
28
 
 
- 1 -

 
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)
 
   
January 1,
   
March 27,
 
   
2012
   
2011
 
Assets
           
Current Assets:
           
Cash and cash equivalents
  $ 16,226     $ 4,038  
Receivables, net
    1,659       2,207  
Inventories
    5,543       5,668  
Income tax receivable
    356       515  
Prepaid expenses and other current assets
    3,964       1,802  
Investment securities available for sale - restricted
    502       619  
Deferred income tax asset, net
    1,178       322  
Total current assets
    29,428       15,171  
                 
Property and equipment, net
    176,207       182,992  
Goodwill
    6,896       6,896  
Deferred income tax asset, net
    10,236       10,053  
Other assets, net
    5,206       5,770  
Total assets
  $ 227,973     $ 220,882  
                 
Liabilities, Convertible Preferred Stock and Stockholders’ Equity
               
Current Liabilities:
               
Accounts payable
  $ 12,704     $ 8,121  
Accrued expenses
    26,973       25,346  
Total current liabilities
    39,677       33,467  
                 
Deferred obligations under operating leases
    15,039       14,268  
Borrowings under line of credit
    -       5,689  
Other long term liabilities
    733       1,025  
Total liabilities
    55,449       54,449  
                 
Commitments and contingencies (Notes 6 and 11)
               
                 
Convertible preferred stock - $1.00 par value; authorized -
               
5,000,000 shares; Series B mandatory redeemable convertible preferred
               
stock - authorized, issued and oustanding - 0 and 800,000 shares, respectively
    -       19,710  
                 
Stockholders’ Equity
               
Common stock - $.10 par value; convertible into Class A common
               
stock; authorized - 24,000,000 and 12,000,000 shares, respectively; issued and
               
oustanding - 17,900,568 and 5,552,747 shares, respectively
    1,790       555  
Class A common stock - $.10 par value; authorized - 0 and 32,500,000 shares,
               
respectively; issued and outstanding - 0 and 10,552,378 shares, respectively
    -       1,055  
Additional paid-in capital
    95,875       73,601  
Retained earnings
    75,325       71,849  
Treasury stock, at cost - 56,042 and 46,667 shares, respectively
    (482 )     (383 )
Accumulated other comprehensive income, net of tax
    16       46  
Total stockholders’ equity
    172,524       146,723  
Total liabilities, convertible preferred stock and stockholders' equity
  $ 227,973     $ 220,882  
                 
See accompanying notes to unaudited condensed consolidated financial statements.
               
 
 
- 2 -

 
BENIHANA INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
(In thousands, except per share information)
 
   
Three Periods Ended
   
Ten Periods Ended
 
   
January 1,
   
January 2,
   
January 1,
   
January 2,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Revenues:
                       
Restaurant sales
  $ 76,676     $ 72,492     $ 258,465     $ 244,536  
Franchise fees and royalties
    327       403       1,323       1,318  
Total revenues
    77,003       72,895       259,788       245,854  
                                 
                                 
Costs and Expenses:
                               
Cost of food and beverage sales
    18,911       17,582       64,384       59,681  
Restaurant operating expenses
    48,745       46,703       164,930       159,131  
Restaurant opening costs
    -       -       -       8  
General and administrative expenses
    7,749       7,298       25,604       27,199  
Total operating expenses
    75,405       71,583       254,918       246,019  
                                 
Income (Loss) from operations
    1,598       1,312       4,870       (165 )
Interest expense, net
    94       212       350       485  
                                 
Income (Loss) before income taxes
    1,504       1,100       4,520       (650 )
   Income tax provision (benefit)
    465       (1,079 )     604       (1,436 )
                         
Net Income
    1,039       2,179       3,916       786  
   Less: Accretion of preferred stock issuance costs and
                               
preferred stock dividends
    -       250       440       833  
                                 
Net income (loss) attributable to common stockholders
  $ 1,039     $ 1,929     $ 3,476     $ (47 )
                                 
Earnings (Loss) Per Share
                               
   Basic earnings per common share
  $ 0.06     $ 0.12     $ 0.21     $ (0.00 )
   Diluted earnings per common share
  $ 0.06     $ 0.12     $ 0.20     $ (0.00 )
                                 
Basic weighted average shares outstanding
    17,882       15,471       16,950       15,457  
Diluted weighted average shares outstanding
    17,928       18,257       16,993       15,457  
                                 
See accompanying notes to unaudited condensed consolidated financial statements.
                 
 
 
- 3 -

 
BENIHANA INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
 (In thousands, except share information)
                                 
Accumulated
       
                                 
Other
       
         
Class A
   
Additional
               
Comprehensive
   
Total
 
   
Common
   
Common
   
Paid-in
   
Retained
   
Treasury
   
(Loss) Income,
   
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
                            786                       786  
Net decrease in unrealized loss on investment
securities available for sale, net of tax
                                            46       46  
Total comprehensive loss
                                                    832  
Issuance of 7,109 shares of common stock
and 48,000 shares of Class A common
stock from exercise of options
    1       5       286                               292  
Conversion of 46,017 shares of common stock
into 46,017 shares of Class A common
    (4 )     4                                       -  
Dividends declared on Series B preferred stock
                            (766 )                     (766 )
Accretion of issuance costs on Series B
preferred stock
                            (67 )                     (67 )
Stock-based compensation
                    423                               423  
Tax benefit from stock option exercises
                    83                               83  
Balance, January 2, 2011
  $ 561     $ 986     $ 71,381     $ 71,551     $ -     $ 34     $ 144,513  
                                                         
                                           
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
                            3,916                       3,916  
Net decrease in unrealized gain on
                                                       
investment securities available for sale,
                                                       
net of tax
                                            (30 )     (30 )
Total comprehensive income
                                                    3,886  
Issuance of 165,000 shares of restricted Class A
                                                       
common stock
            17       (17 )                             -  
Issuance of 27,866 shares of common stock
                                                       
and 20,000 shares of Class A common
                                                       
stock from exercise of options
    3       2       340                               345  
Conversion of 228,052 shares of common stock
                                                       
into 228,052 shares of Class A common stock
    (22 )     22                                       -  
Treasury stock withheld for payroll taxes upon
                                                       
vesting of restricted shares - 9,375 shares
                                                       
Class A common stock
                                    (99 )             (99 )
Conversion of 800,000 shares of Series B
                                                       
preferred stock into 1,582,577 shares of
                                                       
common stock
    158               19,598                               19,756  
Reclassification of 10,965,430 shares of Class A
                                                       
common stock into 10,965,430 shares of
    1,096       (1,096 )                                     -  
common stock
                                                       
Dividends declared on Series B preferred stock
                            (406 )                     (406 )
Accretion of issuance costs on Series B
                                                       
preferred stock
                            (34 )                     (34 )
Stock-based compensation
                    2,306                               2,306  
Tax benefit from stock option exercises
                    10                               10  
Tax benefit from vesting of restricted Class A
                                                       
common stock
                    37                               37  
Balance, January 1, 2012
  $ 1,790     $ -     $ 95,875     $ 75,325     $ (482 )   $ 16     $ 172,524  
                                                         
See accompanying notes to unaudited condensed consolidated financial statements.
                                 
 
 
- 4 -

 
BENIHANA INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
   
Ten Periods Ended
 
   
January 1,
   
January 2,
 
   
2012
   
2011
 
             
Operating Activities:
           
Net income
  $ 3,916     $ 786  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    15,027       17,142  
Amortization of deferred debt issuance costs
    200       585  
Stock-based compensation
    2,306       423  
Tax benefit from stock option exercises
    (10 )     (46 )
Tax benefit from vesting of restricted Class A common stock
    (37 )     -  
Gain on disposal of assets
    -       (46 )
Write-off of abandoned projects
    -       159  
Deferred income taxes
    (1,016 )     (996 )
Change in operating assets and liabilities that provided (used) cash:
               
Receivables
    548       376  
Inventories
    125       1,012  
Prepaid expenses and other current assets
    (2,162 )     (1,068 )
Income taxes and other long term liabilities
    326       (1,187 )
Other assets
    133       (178 )
Accounts payable
    4,411       2,231  
Accrued expenses and deferred obligations under operating leases
    1,467       (1,779 )
Net cash provided by operating activities
    25,234       17,414  
Investing Activities:
               
Expenditures for property and equipment and computer software
    (7,084 )     (6,791 )
Proceeds from sale of property and equipment and computer software
    -       48  
Sale of investment securities, available for sale, net
    64       86  
Net cash used in investing activities
    (7,020 )     (6,657 )
Financing Activities:
               
Borrowings on line of credit
    22,746       80,759  
Repayments on line of credit
    (28,435 )     (90,322 )
Dividends paid on Series B preferred stock
    (630 )     (747 )
Payment by the Company for payroll taxes withheld from the employee by withholding
               
Class A common stock as treasury shares upon vesting of restricted shares
    (99 )     -  
Proceeds from issuance of common stock and Class A common stock upon exercise
               
of stock options
    345       292  
Tax benefit from stock option exercises
    10       83  
Tax benefit from vesting of restricted Class A common stock
    37       -  
Net cash used in financing activities
    (6,026 )     (9,935 )
Net increase in cash and cash equivalents
    12,188       822  
Cash and cash equivalents, beginning of period
    4,038       2,558  
Cash and cash equivalents, end of period
  $ 16,226     $ 3,380  
                 
Supplemental Disclosures of Cash Flow Information:
               
Cash paid during the ten periods:
               
Interest
  $ 137     $ 798  
Income taxes
    1,510       221  
Noncash investing and financing activities:
               
Acquired property and equipment for which cash payments had not yet been made
  $ 1,710     $ 458  
Conversion of Series B preferred stock into Common Stock
    (19,756 )     -  
Reclassification of Class A Common Stock to Common Stock
    (1,096 )     -  
Accrued but unpaid dividends on the Series B preferred stock
    -       257  
Change in unrealized (gain) loss on investment securities available for sale, net of tax
    (30 )     46  
                 
See accompanying notes to unaudited condensed consolidated financial statements.
               
 
 
- 5 -

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

The accompanying condensed consolidated balance sheet as of 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 January 1, 2012, and for the three and ten periods (twelve and forty weeks) ended January 1, 2012 and January 2, 2011 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 three and ten periods ended January 1, 2012 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 June 2011, the Financial Accounting Standards Board (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. 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.

In September 2011, the FASB issued guidance which will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance includes a number of events and circumstances for an entity to consider in conducting the qualitative assessment. We will adopt this guidance in the third quarter of fiscal year 2013, which coincides with our fiscal year 2013 annual goodwill impairment test. We do not expect this guidance to have a material impact on our consolidated financial position or results of operations.
 
 
- 6 -

 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
3.  
Reclassification of Class A Common Stock

On November 17, 2011, at a special meeting of stockholders, the stockholders approved a proposal to amend and restate the Company’s Certificate of Incorporation, pursuant to which (a) each share of Class A Common Stock of the Company, par value $0.10 per share (the “Class A Common Stock”), would be reclassified as and changed into one share of Common Stock of the Company, par value $0.10 per share (the “Common Stock”); (b) the class of Class A Common Stock (of which 32,500,000 shares were authorized) would be eliminated; and (c) the number of authorized shares of Common Stock would be increased from 12,000,000 to 24,000,000 shares. On November 29, 2011, following the certification of the final results of the voting at the special meeting, the Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware and is now effective.

As a result of the reclassification and the other changes described above and effected by the Amended and Restated Certificate of Incorporation, each share of Class A Common Stock has been reclassified as and changed into one share of Common Stock. As a further result of such changes, shares of the united class of Common Stock have one vote per share on all matters submitted to the Company’s stockholders, including the election of directors. The former Class A Common Stock had the right to 1/10 of a vote per share when voting together with the Common Stock on all matters except for the election of directors, with respect to which the shares of the former Class A Common Stock voted separately as a class to elect 25% of the members of the board of directors. In addition, all holders of the united class of Common Stock will vote as a single class. Holders of the former Class A Common Stock and the Common Stock were previously entitled to separate class voting rights in certain circumstances as required by law, and those class voting rights were eliminated with the reclassification.

Effective November 30, 2011, all shares of the Common Stock began trading as a single class on the Nasdaq Global Select Market under the ticker symbol “BNHN.” As a result of the reclassification, trading of the Class A Common Stock under the ticker symbol “BNHNA” was suspended following the close of the Nasdaq Global Select Market on November 29, 2011.

Additionally, our shareholder rights plan, under which a preferred share purchase right is represented by outstanding shares of our Common Stock and Class A Common Stock, expired automatically upon the Company’s Amended and Restated Certificate of Incorporation becoming effective.

4.  
Inventories

Inventories consist of the following (in thousands):

 
 
January 1,
   
March 27,
 
   
2012
   
2011
 
             
Food and beverage
  $ 2,922     $ 2,889  
Supplies
    2,621       2,779  
                 
    $ 5,543     $ 5,668  
 
5.  
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 January 1, 2012 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 amendment to our line of credit agreement in fiscal year 2011 (refer to Note 6, Long-Term Debt). We had no borrowings outstanding under the credit facility as of January 1, 2012.
 
 
- 7 -

 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
As of January 1, 2012, we held certain publicly traded mutual funds that invest in debt and equity securities, included in investment securities available for sale – restricted in our accompanying condensed consolidated balance sheets, 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 January 1, 2012 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 material loss position as of January 1, 2012 or March 27, 2011.

   
January 1, 2012
   
March 27, 2011
 
   
Cost
   
Fair value
   
Cost
   
Fair value
 
                         
Equity securities
  $ 387     $ 400     $ 360     $ 439  
Fixed income securities
    64       69       65       67  
Money market fund deposits
    33       33       113       113  
    $ 484     $ 502     $ 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 January 1, 2012, 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 adjusted to fair value during the ten periods ended January 1, 2012.

6.  
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. We intend to request a waiver or modification of these restrictions prior to the cumulative dividend payment exceeding the limit.
 
At January 1, 2012, 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 $1.7 million at January 1, 2012, resulting in an available borrowing balance of $28.3 million. As of January 1, 2012, we were in compliance with the financial and non-financial covenants of the amended and restated agreement governing the line of credit.

7.  
Convertible Preferred Stock

During the ten periods ended January 1, 2012, the holder of the preferred stock converted 800,000 shares of the Series B preferred stock into 1,582,577 shares of common stock. As of January 1, 2012, there are no outstanding shares of Series B preferred stock.
 
 
- 8 -

 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
8.  
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 three and ten periods ended January 1, 2012, 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 three and ten periods ended January 1, 2012, our effective income tax rate was unfavorably impacted as compared to the statutory rates by adjustments of approximately $0.3 million to reconcile the provision to recently filed tax returns, offset by the 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 January 1, 2012, we had $0.3 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 January 1, 2012, 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.

In August 2011, the Internal Revenue Service commenced an audit of the Company's March 29, 2009 federal income tax return. In January 2012, the Florida Department of Revenue commenced an audit of our March 28, 2010 state income tax return. No assessments have yet been made as a result of either audit.

9.  
Earnings (Loss) Per Share

Basic earnings (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during each period. The diluted earnings (loss) 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, during the periods in which shares of such preferred stock were outstanding.

The components used in the computation of basic earnings (loss) per common share and diluted earnings (loss) per common share for the three and ten periods ended January 1, 2012 and January 2, 2011 are shown below (in thousands):

   
Three Periods Ended
   
Ten Periods Ended
 
 
 
January 1,
   
January 2,
   
January 1,
   
January 2,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Net income, as reported
  $ 1,039     $ 2,179     $ 3,916     $ 786  
Less:  Accretion of preferred stock issuance costs and preferred
                               
stock dividends
    -       250       440       833  
Income (Loss) for computation of basic earnings (loss) per common share
    1,039       1,929       3,476       (47 )
Add:  Accretion of preferred stock issuance costs and preferred
                               
stock dividends
    -       250       -       -  
Income (Loss) for computation of diluted earnings (loss) per common share
  $ 1,039     $ 2,179     $ 3,476     $ (47 )
                                 
Weighted average number of common shares for comutation of basic
                         
earnings (loss) per share
    17,882       15,471       16,950       15,457  
Effect of dilutive securities:
                               
Stock options
    46       32       43       -  
Series B preferred stock
    -       2,754       -       -  
Weighted average number of common shares and dilutive potential
                         
common stock for computation of diluted earnings (loss) per share
    17,928       18,257       16,993       15,457  
 
 
- 9 -

 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
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 three and ten periods ended January 1, 2012, 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 ten periods ended January 1, 2012, 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. The impact of the actual conversion of the convertible preferred stock is fully included as shares outstanding in the calculation of basic and diluted earnings per share for the three periods ended January 1, 2012, and included as shares outstanding in the calculation of basic and diluted earnings per share for the ten periods ended January 1, 2012, on a weighted average basis. For the three periods ended January 2, 2011, stock options to purchase approximately 0.5 million shares of common stock were excluded from the calculation of diluted earnings per share due to their anti-dilutive effect. Due to the net loss attributable to common shareholders for the ten periods ended January 2, 2011, all potentially dilutive shares were excluded from the denominator of the loss per share calculation as including such shares would have been anti-dilutive. Similarly, the numerator was not adjusted to add back any preferred stock issuance costs or preferred stock dividends as including such amounts would have been anti-dilutive.

10.  
Stock-Based Compensation

Our 2007 Equity Incentive Plan, as amended, authorizes the issuance of an aggregate of 2,750,000 shares of our common stock under the equity plan, authorizes the issuance upon the exercise of incentive stock options of an aggregate of 2,000,000 share of common stock and limits 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 to 750,000 shares. As of January 1, 2012, 810,233 shares of restricted common stock, net of forfeitures, and options to purchase 453,600 shares of common stock, net of cancellations, have been granted under the equity plan. Accordingly, 1,486,167 shares remain available for future grants under the equity plan.

We recorded $0.4 million ($0.2 million, net of tax) and $0.2 million ($0.1 million, net of tax) in stock-based compensation expense during the three periods ended January 1, 2012 and January 2, 2011, respectively. We recorded $2.3 million ($1.4 million, net of tax) and $0.4 million ($0.2 million, net of tax) in stock-based compensation expense during the ten periods ended January 1, 2012 and January 2, 2011, respectively.
 
Stock Options

No stock options were granted during the ten periods ended January 1, 2012. The following is a summary of stock option activity for the ten periods ended January 1, 2012:

               
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
    (31,450 )     9.03                  
Exercised
    (47,866 )     7.20                  
Outstanding at January 1, 2012
    722,484     $ 10.55       4.60     $ 1,161  
Exercisable at January 1, 2012
    692,484     $ 10.66       5.04     $ 1,080  
 
 
- 10 -

 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
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. For the ten periods ended January 1, 2012, the total intrinsic value of stock options exercised was $0.1 million. Upon the exercise of stock options, shares are issued from the Company’s authorized but unissued shares. At January 1, 2012, total unrecognized stock-based compensation cost related to non-vested stock options totaled less than $0.1 million and is expected to be recognized over approximately 0.7 years.

Restricted Stock

The following is a summary of restricted stock activity for the ten periods ended January 1, 2012:

         
Weighted
 
         
Average
 
         
Grant Date
 
   
Shares
   
Fair Value
 
         
(per share)
 
             
Nonvested at March 27, 2011
    472,917     $ 8.12  
Granted
    165,000       7.64  
Forfeited
    -       -  
Vested
    (52,500 )     8.53  
Nonvested at January 1, 2012
    585,417     $ 7.95  
 
At January 1, 2012, there was $1.4 million of unrecognized compensation cost related to restricted stock awards, which is expected to be recognized over approximately 1.2 years.

11.  
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 coverage for such claims, subject to certain retention levels. 

The Company has been named in certain litigation involving wage and hour laws in both California and New York. The Company intends to vigorously defend these claims. The cases are currently under review to determine if they will be certified as class actions, and it is not possible to determine a probable outcome at this time.

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 fifteen-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 -

 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Lease Agreements – The majority of our Company-owned restaurants are located in leased properties, generally subject to a base lease term and one or more renewal options. We monitor lease expiration dates and routinely execute renewal options or enter into negotiations for lease extensions. We are currently in discussions with the landlord for one location, whose lease expires in June 2012. The landlord has indicated that a major renovation is planned for the complex in which this restaurant is located and that a short-term lease extension will likely be granted while plans for the major renovation are being finalized. We are currently in discussion with the landlord to come to a long-term agreement, which would include a major remodel of the restaurant. If the landlord ultimately determines that we will not be incorporated in the long-term plans for the space, we believe we will be able to identify alternate sites within the trade area for this restaurant.

12.  
Restaurant Operating Expenses

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

   
Three Periods Ended
   
Ten Periods Ended
 
 
 
January 1,
   
January 2,
   
January 1,
   
January 2,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Labor and related costs
  $ 25,438     $ 23,803     $ 85,223     $ 81,403  
Restaurant supplies
    1,834       2,020       6,176       6,245  
Credit card discounts
    1,317       1,475       4,906       4,871  
Advertising and promotional costs
    2,750       2,854       9,740       9,122  
Utilities
    2,343       2,104       8,640       8,195  
Occupancy costs
    5,033       4,731       16,798       16,064  
Depreciation and amortization
    4,476       4,399       14,803       15,227  
Other restaurant operating expenses
    5,554       5,317       18,644       18,004  
Total restaurant operating expenses
  $ 48,745     $ 46,703     $ 164,930     $ 159,131  
 
An amount equal to the estimated food cost of certain promotional offerings, such as The Chef’s Table gift certificate award, is recorded as advertising and promotional costs with a corresponding reduction to cost of food in the accompanying condensed consolidated financial statements.

13.  
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.

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

   
Three Periods Ended
 
   
January 1, 2012
 
   
Teppanyaki
   
RA Sushi
   
Haru
   
Corporate
   
Consolidated
 
                               
Revenues
  $ 52,657     $ 16,625     $ 7,394     $ 327     $ 77,003  
Depreciation and amortization
    3,208       829       447       63       4,547  
Income (loss) from operations
    5,920       1,081       906       (6,309 )     1,598  
Capital expenditures
    3,033       125       30       38       3,226  
 
 
- 12 -

 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
   
Three Periods Ended
 
   
January 2, 2011
 
   
Teppanyaki
   
RA Sushi
   
Haru
   
Corporate
   
Consolidated
 
                               
Revenues
  $ 49,306     $ 15,862     $ 7,324     $ 403     $ 72,895  
Depreciation and amortization
    3,149       804       449       72       4,474  
Income (loss) from operations
    5,551       721       720       (5,680 )     1,312  
Capital expenditures
    2,393       681       145       31       3,250  
 
   
Ten Periods Ended
 
   
January 1, 2012
 
   
Teppanyaki
   
RA Sushi
   
Haru
   
Corporate
   
Consolidated
 
                               
Revenues
  $ 173,946     $ 59,979     $ 24,540     $ 1,323     $ 259,788  
Depreciation and amortization
    10,537       2,796       1,500       194       15,027  
Income (loss) from operations
    17,912       5,228       2,300       (20,570 )     4,870  
Capital expenditures
    6,239       470       220       155       7,084  
 
   
Ten Periods Ended
 
   
January 2, 2011
 
   
Teppanyaki
   
RA Sushi
   
Haru
   
Corporate
   
Consolidated
 
                               
Revenues
  $ 161,693     $ 57,727     $ 25,116     $ 1,318     $ 245,854  
Depreciation and amortization
    10,817       2,881       1,555       1,889       17,142  
Income (loss) from operations
    14,685       4,263       2,435       (21,548 )     (165 )
Capital expenditures
    4,892       1,098       596       205       6,791  
 
14.  
Subsequent Event

On January 3, 2012, the board of directors authorized and declared a quarterly dividend in the amount of $0.08 per share of Common Stock. The dividend was paid in cash on January 30, 2012, to stockholders of record at the close of business on January 13, 2012. Our amended and restated credit agreement currently restricts dividend payments to $5 million. We intend to request a waiver or modification of this restriction prior to the cumulative dividend payment exceeding this limit.
 
 
- 13 -

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

Total revenues increased $4.1 million, or 5.6%, to $77.0 million, net income decreased $1.1 million to $1.0 million and earnings per diluted share decreased $0.06 to $0.06 in the three periods ended January 1, 2012, compared to the corresponding prior year period. Operating income increased $0.3 million to $1.6 million in the three periods ended January 1, 2012. Restaurant operating income increased $0.9 million, while general and administrative expenses increased $0.6 million year-over-year. As discussed more fully in the “Costs and Expenses” heading below, certain non-recurring costs are included in general and administrative expenses in both periods, impacting comparability.

Total revenues increased $13.9 million, or 5.7%, to $259.8 million, net income improved $3.1 million to net income of $3.9 million and earnings per diluted share increased to $0.20 in the ten periods ended January 1, 2012, compared to the corresponding prior year period. Operating income improved $5.0 million to $4.9 million in the ten periods ended January 1, 2012, compared to a loss of $0.2 million the corresponding prior year period. Restaurant operating income increased $4.1 million, while general and administrative expenses decreased $1.0 million year-over-year. In addition to certain non-recurring costs included in both periods, the comparability of general and administrative expenses for the year-to-date period is impacted by a $1.9 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 1.8 million addresses and 200,000 participants, respectively. The Chef’s Table program provides a complimentary $30 gift certificate to be used in the month of the participant’s birthday, and the Kabuki Kids program provides a Japanese-themed ceramic drink mug on the child’s birthday. 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, in April 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. We evaluate our pricing and discounting policies on an ongoing basis in an effort to balance the impact of commodity costs with guest value perceptions.

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 to be used in the month of the guest’s half-birthday and has approximately 228,000 members. Beginning in fiscal year 2012, we have implemented a review of the RA Sushi business in order to identify operational improvements, including applying lessons learned from the Renewal Program that may be applicable to the RA Sushi concept.
 
 
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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 33% of our Haru New York City 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 has approximately 30,000 members who are provided with exclusive monthly offers and, beginning in January 2012, a $20 gift certificate to be used in the month of the guest’s birthday.

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 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. We are actively working to identify sites pursuant to these guidelines for the future development of Benihana and RA Sushi restaurants.

The following tables reflect changes in our Company-owned restaurant count during the three and ten periods ended January 1, 2012 and January 2, 2011:

   
Three Periods Ended
   
Ten Periods Ended
 
   
January 1, 2012
   
January 1, 2012
 
   
Teppanyaki
 
RA Sushi
   
Haru
   
Total
   
Teppanyaki
 
RA Sushi
   
Haru
   
Total
 
Restaurant Count:
                                               
Beginning of Period
    63       25       8       96       63       25       9       97  
Openings
    -       -       -       -       -       -       -       -  
Closings
    -       -       -       -       -       -       (1 )     (1 )
End of period
    63       25       8       96       63       25       8       96  
 
   
Three Periods Ended
   
Ten Periods Ended
 
   
January 2, 2011
   
January 2, 2011
 
   
Teppanyaki
 
RA Sushi
   
Haru
   
Total
   
Teppanyaki
 
RA Sushi
   
Haru
   
Total
 
                                                 
Beginning of Period
    63       25       9       97       63       25       9       97  
Openings
    -       -       -       -       -       -       -       -  
Closings
    -       -       -       -       -       -       -       -  
End of period
    63       25       9       97       63       25       9       97  
 
The majority of our Company-owned restaurants are located in leased properties, generally subject to a base lease term and one or more renewal options. We monitor lease expiration dates and routinely execute renewal options or enter into negotiations for lease extensions. We are currently in discussions with the landlord for one location, whose lease expires in June 2012. The landlord has indicated that a major renovation is planned for the complex in which this restaurant is located and that a short-term lease extension will likely be granted while plans for the major renovation are being finalized. We are currently in discussion with the landlord to come to a long-term agreement, which would include a major remodel of the restaurant. If the landlord ultimately determines that we will not be incorporated in the long-term plans for the space, we believe we will be able to identify alternate sites within the trade area for this restaurant.

As of January 1, 2012 and January 2, 2011, we had 18 and 20 franchised Benihana teppanyaki restaurants, respectively, operating in the United States, Latin America and the Caribbean. Two franchised restaurants in the United States closed during the ten periods ended January 1, 2012, and our franchised restaurant in Peru closed subsequent to January 1, 2012.

On November 17, 2011, at a special meeting of stockholders, the stockholders approved a proposal to amend and restate the Company’s Certificate of Incorporation, pursuant to which (a) each share of Class A Common Stock of the Company, par value $0.10 per share (the “Class A Common Stock”), would be reclassified as and changed into one share of Common Stock of the Company, par value $0.10 per share (the “Common Stock”); (b) the class of Class A Common Stock (of which 32,500,000 shares were authorized) would be eliminated; and (c) the number of authorized shares of Common Stock would be increased from 12,000,000 to 24,000,000 shares. On November 29, 2011, following the certification of the final results of the voting at the special meeting, the Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware and is now effective.
 
 
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As a result of the reclassification and the other changes described above and effected by the Amended and Restated Certificate of Incorporation, each share of Class A Common Stock has been reclassified as and changed into one share of Common Stock. As a further result of such changes, shares of the united class of Common Stock have one vote per share on all matters submitted to the Company’s stockholders, including the election of directors. The former Class A Common Stock had the right to 1/10 of a vote per share when voting together with the Common Stock on all matters except for the election of directors, with respect to which the shares of the former Class A Common Stock voted separately as a class to elect 25% of the members of the board of directors. In addition, all holders of the united class of Common Stock will vote as a single class. Holders of the former Class A Common Stock and the Common Stock were previously entitled to separate class voting rights in certain circumstances as required by law, and those class voting rights were eliminated with the reclassification.
 
Effective November 30, 2011, all shares of the Common Stock began trading as a single class on the Nasdaq Global Select Market under the ticker symbol “BNHN.” As a result of the reclassification, trading of the Class A Common Stock under the ticker symbol “BNHNA” was suspended following the close of the Nasdaq Global Select Market on November 29, 2011.

Additionally, our shareholder rights plan, under which a preferred share purchase right is represented by outstanding shares of our Common Stock and Class A Common Stock, expired automatically upon the Company’s Amended and Restated Certificate of Incorporation becoming effective.

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.

Non-GAAP Measures

We present earnings before interest expense, income taxes and depreciation and amortization expense (EBITDA) in this report which is not a measure defined within accounting principles generally accepted in the United States (“GAAP”). This non-GAAP measure should not be construed as a substitute for or a better indicator of the Company’s performance than the Company’s GAAP measures. We analyze our business performance and trends utilizing EBITDA because we believe it is a common valuation measure used within the restaurant industry. In addition, certain financial covenants and management incentives are based on EBITDA. The presentation of the non-GAAP measure in this report is reconciled to the most directly comparable GAAP measure.
 
 
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Three Periods Ended January 1, 2012 Compared to January 2, 2011:

The following tables show our operating results, as well as our operating expenses as a percentage of restaurant sales, for the three periods ended January 1, 2012 and January 2, 2011 (dollar amounts in thousands):

Three periods ended January 1, 2012:
                                                                       
   
Teppanyaki
   
RA Sushi
         
Haru
         
Total Restaurant
   
Corporate
   
Consolidated
 
Revenues:
                                                                       
Restaurant sales
  $ 52,657       100.0 %   $ 16,625       100.0 %   $ 7,394       100.0 %   $ 76,676       100.0 %   $ -       -     $ 76,676       100.0 %
Franchise fees and royalties
    -               -               -               -               327               327